Cairn India: Private oil dynamo
Cairn India is deploying technology and human capital across the upstream, strengthening its place as the country’s leading private oil and gas firm
The Mangala Development Pipeline- the world's longest continuously insulated and heated crude-oil pipeline-is among Cairn India's standout achievements. It runs nearly 700km from Barmer, Rajasthan, to Gujarat, shipping up to 175,000 barrels a day of heavy, waxy crude from the Mangala field to the west coast's Jamnagar refining district.
The project-operated by Cairn and 70% owned by it-encapsulates the company's technology-led mindset, says acting chief executive Sudhir Mathur. "We've been chasing technology as an enabler for quite some time now," he tells Petroleum Economist. "It's made a big difference to us. We've been open-minded in getting people from anywhere in the world who can help us learn to work in a more productive environment."
Examples are plenty. Assisted by the University of Texas, Cairn has implemented the world's largest polymer flood, at the Mangala field. It introduced rapid rigs to the subcontinent-compact, mobile units that can move quickly between well-sites. Where appropriate, it drafts in expatriate talent: it has just hired Mike Wylie, formerly of ExxonMobil and Newfield Exploration, to direct its emerging tight oil business.
An open-minded approach to innovation, technology partnerships and strategic recruitment can, the company believes, help it improve India's precarious energy security. Cairn is already, by some distance, India's biggest private-sector oil company, contributing around 27% of domestic oil production. In the three months to the end of June-the first quarter of its fiscal year 2017 (FY2017)-it pumped an average of 206,000 barrels of oil equivalent a day. The outlook for reserve growth is positive, not least because the imminent implementation of an option to extend its Rajasthan licence by 10 years, from 2020 to 2030, will double recoverable reserves, says Mathur-adding another 250m barrels.
Organic growth is continuing too: enhanced oil recovery in Rajasthan is delivering results, and considerable untapped potential lies both in discovered unconventional resources and in geologically under- exploited areas of the country, such as the Krishna-Godavari (KG) basin, off the east coast.
Cairn's origins lie in KG. It took a minority stake in the offshore Ravva field, in 1996, when it was producing just 3,000 b/d. But, by the end of the 1990s, output had risen to 50,000 b/d-partly thanks to superior reservoir-management techniques. Still pumping 20,000 b/d, the field has achieved recovery factors of over 50%-"remarkable by any standards", says Mathur.
Other important discoveries include Lakshmi and Gauri in the west coast's Cambay basin, but it was in Rajasthan's Thar desert that the company really made its name. Then still a unit of the UK's Cairn Energy, it discovered-in 2004-the Mangala field, the world's biggest find that year and the largest onshore oil discovery in India for 25 years. The nearby Bhagyam and Aishwariya fields followed soon after. Combined, the three fields, with 2.2bn barrels of hydrocarbons in place, form the backbone of the company's production operations. Polymer flooding will soon be applied at Bhagyam and Aishwariya, building on experience acquired at Mangala.
Tight oil and gas, meanwhile, present a second promising avenue for growth. A tight oil project at Aishwariya Barmer Hill, where hydrocarbons-in-place amount to over 4bn barrels, should begin in mid-2017, says Mathur-helping establish a much-needed local services industry. Cairn is also making progress in unconventional gas; output from Rajasthan's Raageshwari Deep Gas field rose impressively last year and, following a hydraulic-fracturing programme, the firm has increased its expectations for ultimate recovery there by over 25%.
Immediate priorities include improving and maintaining financial and operational discipline, given the pain inflicted by low oil prices-with revenue in FY2016 down by 41% on the year and in Q1 FY2017 down by a further 28%. "We want to make every single project we do be viable at $40 in the future," says Mathur. Completing the labourious merger with London-listed metals and mining company Vedanta Resources, which bought 40% of Cairn India in 2011, is another priority. Improved terms offered to Cairn shareholders this summer should help push the deal through by March 2017, management believes.
Meanwhile-even though Mathur isn't ruling out further investments abroad- overseas ventures have disappointed: last year, Cairn relinquished exploration acreage in Sri Lanka's Mannar basin, after poor results; and uncertainty over fiscal terms continues to dog operations in South Africa.
Indeed, looking ahead, Cairn's focus remains firmly domestic, as India seeks to reduce its unsustainable energy-import bill. Next up is the government's first licensing round under revised upstream terms. And, beyond that, under-exploited areas of the country, such as the KG basin, which extends far offshore into ultra-deep waters, offer promise. Says Mathur: "We believe the potential is pretty large."
This article is part of a report series on India. Next article: An enormous opportunity