DGH to renegotiate Cairn India’s Rajasthan block

The Oil Ministry has asked the Directorate General of Hydrocarbons(DGH) to renegotiate fiscal terms of Cairn India’s Rajasthan oil block.

The move is in light of Cairn India getting DGH approval to commercially produce gas in its Raageshwari Deep Gas field. Under the production sharing contract (PSC), a block is considered for a 10-year extension if it produces natural gas.

Cairn’s contractual term for exploring and producing oil from the Rajasthan Block RJ-ON-90/2 expires in 2020 and the company has made a formal application for extending the licence by another 10 years saying that the block also has significant potential to produce natural gas.

While ONGC, the block’s licensee, has agreed to the 10-year extension, it has left the decision on the financial renegotiations to the Oil Ministry after the Law Ministry gace its opinion that financial terms can be renegotiated while granting extension beyond contractual period.

A senior government official said that the production sharing contract (PSC) for the Rajasthan block clearly states that extension can be granted on mutually agreed terms and conditions. Currently, the contract has three players, the goernment, ONGC and Cairn India. While renegotiating the contract, the government may try to raise its share of oil from the current cap of 50 percent. It may allow ONGC to raise its stake in the block.

Currently, ONGC holds a 30 percent stake in the block and Cairn India holds the remaining 70 percent stake and is its operator.