MoPNG allows exploration in Rajasthan block
Media reports suggest that the Indian government has agreed in-principle to allow exploration in producing fields beyond the exploration period stipulated in the PSC. Also, that incremental capex would be clubbed with producing field capex for cost-recovery purposes, subject to commercial viability of the discovery, as against the initial idea of ‘ring-fencing’ the capex. While a formal announcement is awaited, such a development would be a significant positive for domestic E&P firms and CAIR in particular. Maintain BUY.
MoPNG allows further exploration in Rajasthan block: As per media reports, the MoPNG has agreed to allow CAIR to continue exploring the producing Rajasthan field beyond the 7-year exploration period stipulated in the PSC.
Initial reports suggest no ring-fencing: In order to encourage investment and ensure energy security, the Indian government, while allowing exploration, seems to have done away with ring-fencing of incremental exploration expenditure. Instead, the exploration expenditure would now be clubbed with field capex, provided the discovery is commercially viable. Ring-fencing would have restricted cost recovery to each discovery rather than allowing it to be clubbed with the entire producing field.
Incremental exploration likely to support higher production: As a result of enhanced understanding of the Rajasthan basin, CAIR pegs the un-risked resource potential at 7.3bnboe, of which 3.1bnboe is yet to be discovered. We believe the aforementioned policy initiative would help CAIR add to its current recoverable reserve base of over 1bnboe, supporting a higher production rate of 300kbpd.
Bhagyam’s ramp-up, however, slows down: Bhagyam’s reservoir being shallower than Mangla’s, CAIR’s management now expects to reach the peak production of 40kbpd with more than the ~80 wells initially planned as per the FDP – delaying the ramp-up to that extent. Further clarity on the ramp-up programme is awaited.
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