Singh Opens Oil Field as India Moves to Cut Reliance on Imports

(Bloomberg) -- Cairn India Ltd. today started production at its biggest oil field in Rajasthan state, as Prime Minister Manmohan Singh inaugurated a project that will help cut the nation’s dependence on energy imports.

The Mangala field, operated by the unit of U.K.-based explorer Cairn Energy Plc, will have an estimated peak output of 175,000 barrels a day by 2011, equivalent to 20 percent of the country’s current oil production, and be the country’s second- biggest producer after Oil & Natural Gas Corp.’s Mumbai High.

India, Asia’s third-biggest energy consumer, will earn 460 billion rupees ($9.4 billion) in revenue from the field, Oil Minister Murli Deora said at the opening ceremony today.

“This will go a long way to meeting the country’s energy needs,” said Maitali Ramkumar, a New Delhi-based analyst with Asian Markets Securities Pvt. “We think crude prices will rise and that will only benefit Cairn.”

Output from Cairn’s field, as well as the beginning of gas production off India’s east coast by Reliance Industries Ltd. earlier this year, will help India cut imports that supply more than 75 percent of its total energy requirements.

Cairn will double investment in the Rajasthan oil field to 200 billion rupees, Deora said, and its output will cut the country’s oil import bill by 7 percent.

The Mangala field will dwarf Cairn’s current output, which averaged 12,801 barrels of oil equivalent a day last year, according to the company’s annual report. Cairn produces crude oil from two other fields in India, one each off the west coast and east coast.

Discount Sales

Oil from Mangala may be sold 10 percent to 15 percent cheaper than the average price Brent crude fetched during the six months ended June 30, Cairn India said July 29. It has completed negotiations on pricing and commercial terms of crude sales from the field with Mangalore Refinery & Petrochemicals Ltd. and Indian Oil Corp., the government’s nominated buyers of the crude, the company said.

The company can sell crude at market prices, unlike state- run Oil & Natural Gas Corp. which must give discounts to state refiners on the oil it produces.

Cairn planned to complete a pipeline to transport crude from Mangala to the west coast in Gujarat state within this year. The target for completing the pipeline looks “increasingly challenging,” Cairn India Chairman Bill Gammell said Aug. 25.

Any delay to the export pipeline, as well as a second processing train, will be a “matter of weeks, not months,” Gammell said on a conference call with reporters. The timetable could be revised by weather-related events such as monsoons, he said.

Cairn shares have advanced 51 percent this year compared with a 65 percent increase in the benchmark Sensitive Index of the Bombay Stock Exchange. Ramkumar of Asian Markets Securities maintains a “hold” recommendation on Cairn India’s stock.