Cairn receives govt nod to start of production from Bhagyam oilfield

Cairn, which was recently taken over by London-based mining group Vedanta, will begin oil production from Bhagyam at the level of 20,000-25,000 barrels per day (bpd) sometime this month and it will reach the approved peak output of 40,000 bpd later this year, an oil ministry official said

New Delhi: After months of delay, the government has given Cairn India the go-ahead for commencement of production from the Bhagyam oilfield, the second-largest find in the exploration firm's prolific Rajasthan block, reports PTI.

Cairn, which was recently taken over by London-based mining group Vedanta, will begin oil production from Bhagyam at the level of 20,000-25,000 barrels per day (bpd) sometime this month and it will reach the approved peak output of 40,000 bpd later this year, an oil ministry official said.

The block oversight committee has approved production of 25,000 bpd from Bhagyam oilfield.

“The Management Committee (MC), which comprises representatives of the oil ministry and its technical advisor, the Directorate General of Hydrocarbons (DGH), approved the start-up of production,” he said.

Oil and Natural Gas Corporation (ONGC), which holds a 30% stake in the Rajasthan block, had asked for third-party certification to ascertain if Cairn’s production plan will prudently exploit the reserves and if the surface facilities are capable of handling oil and water from the field.

The official said third-party certification endorsing the production plan came a few weeks back, after which ONGC gave its go-ahead for commencement of production.

Prior to this, DGH had approved the production plan, he said, adding that the FY11-12 production rate, work programme and budget for the Bhagyam field have also been approved by the block oversight committee.

Currently, Mangala—the biggest of the 18 oil discoveries in the Thar desert block—is producing 125,000 bpd, but it can produce 150,000 bpd within a few days from MC approval.

Bhagyam, too, has the potential for output to go up to 60,000 bpd, sources said, adding that the Rajasthan block would have an output of close to 175,000 bpd by the end of the current fiscal.

Cairn, which is the operator of the Rajasthan block with a 70% stake, was ready to pump oil from Bhagyam in October, but delayed the production in the absence of regulatory approvals.

So far, the company has committed more than $250 million toward development of Bhagyam against the approved Field Development Plan estimate of $470 million.

Approvals for the Bhagyam field were delayed because of a dispute over payment of royalty and oil cess with partner ONGC.

But now that UK’s Cairn Energy—which sold 40% of its stake in the Indian unit to Vedanta—and the Anil Agarwal-led firm have agreed that Cairn India will share royalty and pay cess on its 70% share in the block, the approvals have started flowing.

Sources said the Rajasthan block has the potential to produce 300,000 bpd, a quarter more than the previously projected peak output.

Besides enhanced output of 150,000 bpd from Mangala and 60,000 bpd from Bhagyam, the expected contribution from the Aishwariya field has been revised upward to 25,000 bpd, compared to 10,000 bpd previously estimated.

The other fields in the block can produce 65,000 bpd.

Sources said the Bhagyam field is ready to start production, while output from Aishwariya will begin later in 2012.

At present, the approved peak output from Rajasthan is just 175,000 bpd—made up of 125,000 bpd from Mangala, 40,000 bpd from Bhagyam and 10,000 bpd from Aishwariya.

For the new peak, the government needs to approve field development and investment plans along with the extension of exploration activities over the rest of the block.

Cairn India holds 70% participating interest in the block and state-owned ONGC the remaining 30%.


Oil ministry proposes key changes in natural gas allocation policy

In a note to the EGoM headed by finance minister Pranab Mukherjee, the oil ministry has proposed to stop gas supplies to power producers that do not sell electricity at regulated tariff. Also, future gas allocations are to be made only to urea fertiliser plants and fuel allocation to phosphates and potassium fertiliser producers be stopped

New Delhi: The oil ministry has suggested key changes in the natural gas allocation policy in the view of sharp drop in output from Reliance Industries’ eastern offshore KG-D6 block, reports PTI.

In a note to the Empowered Group of Ministers (EGoM) headed by finance minister Pranab Mukherjee, the ministry has proposed to stop gas supplies to power producers that do not sell electricity at regulated tariff.

Also, future gas allocations are to be made only to urea fertiliser plants and fuel allocation to phosphates and potassium fertiliser producers be stopped.

The ministry has also proposed to revise the priority attached to city gas distribution (CGD) networks and place them next to fertiliser and stranded assets of power sectors and before the new demands of fertiliser and power sector.

Oil minister S Jaipal Reddy said it is for the EGoM to take a decision on these so that scarce domestic natural gas is available only for core sectors.

KG-D6 gas output has fallen to below 39 million metric standard cubic meters per day (mmscmd) after touching peak of 60 mmscmd in March 2010, prompting the ministry to suggest changes in the allocation policy.

Mr Reddy, who got a first hand account of problems being faced by power producers when corporate leaders, including Anil Ambani of Reliance Power and Ashok Hinduja of the Hinduja Group briefed him about the fuel shortages, said no dates for the EGoM have been fixed yet.

“They (power producers) explained the various aspects of problem which they are facing. I have already circulated a note for EGoM and these aspects will be brought before the EGoM,” he said.

Power producers wanted priority allocation of natural gas to meet the energy deficit in the country.

“Decision will be taken at the EGoM. Until EGoM meets, I cannot comment on their demands,” Mr Reddy said.

His ministry’s agenda for EGoM recommends that “future gas allocations be made only to urea fertiliser plants” as gas allocation to urea has been accorded top priority. It says that supplies to phosphates and potassium fertiliser producers be stopped since the government pays them a fixed subsidy and “cheaper input gas does not lead to lower subsidy burden on the government”.

It wants the EGoM to approve that “all existing and future allocations of NELP gas for power plants will be subject to the condition that the entire electricity produced from allocated gas shall only be sold to the distribution licensees at tariffs determined (or adopted) by the tariff regulator.”

Natural production from KG-D6 has fallen to less than 39 mmscmd from the 61.5 mmscmd peak in March 2010. The output is far short of the 70.39 mmscmd forecast in the Field Development Plan approved in 2006.

The fall forced the oil ministry to first apply a pro-rata cut in supplies to all consumers in July 2010 and with further dip in output it restricted supplies to only core sectors of fertiliser, LPG and power.


Reliance share buyback: What the market remembers

RIL may announce a price in the range of Rs850 to Rs900 per share for buying back 10% of its shares from the open market. There are two problems with this...

Reliance Industries (RIL), India’s largest petroleum company, is likely to consider buying back its shares in its board meeting scheduled on 20th January. The company did not provide any information on the size of the buyback, but according to market sources RIL may buy back about 10% if its shares from the open market to show the management's ‘strong’ belief and thus boost its current price.

“Whatever may be the company’s announcement, it is reasonable to expect that this will be largest ever buyback program in the history of the Indian capital market. Also, this buyback announcement will be a strong statement from the company’s management that they ‘feel’ currently the share price in the market is undervalued than the intrinsic worth,” said Jagannadham Thunuguntla, strategist and head of research at SMC Global Securities said in a note.

But there are two problems with this. One, its is not a too lucrative a premium over the current depressed price and two, market players would remember that RIL is not a great believer of throwing money at the market. This is not the first time, RIL has announced a buyback. It had announced a buyback on 28 December 2004. On that occasion the maximum buyback price announced was at Rs285 per share (that is, pre-bonus price of Rs570 per share). The maximum buyback price RIL announced was about 10.87% premium over the share price just before the buyback announcement.

The buyback program, seven years ago, was kept at Rs2,999 crore, which was about 10% of the share capital and free reserves of Reliance as on 31 March 2004.

However, throughout the period, Reliance bought back its shares only on nine days. And, the total buyback done by the company was a measly Rs149.62 crore. So, the actual buyback program was just 5% of the total buyback size of Rs2,999 crore. The average price paid was about Rs521.39 per share. The actual buyback price could have been at a discount to the maximum buyback price.

Now, let’s take a look at the current position and the proposed buyback program of RIL. As of 31 March 2011, RIL had a share capital plus free reserves of around Rs1.46 lakh crore. The company's board of directors may announce 10% buyback, similar to 2004, which this time works out to about Rs14,600 crore. RIL may keep the buyback size in the range of Rs10,000 crore to Rs14,600 crore.

RIL shares are currently trading at around Rs770. “Assuming about 10% premium, the maximum buyback price may be fixed at about Rs850 per share. However, the company may choose the maximum buyback price in the range of Rs850-Rs900 per share,” said Mr Thunuguntla. Will this again turn out to be just hope?

At present RIL has a cash reserves of around Rs85,000 crore and can easily go in for the buyback program. However, the company had lined up huge expansion plans in the oil and gas, telecom (broadband) and retail and therefore it may wish to preserve as much cash as possible.

Last month, Nomura downgraded RIL to ‘neutral’ from ‘buy’ due to concerns on gas and new worries on gasoline cracks. “Recently, exploration and production (E&P) news flow has worsened and refining margins sharply declined. Earnings momentum is likely to slow down despite a weaker rupee assumption. We cut our earnings per share (EPS) estimates by 10%-17% and target price by 18% to Rs870. Given RIL’s underperformance, we do not foresee much downside, but refining weakness is a near-term concern, and positive E&P triggers continue to remain elusive. Downgrade to Neutral,” Nomura had said in a research report.

"Whatever may be the buyback size the company may announce, the investors shall remember that there is no mandatory requirement that the company shall buy the entire amount of buyback," Mr Thunuguntla added.

On Wednesday, RIL shares closed 4.94% higher at Rs776.9 on the Bombay Stock Exchange (BSE), while the benchmark Sensex ended flat at 16,451.4 points. Already the premium between the current price and buyback price has narrowed considerably. To make its meaningful, RIL could have set a buyback price of Rs1,000. This would leave seasoned players sceptical about whether the programme is a half-hearted one.



Shibaji Dash

5 years ago

Which modality RIL will adopt ? Buy back from share holders as if it were rights? Or, buy directly from the market through brokerages?Whatever be the modality, tax implications will be relevant. Incidentally, what could be the objective of spending cash in buy back instead of using the cash in paying up part of the debt in the balance sheet ?The Board has fixed a ceiling price for buy back. The company including its subsidiaries may may buy for less. Any comment on this ?


5 years ago




5 years ago

Why does RIL bit give BONUS shares, in a very liberal way say 10:1 vasis PLUS Right Sares too to the present share holders???It is about time that the RIL investors get benefitted..

Shibaji Dash

5 years ago

Section 46A of the IT ACT inserted wef 1/4/2000 charges capital gains tax on the gain made by the share holders in case of a company buying back its own by way of the shareholders formally consenting to the company's proposal. RIL having issued Bonus shares in 2009, the share holders would hardly get any meaningful relief from indexation. Those who bought RIL shares in 2010 are very likely to lose as the quoted price in large part of that year was Rs. 1000/- or above.Much cash from RIL' book will of course fall to the lap of promoters and the entities controlled by them and holding RIL shares. In short, genuine retailers loyal to RIL are very likely to be hit if the price of buy back is fixed below Rs. 1000/-. In the current legal regime of buy-back provisions under the Companies Act are hostile to the official slogan of 'Share holders' democracy".

Vinay Joshi

5 years ago


Reliance may ANNOUNCE in its Board meeting, the decision of its ONE MEMBER Board, Mukesh Ambani of buy back!


Which of the following directors will refute? ONE MAN BOARD ‘dikkat’

Mr. R.A Mashelkar, Prof. D.C Jain, Prof. Ashok Misra, Dr.D.V Kapoor, the only possibility is M.L Bhakta voicing his concern which will be done away with – least of all Mr. Y.P Trivedi.

Why MLD talks about a Board meeting – synonymous to one man Board – resolution passed.

RIL-ETV deal regulators are probing it.

Have they made adequate disclosures? Where are the listing norms? The AP, HC, is hearing a petition that alleges the investment was pay-off to Chandrababu Naidu, RIL denied it in its affidavit. They got in Nimesh Kampani, JMF!?

Coming back to buy-back , in fifty two weeks RIL has lost abt 22.15% against benchmark index decline of 12.9%.

Its Q3 results are for everyone to watch, refining margins, & if I put it modestly its worst earnings.

So this gimmicks. Sooner than later RIL weightage in Sensex will slip, it can also be out, it was prodded only coz of its petro earnings but now Q3 margins can be lower than S’Pore GRM.

Well at this point in time we can only await RIL manipulations.




In Reply to Vinay Joshi 5 years ago

This is what Nomura had said about RIL....
"Since refining operations commenced in FY01, RIL has always reported premiums vs. the Singapore complex benchmark. However, these premiums have continuously reduced over the past several quarters. With further weakening of light distillates and the strength in fuel oil, we think this trend may continue. We estimate that at current margins, Reliance may well report a discount to the Singapore complex margins in 3Q."


5 years ago

It seems there is some new SEBI rule/guideline which forces a company which is undergoing buy-backs to buy atleast 15% of the announced buyback size.


Vinay Joshi

In Reply to bhaskar 5 years ago


No such guidelines are there!



5 years ago

only show off ... all companys must follow this style


Vinay Joshi

In Reply to shah 5 years ago


All co's do not have B/S strength!


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