ONGC, DGH OK Oil Production Startup at Bhagyam field

State-run ONGC and the Oil Ministry's technical arm, the DGH, on Monday gave Cairn India the go-ahead for commencement of production from the Bhagyam oilfield, the second-largest find in the prolific Rajasthan block.

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 sometime next month and it will reach the approved peak output of 40,000 bpd by April, sources privy to the development said.

Oil and Natural Gas Corp (ONGC), which holds a 30 percent 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.

Sources said third party certification endorsing the production plan came in a few days, after which ONGC gave its go-ahead for commencement of production.

Prior to this, the Directorate General of Hydrocarbon (DGH) had approved the production plan, they said, adding that the FY'12 production rate, work program and Budget for the Bhagyam field would now be put up to the block oversight committee for approval.

Management Committee approval of the same is expected in 7-10 days, after which Cairn would looking at beginning output from Bhagyam.

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 percent 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 USD $250 million toward development of Bhagyam against the approved Field Development Plan estimate of USD $470 million.

The 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 percent of its stake in the Indian unit to the mining group, and Vedanta have agreed that Cairn India will share royalty and pay cess on its 70 percent 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.

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