THE
Utarlai military airfield in northwest India is
deceptively tranquil. Nestling strategically in
Rajasthan’s sandy desert, it is just 55 miles
(90km) from the border of hostile Pakistan.
Rocket launchers point westward and fighter jets
are hidden in camouflaged bunkers.
However, as well as its role as a
defensive shield, Utarlai is playing a key part
in addressing India’s chronic shortage of oil
and gas reserves.
Less than 19 miles east of Utarlai lies the
Mangala oilfield, discovered last year by the
Edinburgh-based Cairn Energy. Cairn’s discovery
was one of the world’s biggest oil strikes in
2004, and India’s biggest in 22 years.
Such was the excitement caused in India by
Cairn’s discovery that the company is allowed to
fly into Utarlai. Indian mobile phone companies
have extended their coverage to this hitherto
ignored region. Both advances will come in handy
next week when Cairn hosts a site visit for 30
UK fund managers and analysts.
The discovery of oil at Mangala
single-handedly catapulted Cairn from relative
obscurity into a FTSE 100 company, poured
further mockery on Royal Dutch Shell at the time
of its reserves scandal — the Rajasthan block
was originally Shell’s, but was relinquished to
Cairn three years ago — and gave India’s
Government confidence that it could attract
other foreign companies to help to exploit the
country’s untapped oil and gas riches.
Today there is not much to see at the
Mangala drill site. Locals lead their camels,
ladden with supplies, past the fenced-off
development, while in the distance goats feed on
the few bushes that can survive in this dry
climate.
The Mangala well is capped as it awaits
the development of a processing plant and
pipeline to allow oil to be pumped from about
1,000m (3,280ft) below the surface to refinery
customers several hundred kilometres away. Cairn
is waiting for Oil and Natural Gas Corp (ONGC),
India’s energy giant, which has a 30 per cent
stake in the Mangala oilfield (which also
includes the nearby Aishwariya and Bhagyam
finds), to sign off development plans that will
allow production of more than 150,000 barrels of
oil a day from 2008.
Despite ONGC grumblings about having to
pay royalties on 100 per cent of Mangala
production, despite owning only 30 per cent,
Cairn expects all approvals by the end of the
year.
Given that India imports about 70 per cent
of its daily consumption of 2.6 million barrels,
Mangala’s contribution will play a key role in
safeguarding the country’s future economic
growth. Government officials have expressed
support for the Mangala development, and Cairn
wants the $750 million (£437 million) project to
start as soon as possible.
A subsequent series of discoveries —
Mangala remains the biggest find — have
suggested that Cairn’s Rajasthan block contains
more than 2.5 billion barrels. Proven and
probable reserves are already as high as 715
million barrels, but further drilling could
significantly boost that figure.
Bill Gammell, chief executive of Cairn and
a former Scotland rugby international who counts
Tony Blair and George W. Bush among his friends,
has a reputation as an asset trader, and
Mangala’s attractiveness to a foreign oil major
seeking a foothold in India is clear.
Mr Gammell has repeatedly dismissed
speculation that he is seeking a sale of the
Mangala fields, but this week he floated the
possibility that the Rajasthan assets could be
spun off into a separately listed entity.
In the meantime Mike Watts, Cairn’s
exploration director and the man credited with
identifying Rajasthan’s potential, is scouring
the desert block for more oil. Only on Tuesday,
drilling began at a new site to the west of the
Mangala discovery.
Potential bidders for Mangala, or Cairn in
its entirety, are unlikely to declare their
interest until oil production is under way.
India will want to protect this Cairn-developed
national treasure, and Rajasthan’s locals are
already rejoicing at the improved infrastructure
and employment opportunities that are coming
their way.
RAJASTHAN RECORD
Cairn has forbidden its expats to drive
in India for legal and insurance reasons
The late mother of Vasundahra Raje
Scindia, Rajasthan’s Chief Minister, was a
founder of the BJP party but was arrested on
political grounds when Indira Gandhi was India’s
Prime Minister
Rajasthan is India’s biggest state,
covering 342,239 sq km — the size of Germany. It
has about 60 million residents
Rajasthan’s annual per capita income is
about £163. More than 70 per cent of the
population is employed in the agricultural
sector