Oil companies make it clear their spending plans depend on government extending their leases
Though the government has not yet made up its mind as to whether firms should be allowed an automatic extension of their licences once the initial period comes to an end—it has refused to do this in the case of telecom and the fate of the Taj Mansingh hotel remains in the balance—the country’s oil producers have added a new twist to this. They have pointed out, quite subtly, that the future of their planned investments in the country depends on the leases being renewed. Indeed, the companies have put in their applications for renewal 5-7 years before the leases actually get over.
The maths is actually quite simple. Take Cairn India, a company that has plans to invest $3 billion more in its Rajasthan oil field which will, if all goes to plan, allow it to extract 1.4 billion more barrels of oil. Given the company’s ramp-up plan will allow it to extract just 100 million barrels in a year, this means it needs 14 more years on its lease—the lease, however, runs out in another 7 years. So, if the government doesn’t extend the lease, chances are Cairn is not going to be exploring for more oil. That’s something that benefits no one, so the government needs to take a call on this quickly.