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Anil Agarwal, the Indian billionaire, has asked Cairn India Ltd to find a way to double its output in order to make up for his South Asian mining empire which is struggling to turn a profit.
Pandarinathan Elango, the Chief Executive Officer of Cairn India, said that the company has set itself a new target of producing 400,000 barrels a day, compared to the initial target of 200,000 barrels, in order to comply with Agarwal’s request.
Elango stated that “the vision is to double production. It’ll be about building on the exploration success and deploying technology to develop it faster. We’ve removed all hurdles in the eco-system and the right policy framework is in place.”
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Part of the plan to double output includes drilling 450 new wells in existing oil fields in the northwestern state of Rajasthan. P. Phani Sekhar, a fund manager at Angel Broking Ltd., said that “the basin has the potential. It’s a question of digging more wells and having the infrastructure in place. But you can’t increase the output as you wish, you need government approvals.”
Agarwal bought Cairn India in 2011 for $8.7 billion in an attempt to cover a slump in his mining business which saw all his iron ore mines closed down due to environmental problems, as well as his plans for creating an integrated aluminium complex put on hold.
Bloomberg claims that Cairn India plans to spend $3 billion over the next three years in order to raise output. The company is only waiting on the Indian government to approve its target of 400,000 barrels a day, it already has approval for 300,000 barrels a day, granted in January.
Other than increasing the number of wells drilled, Agarwal has suggested that huge increases in production will be made through enhanced recovery systems.
Elango has said that the company is looking to spend $560 million on an enhanced recovery project that will enable them to produce extra oil from harder to reach pockets, helping Cairn India to develop as much as 50 percent of its oil reserves, up from an average of 35 percent.
Bloomberg said that the average recover rate for explorers around the world is 35%, and that increasing to 50% would yield an additional 1 trillion barrels of oil.
Jigar A. Shah, head of research at Kim Eng Securities Pvt., said that “Agarwal is a visionary man and a natural optimist, so he would always look at the larger picture. Execution of the plan is another challenge.”
By. Charles Kennedy of Oilprice.com
Charles is a writer for Oilprice.com