UPDATE: Cairn India Commissions Crude Oil Pipeline; Expects Costs To Fall

15th Jun 2010 12:38

(Adds comments from analyst, Essar executive, details) By Rakesh Sharma Of DOW JONES NEWSWIRES NEW DELHI (Dow Jones)--Cairn India Ltd. (532792.BY) Tuesday said it has started selling crude oil from its Mangala field in the western state of Rajasthan to refineries in Gujarat via pipeline, which will help it cut costs as well as increase sales and production. Cairn India, a unit of UK-based Cairn Energy PLC (CNE.LN), has been selling crude oil from the Rajasthan block via trucks. The oil and gas explorer said it has commissioned a crude oil pipeline from Barmer in Rajasthan to Salaya in Gujarat. Construction work has started on the second phase of the pipeline that will stretch from Salaya to Bhogat on the Gujarat coast and is expected to be commissioned in 2011. "Given that Cairn India was evacuating crude by way of trucking, which cost $8.5 per barrel, commencement of supplies through the pipeline will reduce the transportation costs from $8.5 a barrel to $1.5 a barrel," Saeed Jaffery, analyst at Mumbai-based Ambit Capital, said in an e-mailed statement. Cairn India is currently producing about 60,000 barrels a day of crude from the Rajasthan block. Pipeline sales are expected to reach 125,000 barrels a day in the second half of calendar year 2010 and sales arrangements are now being put in place for 143,000 barrels a day, the company said. Cairn India holds a 70% stake in the Rajasthan block and the rest is held by Oil & Natural Gas Corp. (500312.BY). Separately, Essar Energy Plc (ESSR.LN) said it had received its first batch of local Rajasthan crude oil through the pipeline. "The crude oil supply from Mangala will ramp up over the next few weeks and is expected to account for around 10% of the total refinery intake," Essar's Chief Executive Officer Naresh Nayyar said. "Being a heavy crude, Mangala will meet part of our increasing requirements for heavy and tough crude oils, which should contribute positively to the refinery economics." Essar's Vadinar refinery in Gujarat has a nameplate refining capacity of 280,000 barrels a day. -By Rakesh Sharma, Dow Jones Newswires; +91-11-4356-3334; [email protected] (END) Dow Jones Newswires June 15, 2010 07:38 ET (11:38 GMT)