From the mid 1980s, the state of Rajasthan was typically included in a list alongside three other states known as the BIMARU states (close to the Hindi word bimar – “sick”). The acronym encompassed a region in northern India characterised by poor economic conditions, to the point where it collectively brought down the national GDP.
In recent years, however, the relevance of the BIMARU concept has come into question, given the economic growth the region has experienced. Rajasthan in particular has seen a significant economic boost, thanks in part to government initiatives, and support from the private sector. The state has become one of the popular locations for investment, with a GDP of more than INR8 lakh crore.
One organisation that has contributed to this development is Cairn Oil & Gas, and, according to CEO Sudhir Mathur, Cairn has no plans to ease its work in social responsibility. “We found oil in Rajasthan around a decade back,” says Sudhir.
“At the time, it was one of India’s most underdeveloped districts. After commencement of oil production, Barmer per capita income has increased by more than 650%, and it’s averaging higher than the mean across India. We want to focus on that area and contribute as much as we can to employment, certain medical facilities and better education facilities by partnering with the finest NGOs that we can find.”
The mining company’s plans to improve infrastructure and quality of life are numerous. In conjunction with the Indian government, Cairn plans to improve sanitation for 25,000 households.
The availability of potable water, a critical issue for many people, has been addressed through the provision of “any time water” kiosks attached to self-sufficient purification plants to provide fresh drinking water for 50,000 people.
Health care in India is a particular challenge, given a vast population that is spread across remote, inaccessible regions. A mobile healthcare program, employing 10 vans, can reach 250,000 villagers per year who might have been unable to afford or access good health care otherwise.
Economic support is another major issue, and on top of the company’s vocational training, it supports more than 2,000 dairy farmers to help develop the local industry.
Cairn takes inspiration from the UN’s Sustainable Development Goals, which the group’s CSR vision is aligned to. Nutrition, education, equality, freedom from illness and death, and environmental and economic sustainability form the framework of these goals, informing Cairn’s efforts to effect social change.
These efforts have seen continual recognition; in 2016 and 2017, the company won Best CSR Practices at the Asia Best CSR Practices Awards for its numerous programs. Sudhir wants the company to maintain that focus on significantly improving quality of life within the communities in which the company operates.
Cairn boasted a cash balance of INR24,339 crore (US$3.7 billion) in 2016, so it clearly has the means to achieve this. But Sudhir believes the company’s ability to transform the world goes far beyond its efforts in social responsibility.
In fact, it was Cairn’s capacity for assisting nation-building that first drew Sudhir to the company in 2012. When he started, he served as CFO, before becoming interim CEO in 2016. In 2017 he officially took over as CEO, but despite the intervening years, he still recalls why he felt Cairn was the right step for his career.
“It’s a sector that has a huge impact on the country and can contribute to it,” Sudhir says. “It also has an excellent management team. I met with a host of other people, for example, the board members. I’d heard about this great, extremely well-run company that has numerous upsides. It had the potential for growth, as well as the ability to contribute a lot to the country.”
“It’s a sector that has a huge impact on the country and can contribute to it.”
Cairn falls under the umbrella of Vedanta Limited, one of the world’s largest metals and mining companies. With a revenue of US$15.4 billion, it’s the largest mining company in India, having acquired companies such as the Bharat Aluminium Company and Hindustan Zinc Limited.
Vedanta acquired a majority stake in Cairn in 2011, paying nearly US$9 billion for 58.5% ownership. The oil and gas producer is now part of a robust network of mining companies, many of which are similarly known for helping strengthen India’s economy.
While India isn’t typically considered a giant of the international mining community, Cairn’s investment and development have helped revolutionise its place in the global industry. After all, it’s one of India’s largest independent oil and gas exploration and production companies, and it produces more than a quarter of the country’s crude oil output.
Cairn continues to partner with large, global technology leaders and end-to-end services partners like GE Baker Hughes, Halliburton, and Schlumberger, which is helping bring the best technologies into the Indian E&P sector.
“India didn’t exist on the map for the executives of these companies, because it was a small market for them,” Sudhir says. “But because of the partnerships that we have gone into, today I can pick up the phone and speak to these CEOs, like Lorenzo Simonelli, the CEO of Baker Hughes, a GE company. Because we’ve brought that attention here, Lorenzo and his team make sure the best people are allotted to the India project.”
Cairn’s growth and evolution has allowed it to sign contracts with huge players in the industry such as Halliburton and Schlumberger, which are among the largest oilfield-service companies in the world.
These contracts are often worth about US$2.5 to 3 billion, explains Sudhir, and they’ll facilitate the adoption of new technology, while also improving production capacity up to half a million barrels per day.” “It’s also helped us significantly in reducing capital or development costs for barrels of oil,” Sudhir explains.
“They’re able to expedite it. When we wanted to get a good rate, or we wanted to buy casings or components that go into the well, our vendor base was limited. Some people didn’t want to do business with Indian companies; some think that the Indian taxation structure is too complex, or that it’s not a repeat business. It’s not that they didn’t want to sell, but they would put us at the bottom of the list.”
While the rapidly developing capabilities of the company was a key reason for joining Cairn, Sudhir was also drawn by Cairn’s commitment to technological innovation and its potential for industry transformation.
He believes the company has an ability to make decisions quickly, as well as a willingness to take big risks in the adoption of new technology. Fortunately, this strategy of risk-taking has continually paid off for Cairn. “We’re bringing in the latest technology, thanks to our ability to take large risks,” says Sudhir.
“We can adopt technology quite rapidly – it’s a constant endeavour for us. Our technical teams are exceptionally competent at adopting technology and figuring out how they can improve on it.”
“We’re able to adopt technology quite rapidly. It’s a constant endeavour for us.”
Some examples of Cairn’s innovative technological adoption include hydraulic fracturing technology; recently, the company undertook the successful implementation of India’s largest hydrofracking job.
Meanwhile, the company’s Mangala field (one of the major discoveries in its Rajasthan block) saw the use of enhanced oil recovery (EOR) to extract otherwise inaccessible oil. This was done through the world’s largest polymer flood, a method that increases the viscosity of water to encourage movement of oil. This isn’t the only record-breaking technique the company has introduced.
Cairn also employs the world’s longest continuously heated pipeline, using a skin effect heating system (which maintains oil at suitable levels through heat generation on the inside of a pipe).
A modular well-pad concept has also been employed, reducing cost and improving efficiency of oil recovery, while rapid moving rigs have further improved Cairn’s ability to quickly deploy new extraction sites. Improved surveying techniques, like sparse-layer inversion, have also given the company an enhanced ability to generate seismic images of its numerous mining sites.
The result of such an innovative approach to oil and gas extraction can be seen in Cairn’s operational expenses. The production of one barrel of oil costs less than US$6.50, making Cairn one of the most cost-efficient producers in the world. It’s substantially cheaper than major producers such as the US, China and Russia, and is beaten only by oil-rich Middle Eastern countries.
To a large extent, Cairn can thank its partners for its efficiency and innovativeness. Throughout its existence, the oil and gas producer has naturally maintained strong ties with its suppliers, the largest of which provide valuable resources in the form of raw materials, particularly chemicals.
That said, a few of Cairn’s partners provide support with research; the University of Texas, for example, is the world’s premier institute for research in the field and is working with Cairn to develop polymer flooding and Alkaline Surfactant Polymer (ASP).
“In the past two years or so, we’ve achieved a much stronger alignment with our partners,” Sudhir says.
“We have increased the size of the business considerably and, instead of going and finding newer partners, focused on dealing with our partners, and aligning with them. Our incentive structure with our employees is similar to the contract that we write up with our partners, so there’s an incentive structure within that relationship as well. It’s important to bring that alignment, to ensure everybody has skin in the game.”
Timeline of Cairn
The Mangala oilfield is discovered, India’s largest onshore discovery in two decades.
Cairn is listed on the Bombay Stock Exchange and the National Stock Exchange.
Production in Mangala commences.
Vedanta Resources acquires 58.5% of Cairn from Cairn Energy. The consideration is US$8.67 billion. Cairn uncovers natural gas in Mannar Basin, off the coast of Sri Lanka, It’s the first well to be drilled in Sri Lanka in 30 years.
Cairn makes its second overseas expansion, commencing exploration of the Orange Basin in South Africa.
Commercial gas sales from the Rajasthan block commence.gh lean, prudent and efficient ways of cost management.
According to Sudhir, the key to maintaining these relationships is giving partners a reason to get involved, beyond the basic exchange of goods and services. “In a sense, it’s a lot to do with technology,” he says.
“We have the right partners, partners who’ve had a lot of experience within the industry, and they’re able to bring their technical expertise. Now, for the first time, our partners are better incentivised to deliver greater volumes and to finish the project early.”
“We’re committed to sustaining these relationships through business models that incentivise. We don’t tell them what to do and how to do it for us. Instead, we provide an incentive for them to bring in the best minds, and the best technology. From a management perspective, what we’re doing is bringing in the best talent in the world.”
“We’re committed to sustaining these relationships through business models that incentivise.”
Cairn also builds strong business partnerships by ensuring regular meetings with top suppliers, many of whom are met with on a quarterly basis, to maintain governance mechanisms. The top five, meanwhile, are invited to monthly meetings with Cairn.
Another noteworthy strategy is Cairn’s efforts to ensure 7% of supplier spending goes towards local suppliers, an indication of the company’s efforts to bolster the domestic economy.
Despite the varying frequency of partner meet-ups, communication is essential for every one of Cairn’s partnerships. “We do a partner meet once a year in which we have at least 200 partners attend,” Sudhir says.
“We tell them our plans, we listen to them in sub-sections as to how they can support us in our plans. It’s quite a transparent relationship with all of our partners. Because they need to understand what we’re going to do in the next three years so they can pick and choose from that.”
As mentioned, Cairn has shifted away from a model of partnership in which it directs its suppliers. Collaboration has become a crucial value for the gas and oil producer, and, unlike many other companies, Cairn has implemented said value in a tangible way.
“We are not prescriptive in what we want; in our contracts,” Sudhir explains. “That’s been a big change. We recognise that we know a lot, but we don’t know everything. We leave a request for the proposal, the bidding documents, and say, ‘Why don’t you come to us with a submission?’ We don’t want to say, ‘Drill this many wells’, ‘use this chemical’, ‘use this piping’ and so on.”
“It changed from a hard-coated, prescriptive process that we were following earlier. We’d provide a detailed engineering plan and then get somebody to prescribe it. Or we would provide a well design to Halliburton and say, ‘Drill these wells; this is the thickness of the steel pipe I want.’”
“None of that happens now. What’s working well for us is that we’re using the intellectual calibre of these global peers, as well as their execution capability. They come to us with ideas and then we brainstorm. We want to use their intellect. They’re in every country in the world where there’s oil. They’ve seen it all – a lot more than we have. We have great technical people, but we haven’t seen everything. Why not use the knowledge of our partners to execute our projects?”
Autonomy and freedom to excel is quite clearly a value that informs all levels of Cairn’s operations. Safety, for example, is a key issue in an industry that depends on complex, heavy industrial and mechanical processes.
Thus, any employee has the authority to shut down company operations if they suspect a safety issue. “In fact, it’s their obligation to shut operations down,” says Sudhir. “In all areas it’s empowerment, risk, and technology that sets us apart.”
“In all areas it’s empowerment, risk, and technology that sets us apart.”
Supporting Cairn’s staff is a vital issue for Sudhir. In much the same way that the company is encouraging the best and brightest to work alongside it, Sudhir hopes to see Cairn attract what he calls “some of the finest people in the world”.
But to maintain this collection of talented individuals, Sudhir is ensuring the Cairn team has the freedom to do their jobs to the best of their ability. “We have created SBUs – strategic business units,” he says.
“What we need to do in the near future is to ensure that they have well-equipped management teams. They are, in some sense, siloed so that they can make empowered decisions by themselves and have a lean corporate structure, which becomes more of a governance issue and a capital and human-resource allocation issue.”
While the oil and gas producer strives to maintain quality partnerships and highly skilled staff, it’s also seeking to dramatically expand production capabilities. Before 2018, the company operated three major locations from which it extracted oil and gas (alongside another three blocks, one of which is in South Africa).
Two of these are offshore fields, located off the coasts of Andhra Pradesh and Gujarat, continue to contribute heavily to Cairn’s output, while the company’s onshore site in Rajasthan will see rapid exploration and expansion to help reach ambitious production goals.
The Rajasthan Oilfields
Discovered in 2004, five years after the first discovery in Rajasthan, the Mangala oilfield is the largest in the Rajasthan block, and indeed, one of the largest in India in recent history. Within 10 years, Cairn has drilled 148 development wells in Mangala, with another 96 producer wells and 33 injector wells in operation.
The second-largest oilfield in Rajasthan, Bhagyam. Like many of Cairn’s blocks it will see more wells installed, to help bring up production.
Aishwariya is the third largest of the Rajasthan discoveries and the fifth to come online, having been inaugurated by India’s Minister of Petroleum and Natural Gas in 2013. Aishwariya is currently producing more than 15,000 barrels a day. Together with Bhagyam and Mangala, the oilfields have two billion barrels in gross hydrocarbons in place.
The Rajasthan block in particular has seen considerable development in recent years. Across the 3,111 square kilometres that the block occupies, there have been almost 38 oil and gas discoveries. The discovery of the Mangala field in 2004 represented the largest onshore discovery of oil in India in more than two decades.
Mangala, along with Bhagyam and Aishwariya, form the major fields in the Rajasthan block, collectively providing the company with about one billion barrels of oil reserves and resources.
One of the most exciting developments for Cairn is the government’s introduction of a new licensing exploration policy last year. With new blocks being put up for auction, Cairn’s operations will now be present in Assam, Tamil Nadu, Tripura and Maharashtra, in addition to its existing locations in Rajasthan, Andhra Pradesh and Gujarat.
Cairn has already committed an investment of approximately US$4 billion to drive production in its existing and producing assets, and US$2.5 billion of this has already been awarded in large global contracts, significantly in the Rajasthan blocks.
In addition, in the 41 new blocks that Cairn won during OALP Round One, the initial work plan is estimated to be worth US$500 million. This is expected to grow multifold upon discovery.
“We’ve already started talking to potential partners who could help us expedite this, and we’re examining what kind of business models might work,” Sudhir says.
“The advantage of this expansion is that it diversifies our risk into multiple basins, so we can be in Assam and Gujarat too, where crude oil resources far exceed those of Rajasthan. Of course, there are other blocks in Rajasthan so we’re free to expand our operations there, which we’re already doing, both in Rajasthan and in our offshore sites as well.”
Meanwhile, recovery projects are substantially increasing the volume Cairn can produce from sites already being worked on. Various programs are in place, employing processes that involve cracking and bringing oil up to the surface.
ASP flooding, for example, is projected to increase recovery by 10%. These processes have had a measurable effect; oil recovery in the offshore Ravva field (near Andhra Pradesh) is about 50%.
These developments add another 400 million barrels of oil equivalent and have been added to reserves (in 2016, total reserves were estimated to be 1.3 billion barrels). Without factoring in exploration, Sudhir expects production to increase by up to 150,000 barrels of production per day, including exploration of Cairn’s new blocks. The company’s vision is to take production up to 500,000 barrels.
In fact, Sudhir has complete confidence in the future of the company, and he has good reason to. The company’s vision of providing half of India’s domestic crude oil production looks achievable, now that its new blocks are providing the equivalent of nearly five-and-a-half billion barrels of oil.
Over the next five years, Cairn will contribute approximately 15% of the US$40 billion India plans to invest into the sector, ensuring that not only will the company grow, but it will also contribute to the oil and gas sector, as well as to the broader Indian economy.