Cairn’s Indian field of dreams

The boss Sir Bill Gammell may not have received a bonus for the work, but discoveries by his Edinburgh company will boost India’s oil production by 30 per cent. Erikka Askeland visited Rajasthan to assess the impact of Cairn Energy’s achievements there

A CONVOY of 4x4s have parked atop a sand dune. From here, you can see for miles across the Thar desert, which runs along the border of India and Pakistan. Twenty years ago, not much was here, except for the hardy people living in thatched huts, their animals, and vast quantities of oil buried deep under the sand and scrub. In 1999 it was an Edinburgh firm, Cairn Energy, that discovered the oil. Or at least some of it. At the time it was working as a junior partner to the Anglo Dutch oil major, Shell, in the region. But the small yet propitious discoveries Cairn had made did not impress its multi-national partner, which dragged its feet before unleashing the investment to get things moving. So, when Cairn approached Shell to buy them out in 2002, Shell was happy to comply. The desert region, with no processing plants or pipelines, was just too marginal.

But Cairn’s top geologist, Dr Mike Watts, had a different idea. He joined Sir Bill Gammell’s company in 1995 when Cairn took over his firm, Holland Sea Search. As a younger man working for the ill-fated Burmah Oil, he had long studied the region, a broad swathe across the vast north of the subcontinent where plains met the Himalayas, from Karachi to Chittagong.

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In 2004, Dr Watt’s hunch came good with the largest discovery of oil in India in 30 years on Cairn’s Mangala field, followed closely by the second largest discovery on the nearby Bhagyam field. The find would prove transformational for both Cairn, which that year vaulted into the London Stock Exchange’s top FTSE 100 index, and India, which should eventually boost its entire national production of oil by 30 per cent thanks to Cairn’s discovery.

The discovery has also proved transformational for Barmer, the sleepy, dusty town in Rajasthan where the energy firm has built its massive oil processing facilities. From the sand dune, you can see the Mangala Processing Terminal. Built between 2007 and 2009, the vast facility stretches across an area the size of 200 football pitches. It will run for another 30 years or so, until all the oil is extracted. The processing terminal is currently producing 125,000 barrels of oil a day. Last week, the Government of India also gave the green light over oil extraction from Bhagyam, adding a further 40,000 barrels of oil which will run through the plant.

This is where the crude is separated from the mix of natural gas and water that comes pumped deep from out of the rock formations under the desert. Once it is processed at Mangala, it is then sent via a heated pipeline which runs the distance equivalent to that between Edinburgh and London, to terminals in Gujarat, near the North West coast. The line is heated because the crude comes out of the ground waxy. And although temperatures in the desert can hit 25C in the day, even in January, the nights can hover around zero. All told, the oil fields, from the processing terminal to the pipeline, represent about £2.1 billion of investment. This week, Cairn India confirmed that its operations have so far reduced India’s crude oil import dependency by £0.9bn.

The flair from the gas pipe above Mangala burns day and night, a safety measure which burns off surplus gas and which gives the plant’s hundreds of workers a sign that the operation is running smoothly. The sweep of metal industrial development provides a marked contrast to the modest mud and thatch huts of the desert residents outside the processing terminal gates. From the air as you fly into Barmer, you can see them. Little circular compounds surrounded by thorn hedges. The small dwellings are sparse, and rudimentary, yet more than two million people live near Barmer alone. The Thar desert, with its peacocks and camels, is the most densely populated on earth.

Ayodha Prasad, a former journalist with the Hindustan Times who now works for Cairn India, says the region around Barmer used to be known as “the land of death”. Many of its residence are nomads, who wander the desert in search for water. They raise goats for wool and cattle for dairy, not meat. The population is largely Hindu, who hold cows as sacred. The Rajasthan region produces 40 to 50 per cent of India’s wool. The people of Barmer are also farmers, sewing crops of corn and barley. However, drought comes here every two or three years wiping out the crops.

Levels of literacy in the Thar are much lower than the average in India, particularly amongst women. It is a very traditional culture, where male and female roles are strictly held. Yet even though the women here work hard, carrying water, preparing food and looking after children, they are beautifully dressed. From the road you can see them across the fields in their brightly coloured saris, in vibrant pinks, reds, oranges and greens.

For the local people, the arrival of Cairn and the discovery of oil has been a mixed blessing. Outside Barmer, Cairn, along with the World Bank, established the Enterprise Centre in a disused municipal building. Since 2008, more than 6,000 local people have come here to learn a range of skills. There is an IT suite and a language centre. In another room, boys hunker over the innards of mobile phones with soldering guns, learning how to fix them. This will be a highly marketable skill in the nearby cities, where many of the phones discarded by people in the UK and the US end up. Women, many of whom can’t read or write, are taught how to market their handicrafts.

At the centre last week, three women who have benefited from the training, spoke to journalists through an interpreter. Dressed in their finery, two confirmed there were unable to read or write and that the training had helped them find buyers for their work, which was mainly textiles. There were other educational facilities available to them, but the programme at the enterprise centre was best suited to them, they said. Their husbands were pleased that they had received the training – and were also happy of the extra income, they confirmed.

This is a particularly sensitive issue for Cairn’s management, and efforts have been made to ensure the opportunities for women at the centre will not upset the conservative culture in which they operate. However, when asked if Cairn’s arrival in the region had improved the lives of the people in the region, the women demurred. They were only happy answering questions about the centre.

While the processing terminal produces oil and gas, as well as churning out vast amounts of steam-produced electricity to fire the plant’s operations, most of the people here live without electricity or running water. Thousands of hectares of land have been bought from local farmers to build roads and the pipelines linking the fields to the processing plant. For many this proved a boon, although interest rates on the savings they were able to bank have since reduced. Meanwhile, land prices have shot up since the arrival of big oil. Yet the processing terminal is as modern, clean and efficient as it can be. The water used to power the steam engines is pumped from a deep saline aquifer and not drained from the desert’s paltry water resources.

For Dr Watts and his team, Rajasthan is now a matter of “job done”. At the end of December, Cairn sold a 40 per cent stake in Cairn India – a separate company that was listed on the Bombay and National stock exchanges in 2009 – to Vedanta Resources. The deal resulted in a $5.5bn windfall for Cairn, of which shareholders will receive $3.5bn next month. And while the firm’s shareholders are pleased with this, they were less pleased when the firm recently announced that Sir Bill was in line to get a £2.5m bonus as a thank you for the work he has done in India. Earlier this week Sir Bill had to waive his bonus despite shareholders admitting that while he “did create huge value, he has been well rewarded for that and there should be no need to reward him this way”.

The sale to Vedanta is also a cause for concern in some quarters. Its billionaire chairman, Anil Agarwal, is a divisive figure in India. The Bihar-born Agarwal rose from relative obscurity as a scrap metal merchant to create one of the country’s biggest mining and metals firms. London-listed Vedanta’s aluminium smelter and proposed bauxite mine in Orissa have caused controversy with claims of causing pollution and running roughshod over local communities.

Back in Edinburgh, Sir Bill, knighted in 2006, has become a much more hands-off chairman of the group. Dr Watts, alongside Cairn’s new chief executive Simon Thomson, aims to pull off the same feat elsewhere as they did in India. Earlier this week the firm announced it had signed a deal with Norway’s Statoil to press ahead with its own controversial exploration of the icy seas offshore Greenland, which could not be more different from the hot sands of the Thar.