Oil production starts in Cairn India joint venture

Video caption, Cairn Energy is giving its shareholders more than 拢2bn as it sells its stake in India where it successfully struck oil

A joint venture involving Cairn India has started production from the Bhagyam oil field in Rajasthan.

Bhagyam is the second largest of 25 discoveries made so far by Cairn in the Barmer Basin.

The Indian interior ministry recently gave approval for Cairn Energy to sell 40% of its stake in Cairn India to mining firm Vedanta.

Edinburgh-based Cairn is currently considering selling its remaining 21.8% stake in the business.

The company said there would be a gradual ramp-up in production at Bhagyam to reach an Indian government-approved rate of 40,000 barrels of oil a day.

The Rajasthan joint venture with Oil and Natural Gas Corporation (ONGC) of India includes the Mangala, Bhagyam and Aishwariya fields, which have estimated gross recoverable oil reserves and resources of about one billion barrels.

Cairn India, which has a 70% stake in the venture, has said the production potential could exceed 210,000 barrels of day a day.

But so far the Indian government has granted approval for only 175,000 barrels.

'Significant milestone'

Cairn India chief executive Rahul Dhir said: "The commencement of production from the Bhagyam field is yet another significant milestone for the Rajasthan joint venture."

Cairn Energy experienced a lengthy delay in its sale of its controlling stake of Cairn India to Vedanta.

Indian government approval was delayed for 16 months, with conditions imposed that reduced the value to Cairn by more than 拢200m.

Cairn India is now valued by the market at 拢8.45bn, and Cairn Energy at just over 拢4bn.