UPDATE 1-Cairn India sees Rajasthan crude costs at $5/bbl

MUMBAI Aug 18 (Reuters) - Cairn India Ltd (CAIL.BO) expects to hold costs at about $5 per barrel for crude oil produced from its Rajasthan fields, a top official said on Tuesday, helping the energy explorer reap strong revenues this fiscal year.

Cairn will start pumping crude from its Rajasthan fields later this month. Initial production will be 30,000 barrels per day (bpd), and a second processing system of 50,000 bpd is expected to start by the end of the year.

"We intend to keep our costs low and see production cost at about $3.5 per barrel. Transportation cost will be another $1.5 (per barrel)," Chief Executive Officer Rahul Dhir told reporters at the annual meeting of shareholders.

The company, a unit of UK explorer Cairn Energy (CNE.L), has secured deals to sell crude to state-owned refiners Mangalore Refinery and Petrochemicals Ltd (MRPL.BO) and Indian Oil Corp (IOC.BO) at a 10-15 percent discount to Brent LCOc1. [ID:nBOM485484]

At 1035 GMT, Brent crude futures were at $71.23 a barrel.

Cairn India holds a 70 percent stake in RJ-ON-90/1 block in western India and state-run explorer Oil & Natural Gas Corp (ONGC.BO) holds the balance.

Cairn is spending $1 billion to build a pipeline to transport the crude to neighbouring Gujarat state. Dhir said it was expected to be operational by the end of 2009.

Chairman Bill Gammell told shareholders the company was targeting production of 125,000 bpd in the first half of 2010, and saw potential to increase peak production from the Rajasthan fields far above the development plan estimate of 175,000 bpd.

"There is sufficient new technology available and we will be using enhanced oil recovery techniques to exploit the full resource potential," he said.

Last month, Cairn India reported a 67 percent fall in June quarter profit to 454 million rupees, with gross production of operating units in the Canbay and Ravva fields down a sixth from a year ago to 59,461 barrels of oil equivalent per day.

Cairn India shares ended up 0.9 percent at 238.95 rupees, in a Mumbai market that rose 1.7 percent. (Reporting by Prashant Mehra; Editing by John Mair)