Vedanta says extension terms under Barmer PSC different from Ravva

Vedanta may be facing the prospect of government appealing against last week's Delhi High Court order, but the Anil Agarwal-promoted natural resource company has adopted different approaches seeking an extension of contracts for its oil and gas blocks.

For the Barmer block, it has sought an extension, subject to the court order, on same conditions as it operates currently. In the case of its block in Ravva, it has sought an extension under the Cabinet-approved policy which mandates that an operator pays a higher profit petroleum share to the government after the extension.

Vedanta, through Cairn, plans to invest $2.3 billion for the next two years in the Barmer block. This investment would be made in five projects for which around eight integrated contracts have been awarded. After this investment, the company is looking to invest $2-3 billion over three to four years in an enhanced oil recovery programme.

People close to the development told Business Standard that both the extensions were sought last month. The Delhi High Court had last week granted the company an extension for the Barmer block on same contract conditions, but Petroleum Minister Dharmendra Pradhan said the government would stick to its extension policy and appeal against the order.

Confirming the applications, Sudhir Mathur, chief executive officer, Vedanta Cairn, said, “We have applied for PSC (production-sharing contract) extension in two of our blocks – Ravva and Rajasthan (Barmer). The contracts for the two blocks are different.” 

While the Rajasthan PSC allows an extension on the same terms, there is “no such explicit provision” in the Ravva PSC. “Hence in case of Ravva, we have applied for an extension under the government’s new policy. However, in case of Rajasthan, our view is that the existing contract has to be honoured,” he added.

An analyst said the requirement of additional profit share by the government under the extension policy, which came out in April 2017, could make the production of oil in some cases unviable for the company. “The high court order is a landmark judgement in that it reposes faith in contracts. The government should not make a policy today for applying to contracts that were signed 20 years back,” he said.

In its petition, Vedanta had said the estimated recoverable reserves in the Rajasthan block was approximately 1.2 billion barrels of oil, and that 466 million BOE can be recovered if the tenure of the existing PSC was extended till 2030.

The current PSC for Barmer expires in May 2020, while that of Ravva block expires in December 2019.

Ravva Block

1. The Ravva block is in Krishna Godavari Basin.

2. The production-sharing contract for the field was signed in 1994 and will expire in May 2019.

3. Cairn holds 22.5 per cent stake in the block.

4. It produces approximately 18,600 boepd from the area.

Barmer block

1. The Barmer block is in Rajastan and includes the Mangala, Bhagyam, Aishwariya and Raageshwari oil and gas fields.

2. The block’s PSC is up for extension in 2020.

3. It is the biggest onshore oil-producing project in India, producing about 166,000 barrels of oil equivalent per day

4. Barmer accounts for 27% of the country’s overall oil production.

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