June 20

Sanctity of contracts fundamental requirement for investment- Vedanta Cairn Oil & Gas CEO

New Delhi: Vedanta Cairn Oil & Gas Chief Executive Officer (CEO) Sudhir Mathur has said sanctity of contracts is a fundamental requirement for businesses to invest. The company had taken the government to court over extension of contract for its flagship Rajasthan block. The oil ministry will now appeal against a Delhi High Court order that has directed the centre to extend the contract for the Barmer block on the existing terms.

The court had earlier this month asked the centre to extend the Production Sharing Contract (PSC) for the block till 2030 on the same terms and conditions. Responding to the court order, oil minister Dharmendra Pradhan had last week said the government will challenge the decision. 

“Sanctity of contract is a fundamental requirement for businesses to invest and that is what this court judgement has upheld. We chose to challenge the RJ extension because there is an explicit clause in the PSC towards extension on the same terms. In Ravva, we applied under the government's policy because there is no such clause,” Mathur told ETEnergyWorld in an interview.

The government had in March last year announced a new policy for extension of PSCs awarded for exploratory blocks during Pre-New Exploration Licensing Policy (Pre-NELP). The policy provided for extension beyond the initial 25-year contract period only if the operators agree to increase the state's share of profit by 10 per cent. The policy covers the Rajasthan block RJ-ON-90/1. The 25-year contract for exploration and production of oil and gas from the block is due for renewal on May 14, 2020, but Cairn has to, as per the new policy, apply for a 10-year extension.   

The government had in March 2016 approved a policy for extension of PSCs for small, medium-sized and discovered fields awarded by the government to private companies and Joint Ventures, which also provided for an extension beyond the initial 25-year contract period only if companies agree to increase the state’s share of profit by 10 per cent. The 2016 extension policy dealt with 28 fields, including the medium-sized Ravva field operated by Cairn.

Cairn had applied for extension for both Barmer and Ravva blocks last month.

Vedanta had recently emerged as the top bidder under the country’s maiden oil and gas auctions held under the new Open Acreage Licensing Policy (OALP). The company had put in bids for all the 55 blocks put on offer by Directorate General of Hydrocarbons (DGH).

The company had said in a statement last month it plans to invest $2.3 billion over 2-3 years to monetize 375 million barrel of oil equivalent (mmboe) of reserves. The firm had last financial year (2017-18) awarded contracts worth $1.3 billion and plans to award contracts worth $0.5 billion in the first quarter of the current fiscal. The capex plan for the current fiscal stands at $600-800 million. This includes Enhanced Oil Recovery (EOR) projects in Mangla, Bhagyam and Aishwarya fields, apart from monetizing tight oil and gas from Raageshwari Deep Gas field and Aishwarya Barmer Hill in the Barmer block.

The company has so far invested around Rs 46,000 crore in exploration, development and production in the Rajasthan block which is expected to rise to Rs 54,000 crore by 2020. The Rajasthan block holds recoverable reserves of around 1.2 billion barrels of oil, of which 466 million barrels can be recovered if the tenure of the existing PSC was extended till 2030, Cairn had said in its petition.

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