Mumbai: Cairn Oil and Gas, a unit of Vedanta Ltd, will invest $4 billion in its flagship Barmer oil block in Rajasthan, Cairn said on Tuesday. The Delhi high court on Monday allowed a 10-year extension to the block on the condition that it pays a higher share of profit to the government. The extension results in an overall increase of oil and gas reserves of 400 billion barrels and a production of 125,000 barrels, said Sudhir Mathur, chief executive officer of Cairn India.
“The extension also increases our reserves by 250 million barrels. That is quite a big booster to our overall reserve position," said Mathur. “Cairn has driven up its share of India’s oil output by 3.5 times in the last nine years, significantly from the Rajasthan block and the extension is a great acknowledgement of our performance."
The extension also paves the way for further investments. “We are spending $4 billion, out of which we have already signed contracts worth $2.3 billion and the work has started in a big way. There are already 13 rigs operating in the Rajasthan block," said the CEO.
State-run Oil and Natural Gas Corp. (ONGC) is a 30% partner in the Barmer oil block.
“The government of India, acting through the directorate general of hydrocarbons, ministry of petroleum and natural gas, has granted its approval for a 10-year extension of the PSC for the Rajasthan Block, RJ-ON-90/1," Vedanta Ltd said in an exchange filing on Monday.
The 25-year contract for exploration and production of oil and gas from Barmer block RJ-ON-90/1 was due for renewal on 14 May 2020.
In April 2017, the government had approved a new policy for extension of PSCs, which would provide for a contract extension only if companies operating the fields agree to increase the state’s share of profit by 10%.
However, Vedanta felt that the May 1995 PSC for the block provided for an automatic 10-year extension on same commercial terms if there are hydrocarbons left to be produced. Vedanta thus challenged the April 2017 policy and the matter is sub judice.
“The applicability of the pre-NELP Extension Policy to the Rajasthan Block PSC is currently sub judice," Vedanta said in the filing. Its partner ONGC was also of the opinion that PSC provides for an extension on same terms.
“Let the legal process take its own course. Whatever the verdict of the court, we will accept that," Anil Agarwal, chairman of Vedanta Resources, had said earlier this month.