Mumbai: Ahead of its upcoming demerger into five separately listed companies, Vedanta Ltd is in a race against time to shore up production levels at its oil and gas business that has declined each of the past 10 years.
Higher production levels could bolster the business's financials, helping it fend for itself when it is housed in an independent company named Vedanta Oil & Gas Ltd.
Over the past decade, ageing oil blocks have more than halved production at Vedanta’s oil and gas vertical from 211 thousand barrels of oil equivalent per day (kboepd) in FY15 to 103.2 kboepd in FY25. During the first nine months of FY26, average output stood at 89.1 kboepd—below the 95-100 kboepd guidance given by the company at the beginning of the year.
To be sure, falling production at ageing blocks is a problem endemic to the oil and gas sector, with peers like Reliance Industries and Oil and Natural Gas Corp. Ltd (ONGC) facing similar challenges. But the problem takes centre stage at Vedanta as the business is about to demerge into a standalone company and it will no longer have the comfort of being part of a conglomerate with businesses such as aluminium and zinc that are flush with cash as commodity prices look up.
A spokesperson for Vedanta Ltd said the company’s oil and gas business will be a sustainable and expanding enterprise as an independent company. “Vedanta’s oil and gas business continues to deliver strong earnings and healthy cash flows,” the spokesperson said on an email in response to Mint’s queries.
But when the newly independent company Vedanta Oil & Gas is born on 1 April, shareholders, at least temporarily, will be left with a company whose main business is shrinking and in need of significant capital investment to remedy it.
Value unlock, revenues down
The oil and gas business reported revenues of ₹6,999 crore in the first three quarters of 2025-26, accounting for 6% of the company’s top line, down from about a fifth a decade ago. Earnings before interest, tax, depreciation and amortization (Ebitda) stood at ₹3,285 crore or 9% of the company’s consolidated Ebitda, again down from a fifth a decade ago.
In fact, between FY15 and FY25, the oil and gas business's revenue has shrunk by a quarter tracking falling production levels.
Vedanta entered the oil and gas business in 2011 after buying a majority stake in Cairn India from Capricorn Energy PLC (earlier called Cairn Energy PLC). The business was merged into Vedanta by 2017 as part of chairman Anil Agarwal’s effort to consolidate all group businesses in India into one for operational efficiency.
That exercise is being undone now as Vedanta demerges again as part of Agarwal’s effort to unlock value. The five independent stocks are expected to be listed by May, as per the company’s management.
The Vedanta stock has given over 12% returns since the beginning of 2026 compared to about 3% lost by benchmark Sensex as the company delivered its best ever financial performance in the October-December period and its demerger received necessary regulatory nods.
Of delays, missed targets
A much touted process to boost production from its key block in Rajasthan called alkaline-surfactant-polymer (ASP) flooding is months behind schedule. The company said at the beginning of FY26 that the ASP flooding would start from July and would meaningfully add to production levels by December. However, as of the company’s latest investor call on 29 January, the process at the Managala fields hasn't commenced.
“The main reason why volumes are not coming to the level that we expected is actually delaying [sic] of the project ASP commissioning and start up, which is enhanced oil recovery, one of the largest in the world and very expensive technology,” Jasmin Sahurity, chief operating officer (COO), Vedanta’s oil and gas business, said on the investor call.
The commissioning and start up of the ASP process and early contributions from the reservoir are expected in the next three months, the COO added.
Additionally, the company is looking to access ‘tight oil’—reserves deeply embedded in rocks—by drilling new wells, Sahurity said. These two measures will take production closer to 90 kboepd in FY27, before gradually increasing to the company’s long-term target of 150 kboepd, he said.
However, analysts at JP Morgan, who maintain a neutral outlook on the Vedanta stock, in a note dated 30 January priced in production levels of only 95 kboepd until FY28.
Balance sheet relief
The challenges of the oil and gas division are reflected in the company’s decisions. When apportioning its ₹60,624-crore net debt among the five independent companies, Vedanta looked at the value of assets and cash generation abilities of each business, as approved by lenders, chief financial officer (CFO) Ajay Goel said on the 29 January call. While the aluminium and base metal businesses will take bulk of the debt, "oil and gas post demerger will practically be debt-free and a very small debt in iron and steel," the CFO said.
An expert termed it “balance sheet relief”. “It would be fair to interpret this as a cautious move, given that production is declining and cash generation may not be strong enough to support leverage,” said an equity analyst tracking the firm asking not to be identified because he is not allowed to comment on any company individually. Zero debt, in fact, enhances the company’s ability to borrow capital to fund future expansion.
Commenting on the debt apportionment ratios, the Vedanta spokesperson said that as an independent company, Vedanta Oil & Gas will be committed to investing in domestic production, in line with the group’s long-term vision. “In this context, while debt will be allocated to the new entity, net debt will be maintained at a modest level to ensure ample financial flexibility for future capital investment.”
Uphill battle ahead
Vedanta holds reserves of 1.43 billion barrels of oil equivalent across proven and probable sources, according to the company’s annual report for the year ended March 2025. Even if the company’s daily production hits the stated target of 150 kboepd tomorrow, the reserves would last for over 25 years.
Additionally, it found new natural gas reserves of unspecified quantity in the Ambe field in the Cambay basin off India’s west coast. The company also expects to discover reserves of up to 100 million barrels in North-East India, but the project remains delayed over environmental and regulatory approvals.
But holding reserves and consistent production are two different matters. “Reversing production decline in mature oil and gas assets is neither swift nor straightforward; it is an exercise in strategic patience. It demands patient capital, technological sophistication and disciplined execution sustained over years rather than quarters,” said Monish G. Chatrath, managing partner, MGC Global Risk Advisory, a risk advisory consulting firm.
Slow growth in capex
Vedanta’s capital expenditure in the oil and gas business has been between $200-400 million a year over FY21-FY25, as per investor presentations. The share of capital going to this business out of the company’s overall capex has shrunk from over half to just 15% over this period.
“Over the past five years, Vedanta has not invested enough to counter the natural fall in output. As a result, the decline rate has accelerated,” the analyst quoted above said.
In FY25, Vedanta invested $300 million (over ₹2,700 crore) towards oil and gas capex which was used to drill 10 infill wells to increase production. Infill wells refer to drilling—typically, between two wells—to increase recovery of oil or gas.
The problem of declining production rates from old oil fields is not unique to Vedanta. Reliance Industries, another major domestic producer, is battling a similar fall in production from its KG-D6 oil fields off Andhra Pradesh coast. Meanwhile, state-run ONGC invested ₹62,000 crore in capex in FY25, a significant portion of which went into drilling a record 578 wells to arrest production decline and to explore new fields.
Exploring is tougher
On the exploration side, Vedanta chairman Agarwal has been pushing the Indian government to grant more licenses for exploration and to ease the rules to make the sector more appealing for investors.
However, tapping new deposits would be even more difficult than maintaining production levels from existing reservoirs, experts said.
Exploration is “a high-stakes wager, defined by long gestation cycles, geological ambiguity and no assured conversion into commercial success,” Chatrath said. “The true challenge lies not merely in discovering hydrocarbons, but in developing and monetizing them efficiently amid regulatory intricacies, infrastructure constraints, and the ever-present spectre of price volatility.”
While the group’s flagship businesses of aluminum and zinc are expected to emerge stronger from the demerger, it may leave exposed a business like oil and gas, which is at the bottom of a business cycle and would take time to get back to growth again.