Vedanta Group's fresh showdown with government: Oil ministry sets rider to extend Cairn contract

NEW DELHI: Anil Agarwal’s Vedanta Group is heading for a fresh showdown with the government as the oil ministry says the state’s share of oil from the Rajasthan block should rise if Cairn India wants to extend its contract for the block for 10 years.
State-run behemoth ONGC, which prevailed over Cairn India in a dispute over royalty payments, is also demanding its pound of flesh and said its 30% stake in the block should increase significantly — up to 50%. ONGC holds the exploration and production licence for the block, and will be able to seize control of the entire block if Cairn’s contract is not extended.

The 25-year contract of Cairn’s Rajasthan block lapses in 2020, but the issue is vital for the entire exploration sector as the government’s decision will set the precedence for how other companies would be treated after their contracts expire. Exploration firms say oil and gas fields need thousands of crores of investment, which cannot be planned without clarity on this matter.

One official said the company has written to the oil ministry and argued that its production sharing contract (PSC) allows “unconditional” extension for five years in case of an oilfield and 10 years if the block produces gas in commercial quantities. ACairn India spokesman said the company has sought an extension and is pursuing the matter actively with the relevant authorities.

“Our Rajasthan Production Sharing Contract clearly allows for an extension for a period of 10 years, if we have a commercial gas production. We are currently selling gas from the block and the discovered resources itself will allow gas sales to continue right up to 2030 and then beyond that. The Rajasthan block has a significant natural gas potential and Cairn India is actively pursuing the natural gas development project in Rajasthan. In light of our growing confidence in our gas resource base we are positive of a decision in the interest of national energy security,” he said in an emailed response to ET’s query.

Oil ministry officials said “in-principle” they do not have any problem in granting a five-year extension to Cairn for the Rajasthan oilfield, which is as per the PSC, but beyond that the company would have to renegotiate the profit petroleum. “PSC says that extension is subject to mutually agreed terms, which allows parties to renegotiate.

The private sector has a different perspective. “The period of extension should be the period of the economic life of the field. Contractor should be allowed to determine the economic life of the field. In case of any disagreement, the economic life of the field should be as determined by an independent expert,” an executive in a private exploration firm said.