Setback for Vedanta as Govt Denies Extension for Cambay Basin Oil, Gas Block

In a setback for mining baron Anil Agarwal's group, the government has rejected Vedanta group firm's application for extension of contract for a key Cambay basin oil and gas block.

Vedanta Cairn Oil and Gas, a unit of Mumbai-listed Vedanta Ltd, was the operator of the Gujarat offshore block CB-OS/2 with a 40% stake.

State-owned Oil and Natural Gas Corporation (ONGC), which holds 50% interest in the block, in a stock exchange filing, said the Ministry of Petroleum and Natural Gas has, in a September 19 letter, told the partners that the application for extension of the production sharing contract (PSC) for CB-OS/2 has not been accepted.

ONGC, which has been asked to take over the operations in the interim period, did not state the reason for the move.

PSC is an agreement between the government and a resource extraction company. It gives the company time-specified right to explore, develop and produce resources in exchange for a pre-agreed share of the produced output (known as profit petroleum) once costs are recovered.

The CB-OS/2 block, which holds Lakshmi and Gauri fields and currently produces 3,400 barrels of oil per day and 3.4 lakh standard cubic metres of gas per day, was one of the three properties operated by Cairn India when Agarwal's group acquired the firm in 2011 for USD 8.67 billion.

The other assets of Cairn India were the Barmer oil fields in Rajasthan and the Ravva oil and gas fields in the Krishna Godavari basin off the Andhra coast.

Cairn India was merged into Vedanta Ltd in 2017.

In 2023, Vedanta group proposed splitting the company's operations into five separate, publicly listed companies for aluminium, oil and gas, power, iron and steel and a restructured Vedanta Ltd that would hold the zinc and silver businesses.

During a hearing on the demerger before the National Company Law Tribunal (NCLT) earlier this month, the petroleum ministry raised objections over the demerger plan on the grounds that it made insufficient disclosure of the company's liabilities, particularly regarding the Rajasthan block. A key concern was the recovery of government dues from the demerged oil and gas company, becoming virtually impossible in the probable event of the company going into liquidation.

Vedanta has denied all the ministry allegations.

The government and Vedanta Cairn are locked in disputes, including computation of profit petroleum from the Rajasthan block.

CB-OS/2 is a second setback for Vedanta after the ministry's stand in NCLT.

Tata Petrodyne Ltd originally held the remaining 10 per cent stake in the CB-OS/2 block. Invenire Energy, a private equity-backed Indian upstream oil and gas company, acquired Tata Petrodyne Limited (TPL) from Tata Sons in a USD 100 million deal in February 2019.

Commenting on the move, Vedanta Cairn Oil & Gas spokesperson said, "The contractors of the said block were ONGC, Vedanta and Invenire. ONGC was the largest shareholder with a 50% stake, and the remaining stake was shared between Vedanta and Invenire. The block contributed less than 0.3% to the overall EBITDA of Vedanta." The PSC for CB-OS/2 block was signed on August 30, 1998, and the contract expired on June 30, 2023. The Vedanta-led consortium continued to operate the block during the pendency of its application for extension of the production sharing contract (PSC).

Now that the PSC extension has been rejected, the block has returned to the government.

"ONGC has been directed to take control of all data, assets, operations and responsibilities associated with the block in the capacity of Government nominee. Accordingly, ONGC is taking over the control of the block," the company said in the filing, adding that ONGC's takeover of the block was "purely interim measure" to "maintain continuity of petroleum operations in public interest and safeguard petroleum reserve until the block is awarded to other party".

Prior to denial of extension for CB-OS/2, the government had extended the contracts for Vedanta Cairn's two other blocks - a 10-year PSC extension was approved for the Rajasthan block RJ-ON-90/1 till May 14, 2030, and a similar period was given for the PKGM-1 block, more commonly known as the Ravva field, till October 27, 2029.

According to a DeGolyer and MacNaughton reserve report commissioned by Vedanta Cairn in 2019, CB-OS/2 block's two discoveries, Gauri and Lakshmi, held a total in-place reserves of 13.6 million barrels of oil and oil equivalent gas.

While the block PSC expired, Vedanta Cairn had pressed ahead with its development plan for the discoveries in the 3,314 square kilometre shallow water block.