National
Anil Agarwal’s Vedanta changes pecking order in private sector oil biz
Vedanta now holds 48 oil and gas blocks in India through Cairn
The Vedanta group has taken the space vacated by Reliance Industries in the country’s oil and gas sector in 10 years after starting production from its Mangala oil field in Barmer district of Rajasthan. Cairn India completes a decade of production at Mangala on August 29. Incidentally, Mukesh Ambani-led RIL started natural gas production from its once flagship KG-D6 in April 2009.
Anil Agarwal-led Vedanta now holds 48 oil and gas blocks in India through Cairn while another 10 blocks will be coming to them once the government approves rights for the latest auction under Open Acreage Licensing Policy (OALP).
In contrast, once the biggest private sector player in the petroleum sector, RIL’s play has now largely been confined to the downstream sector of refining and petrochemicals. It has, however, made a feeble reentry by emerging as an eligible operator in one of the areas offered under OALP recently.
The last time RIL got a domestic oil and gas block was in 2008 in the seventh round of auction under New Exploration and Licensing Policy. This was despite the firm tying up with British Petroleum in 2011 for $7.2-billion investment. The partners only relinquished close to 30 blocks, while its oil and gas production has been static. It is only now, after eight years of partnership that RIL has put in a bid to get a block in the east coast under OALP. R S Sharma, former chairman and managing director, Oil and Natural Gas Corporation, said, “When the Barmer discovery was made, we had thought production would last for a maximum of nine years. We were proven wrong, and the asset is giving Cairn good returns. This is the reason that ever since Anil Agarwal took over the company, they have been bullish about the oil and gas sector despite the government policies not being very friendly.”
Vedanta says it intends to increase exploration efforts significantly through participation in OALP and Discovered Small Fields (DSF). “The acquisition of 41 blocks under OALP has established Cairn as one of the largest private acreage holders in the country, with a tenfold leap (of licensed area) from 5,000 to 55,000 sq km. These blocks have prospective resource bases of 1.4-4.2 billion barrels of oil equivalent. Over the next two to four years, we have a work programme commitment of $550 million, comprising seismic acquisition and the drilling of over 150 exploratory wells,” the company said in its latest annual report.
Vedanta’s oil and gas Ebitda (earnings before interest, taxes, depreciation, and amortisation) stood at Rs 7,656 crore in 2018-19 while that of RIL was Rs 1,642 crore. RIL did not respond to emailed queries, but in its investor presentation the company said its growth in petrochemicals and consumer businesses led to healthy operating cash flows and helped in offsetting subdued performance in energy.
Whether it is RIL’s Jio push or its retail business, the focus has been consumer facing, which is far less complex than geological and policy issues of exploration and production business.
The consumer business, including organised retail and digital services, contributed 24.6 per cent to RIL’s consolidated segment Ebitda in 2018-19 against 1.8 per cent in 2014-15.
The decisive turn in RIL’s strategy is said to have come when it lost pricing and marketing freedom for its natural gas production even as it came under the regulatory glare of the Comptroller and Auditor General.
The fall in its KG-D6 production due to technical issues, however, was also a crucial point that saw its flagship asset turning into a flagging field. The deepwater block now produces a paltry 1.8 million standard cubic metre a day of gas. Sharma, nonetheless, sees the company rolling back into better oil and gas performance in two-three years as its R-Series discovery comes into production in 2021.
Vedanta, by bidding ambitiously, might have hedged its bet too high but what it is looking at is moving further up from producing 25-30 per cent of current country’s crude oil. “The outlook will highly depend on OALP’s success. If our estimates are right, we should be in a position in the coming years to go from the 200-500,000 barrels and, further, if OALP results are favourable, we could even go up to 1 billion barrel a day,” said Ajay Dixit, Vedanta’s chief executive officer for oil and gas.
