Vedanta taps into oil market upturn
Vedanta Resources, the largest oil and gas exploration company in India, plans US$8 billion in capital expenditure over the next three years to substantially lift its production capacity, especially in the oil and gas sector.
In an interview with Asia Focus, founder and chairman Anil Agarwal said $3.5 billion out of the total would be allocated to oil and gas. The rest would go to zinc, copper and iron ore.
The aim is to increase Vedanta's production capacity in all these sectors by 50%, if not double in the case of oil and gas. This, Mr Agarwal says, would ultimately help add $10 billion in earnings before interest, tax, depreciation and amortisation (EBITDA).
The investments are being undertaken at a time when commodities are rebounding. Mr Agarwal says this has him "very excited", adding that the resources his company can tap are "the tip of the iceberg".
Vedanta today produces the equivalent of 260,000 barrels per day (bpd) and plans to double this capacity in the next two to three years.
According to Mr Agarwal, the company's production cost is as low as $5 a barrel at a time when global crude prices are close to $65 a barrel.
That figure is even lower than the $7-8 per barrel reported in Saudi Arabia, considered the world's lowest-cost producer, but he maintains that the Vedanta fields are located in a "very good basin".
"I would say we are very blessed in that regard as it is a natural basin. We are lower than that of Saudi Arabia and we have sweet crude which is low in sulphur," he responded when pressed about the cost figure.
But his aim is to invest and double capacity, making his company the provider of 50% of all oil exploration both onshore and offshore in India over the next three years.
According to Mr Agarwal, countries such as India are overlooked by the global oil majors and that is where Vedanta can play a role. He says India is sitting on a plateau of oil, among other resources and, used to produce some of the best diamonds in the world, citing the famous Kohinoor. India also used to produce a lot of gold.
"If you talk about resources below the ground, it used to be India but all that has now gone, and therefore I took that challenge in the belief that it is there," he said. He result is a steadily growing enterprise that today contributes nearly 1% of the country's gross domestic product (GDP) in taxes and royalties.
As the leader of the largest private resource company in India, Mr Agarwal recommends companies that want to tap into the local market to join the gold rush.
"This means that there is room for more companies to come and explore their opportunities to invest in India," he said, while adding that he does not want to take over any other companies in India or Southeast Asia as his hands are relatively full.
Vedanta, he says, is poised to report between $4.5 billion and $5 billion in net profits this year from the uptrend in the resources sector. After paying out 30% in dividends in line with company policy, it will use the remaining sum for expansion and other business needs.
"Look at me, from scratch to this year's profit of about $4.5 to $5 billion and employing around 100,000 people," he says.