The decks have been cleared for the signing of the long-delayed contract for Essar Oil's Ratna and R-series oilfields, with the company agreeing not to raise funds against the oilfields for its refinery project at Vadinar, and to comply with all other conditions imposed by the government.

The company's compliance to all rules follows the decision of its lenders (for its refinery project) to relinquish their charge of the Ratna and R-series oilfields in lieu of the pledging of Essar Oil's 51 per cent shareholding with the lenders in addition to personal guarantees by the promoters and a corporate guarantee by Essar Shipping.

The corporate debt restructuring package was cleared by the lenders on July 21.

The oilfields were awarded to Essar in 1995. But the production sharing contract was not signed as there were serious doubts about the company's ability to raise finances for the projects.

Essar is seeking to develop the fields at the earliest since the estimated revenue flow from the established Ratna fields is Rs 3 crore (Rs 30 million) per day, or close to Rs 1,000 crore (Rs 10 billion) per annum.

Sources said that Essar has also agreed to comply with other standard terms of the PSC which includes providing proof from the lenders that the oil field is free of any encumbrances, that it will issue a bank guarantee in the first year based on the annual expenditure it committed in its bid, and that the government will retain the first right of purchase of oil produced from these fields.

"The oil fields have been delinked from the company's 10.5 million tonne oil refinery in the debt restructuring package. This is what the government has been seeking for a long time," they explained.

Essar Oil has already informed the ministry of petroleum and natural gas about its intention to abide by the conditions in toto.

ICICI, Essar Oil's lead banker, will also provide a letter to the government stating that "Ratna and R-series fields have not been pledged as a security for the loans given for the refinery project," the sources said.

The government had granted Essar time till October 15, 2003 to delink the oil fields from loans it raised for construction at its beleaguered refinery project by pledging the receivables from the fields as collateral.

The sources added that Essar has also agreed to the government's condition that it will not assign or transfer its participating interest or exit the contract until the development plan is achieved, or before the expiry of three years, whichever is later.

Essar has also agreed to furnish a bank guarantee in the first year based on the annual expenditure it committed in its bid.

Essar has also committed, as insisted upon by the government, that it will not divert crude from the Ratna field to Vadinar directly since it has entered into a crude offtake agreement with public sector Bharat Petroleum Corporation.

Essar Oil has 50 per cent interest in the oil fields, while state-owned Oil and Natural Gas Corporation has 40 per cent.

The balance 10 per cent is with the United Kingdom-based Premier Oil Plc. ONGC, which originally discovered the field, has already undertaken a significant part of work on this field.

The oil fields are a series of proven discovered fields situated 90 kilometeres south west of Mumbai at a water depth of about 50 metres in the prolific Bombay offshore basin that includes the productive Bombay High field.

The aerial extent of this block is approximately 1,000 square km that includes proven structures such as R-12, R-7, R-9 and R-10.

The initial oil in place of all these fields is about 500 million barrels. The recoverable reserves are estimated at 100 million barrels of which 10 million barrels have already been recovered by ONGC.