Cairn strikes east coast oil bounty, 10,000 bpd output likely from 2017

Written by Pranav Nambiar | New Delhi | Updated: Dec 3 2013, 10:59am hrs
CAIRN India has struck significant oil reserves in its Krishna-Godavari (KG) Basin onshore field KG-ONN-2003/1 with production estimated at 8,000-10,000 barrels of oil per day (bopd) starting 2017. This opens up a larger play for Cairn India on the east coast, joining the likes of Reliance Industries (RIL) and Oil and Natural Gas Corporation (ONGC) that have made large finds in the region.

As per the declaration of commerciality (DoC) documents submitted by Cairn to the Directorate General of Hydrocarbons (DGH) on November 29, the company has in-place oil resources of about 320 million barrels, of which about 40 million barrels can be recovered. It has also found small amounts of gas with recoverable reserves of around 70 billion cubic feet (bcf) of gas.

The oil resource estimate is based on the appraisal of three discovered wells in the field Nagayalanka SE, 1Z and 1Z ST. Cairn will invest around $600 million in drilling 20 wells of the next three to four years and an additional $165 million for creating the infrastructure to produce oil from the field. Oil ministry sources say Cairn Indias reserves in the field can be revised upwards as it drills more wells. The net present value (NPV) of the project stands at around $ 900 million.

Cairns KG onshore field has a tight reservoir with low permeability, thus requiring the company to use hydraulic fracking techniques to drill the wells. The recovery factor of the KG field is therefore just 10-15%, while at Ravva, it is as high as 60%.

The sedimentary formations where Cairns KG field is located in are also called Mesozoic rocks and these formations formed over 100 million years back have seldom been tapped in India, though they account for nearly 50% of global hydrocarbon finds. Mesozoics are mainly found in the western regions of Narmada, Cambay and Saurashtra, in the east around Cauvery and the KG Basin as well as the north along the higher Himalaya.

According to industry experts, as the investments are lower in the case of onshore fields, the threshold for commerciality is lower and from that perspective, 8,000-10,000 bopd is a reasonably good find. In contrast, a deepwater field which requires platforms for separating oil and water as well as pipelines for evacuating oil is generally commercial at higher levels of around 30,000 bopd. ONGCs recent oil find of about 100 million tonnes or 700 million barrels of oil in its east coast KG-DWN-98/2 field is larger than the Cairn find but this is located in the deepwater region. In the case of onshore fields, we need just tankers to evacuate the oil. So, even small onshore oil finds are typically commercially viable, said a public sector oil company official. The latest find also opens up a huge play for the company in the east coast. Cairn India will soon begin exploring its offshore KG basin block KG-OSN-2009/3 after it received a government nod to undertake a pared down minimum work programme in the block. The private sector oil and gas company will invest Rs 500 crore to undertake the MWP and subsequently ramp up investments depending on the prospectivity of the block.

Cairn is also undertaking 4D seismic work to identify pockets of oil deposits which have bypassed east coast Ravva fields. The oil production from Ravva is seeing a natural decline averaged 22,600 barrels of oil equivalent per day (boepd) in the July-September quarter. The results from the 4D tests are expected to be released by the end of the financial year.

Cairns current production is 1,78,000 boepd and expects to exit FY14e at greater than 2,00,000 boepd, led by Rajasthan which produced around 1,74,200 boepd in the previous quarter.