Niko pegs Mj-1 gas reserves at 2.5 tcf, but analysts await clearer picture

Written by Promit Mukherjee | Updated: Nov 19 2013, 06:49am hrs
Going by the commentary, it would appear Niko Resources has pegged the gas reserves in the MJ-1 discovery of the Krishna-Godavari Basin at close to 2.5 trillion cubic feet (tcf). This is the upper end of estimated gross prospective resources of between 262 billion cubic feet (bcf) and 2,562 bcf (or 2.5 tcf) as put out by Niko in its March 2013 statement, reports Promit Mukherjee in Mumbai. Subsequent to the completion of drilling operations, a preliminary technical evaluation has been conducted that has incorporated all seismic and new well data. Principal findings demonstrate that most parameters for the MJ reservoir exceed the high-end pre-drill estimates, the Canadian firm said in its interim report for the quarter ended September 30 and the ensuing conference call with analysts. Niko owns 10% in the KG-D6 block partnering Reliance Industries, which owns 60%, and BP, which has 30%. The report added that MJ-1 has considerable thicker reservoir pay than the best-case pre-drill assessment. The management indicated, on the call, that MJ-1 has the potential to add significantly to the valuation of the D6 block and is also well-positioned to use the existing D1 and D3 infrastructure.

However, both RIL and sector analysts are wary of ascribing too much weight to the numbers until all wells are drilled and a final evaluation is done. In India the Directorate General of Hydrocarbons (DGH) needs to approve the reserves number before it can be announced. Moreover, after the D1 and D3 experience, RIL would like to refrain from giving any projections, said an industry source close to RIL.

Analysts expect the quantum of reserves in MJ-1may not be announced before the third or the fourth quarter of 2014, by when all the five wells would be drilled. We are ascribing no value to MJ-1 until the drilling is complete, an analyst from an international brokerage said.

Analysts say that even after several rounds of evaluation, reserve numbers could differ widely if the geography of the field is misread as happened in the case of D1 and D3. After completing the drilling in D1 and D3, the two producing blocks in the D6 gas repository, RIL had roped in international consultants who arrived at a figure of 10 tcf in 2009. However, this was later revised to 6 tcf by RIL's partners BP and Niko. Later, in March 2013, BP said in its annual report that the reserves were 3.3 tcf.

The best-case pre-drill assessment for MJ1 was pegged at 819 bcf of gas and 56 million metric barrels of liquid (oil) by Niko in its March 2013 statement. MJ1 is located 2,000 metres below D1 and D3, the two producing fields in the KG Basin and whose current output is an estimated 10 million metric standard cubic metres per day. The exploration drilling in MJ-1, spread over an estimated of 65 square kilometres, started in March

Niko, listed on the Toronto Stock Exchange, has seen its share price tumble since 2010 around the time when production from the D6 field started falling and is currently trading at C$1.35 per share. In November 2010, the stock was trading at C$100.40 per share.

According to the appraisal programme of MJ-1 approved by the Management Committee for D-55 (Dhirubhai-55 as named by the MJ-1 partners), the operator has to drill five wells, of which the first one was drilled in September 2013.