Oil and gas in the capitals

The unprecedented depreciation of the Indian rupee has worsened the balance-of-payment crisis that is stalking India. India’s already-high annual import tab for petroleum and its products of over $160 billion will see an escalation of nearly 30% this fiscal year only on account of the rupee depreciation alone; a dollar today fetches nearly Rs. 65.56, compared to Rs. 55.59 about a year ago and Rs. 45.64 in August 2011.

India’s petroleum minister, Veerappa Moily, lamented, in a recent Times of India newspaper article about the worsening trade deficit. “Indian companies have invested or committed over $100 billion to develop and import oil and gas from overseas—the monies that could have been profitably invested in India. What is the logic in supporting other economies at the cost of our own fiscal health?” wondered Moily.

Moily rues the fact that, despite being “under-explored” and having good resource potential, India has not been able to attract large players or substantial upstream investments. He calls it a matter of concern, that only two blocks have begun production out of 254 blocks that have been awarded under the New Exploration Licensing Policy (NELP) since 1991.

Meanwhile, Indian E&P operators have made some discoveries in the past five months, even though they are insignificant in comparison to the elephantine discoveries made offshore Brazil, Gulf of Mexico and West Africa. Nevertheless, these provide some positive trends.

The first quarter of this fiscal year has proved particularly lucky for India’s state-owned Oil & Natural Gas Corporation (ONGC). A significant gas discovery was made in NELP Block Krishna-Godavari-OSN-2004/1. The discovery well produced 66.6 Mscmgd through a ¼-in. choke. Earlier, discoveries were made at Chandrika South, Alankari and Saveri, making the latest discovery as fourth in this block. Gas was also discovered on a new prospect in the Krishna onshore basin. These discoveries augur well for undertaking a cluster development in this block. Two new pool gas discoveries were also made in the eastern fault block in the Western offshore basin, while oil was discovered in an exploratory Gandhar-686 well in the same basin, which produced 631 bopd and 6,433 scmd through a 6-mm bean. Thus, these new pool discoveries in the southwest of the main Gandhar field provide a portent for further exploration and exploitation.

Two gas-condensate discoveries were also made in May and August of this year, on Krishna-Godavari’s D-5 and D-6 Blocks, off the East Coast of India. Consortium partners, Reliance and BP, are both justifiably delighted at this significant discovery that is estimated to hold 719 Bcf of gas reserves, of which about 62%, or 447 Bcf, can be recovered. The discovery is also expected to hold about 11 MMbbl of oil.

Meanwhile, ONGC’s overseas arm, OVL, signed, on Aug. 24, definitive agreements with Anadarko Petroleum to acquire a direct 10% participating interest in the Rovuma Area 1 offshore block in Mozambique, for $2.64 billion. Earlier it had, in partnership with Oil India, acquired 10% indirect interest in the same Area 1 from Videocon Mauritius Energy, a private subsidiary of an Indian conglomerate. Incidentally, Area 1 represents the largest gas discovery offshore East Africa, with estimated recoverable resources of 35 to 65 Tcf. This acquisition is in line with an effort to look outside the country for future oil and gas production.

At the company’s annual general meeting, Reliance Industries Chairman Mukesh Ambani was understandably jubilant at the four years of “uninterrupted and incident-free,” ongoing operations in the KG D-6 Block, and proudly claimed that “these fields have supplied more than 2 Tcf of natural gas and about 22 MMbbl of crude oil” to numerous domestic consumers. All this output, in itself, has saved the country over $30 billion on its energy import bill.

Not far behind is the youngest E&P explorer, Cairn India, that found its El Dorado in Barmer, Rajasthan. Effectively starting in 2002 as Cairn Energy, this Johnny-come-lately has made 26 discoveries in the prolific Rajasthan Block and has produced, in the past three years, 100 MMbbl of crude valued at $9 billion. From five oil fields in the block.

Now renamed as Cairn India under its new owner, Anil Agarwal-led Vedanta Resources, the company is confident of achieving its vision of 300,000 bopd from the Barmer basin. When that happens, Cairn India will be producing 35% of the country’s entire domestic crude oil. Even today, Cairn produces every fourth barrel of crude in the country, a remarkable achievement for an explorer so young. Its budget for the current fiscal year (2013-14), in this block alone, is $1.2 billion. In March, the company even commenced commercial sales of gas, a first step toward unlocking and monetizing the block’s existing gas potential.

Meanwhile, to the south of India, Cairn India’s subsidiary, Cairn Lanka, is encouraged by initial successes offshore Sri Lanka. The island nation does not produce any oil, and it is fully dependent on imported petroleum products. Under exploration Phases I and II in the Mannar basin, on the eastern side of Sri Lanka, Cairn has made two gas discoveries out of the four exploratory wells drilled so far. “Cairn Lanka is currently considering appraisal options for the gas discoveries thus made, and for further extending exploration into Phase III,” according to a Cairn India spokesman.

Continued exploration seems to be the only way for both India and Sri Lanka to reduce their dependency on imported petroleum products.