India Gas Find Has Major Impact

Private Firm Hits Wildcat

A massive deepwater natural gas discovery off the eastern coast of India is in itself impressive. But the impact it could have as India strives to expand production to meet the growing demand in this populous country makes its significance even more profound.

The Reliance Group, India's largest private sector company, and its partner, Canadian independent Niko Resources, announced October 31 a world-class giant deepwater gas discovery 20 kilometers offshore in the Krishna Godavari Basin on block KG-DWN-98/3.

The discovery stands as the biggest gas find in India in three decades, and was among the world's largest gas discoveries in 2002. Reliance hopes to have the field in production by the middle of 2004, with daily production of up to 1.44 bcf.

Another significant part of the story: This is the first ever discovery by an Indian private sector company.

The gas bearing structure lies in an average water depth of 900 meters and is 1,850 to 2,200 meters subsea, according to information released by Niko Resources, which holds a 10 percent stake in the 1.9 million-acre block. Niko has assembled a portfolio of prospective lands in the Asian subcontinent — particularly India, a region with high energy requirements and limited supply.

Three-D seismic and a recently completed four-well drilling program at the time of the announcement indicated an anomaly of about 177 square kilometers and a hydrocarbon column of 342 meters.

A fifth well has been completed since the announcement, according to Reliance.

Cased hole tests were conducted on two wells and resulted in equipment-constrained flow rates of 40 million cubic feet of gas a day and 29 million cubic feet of gas per day. Individual well deliverability should exceed 100 million cubic feet daily, the firm said.

The discovery well was drilled to a total depth of 2,900 meters in mid-May, and 9-5/8 inch casing was set to approximately 2,200 meters. A second well was spudded in June by Transocean's Discoverer 534 drillship in 1,340 meters of water. Details on additional wells have not been released.

Reliance estimates gas in place at over seven trillion cubic feet, and recoverable reserves at over five trillion cubic feet. However, integrated 3-D seismic and well interpretation indicates that the reserves could be significantly higher. In late 2002, DeGolyer and McNaughton was preparing an independent engineering report that should verify reserve figures.

Reliance plans 25 development wells.

A Little NELP For Their Friends

The Dhirubhai Field discovery came on the first well drilled in the deepwater block off the Andhra Pradesh coast. It came just 20 months after the receipt of exploration licenses covering the block.

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A massive deepwater natural gas discovery off the eastern coast of India is in itself impressive. But the impact it could have as India strives to expand production to meet the growing demand in this populous country makes its significance even more profound.

The Reliance Group, India's largest private sector company, and its partner, Canadian independent Niko Resources, announced October 31 a world-class giant deepwater gas discovery 20 kilometers offshore in the Krishna Godavari Basin on block KG-DWN-98/3.

The discovery stands as the biggest gas find in India in three decades, and was among the world's largest gas discoveries in 2002. Reliance hopes to have the field in production by the middle of 2004, with daily production of up to 1.44 bcf.

Another significant part of the story: This is the first ever discovery by an Indian private sector company.

The gas bearing structure lies in an average water depth of 900 meters and is 1,850 to 2,200 meters subsea, according to information released by Niko Resources, which holds a 10 percent stake in the 1.9 million-acre block. Niko has assembled a portfolio of prospective lands in the Asian subcontinent — particularly India, a region with high energy requirements and limited supply.

Three-D seismic and a recently completed four-well drilling program at the time of the announcement indicated an anomaly of about 177 square kilometers and a hydrocarbon column of 342 meters.

A fifth well has been completed since the announcement, according to Reliance.

Cased hole tests were conducted on two wells and resulted in equipment-constrained flow rates of 40 million cubic feet of gas a day and 29 million cubic feet of gas per day. Individual well deliverability should exceed 100 million cubic feet daily, the firm said.

The discovery well was drilled to a total depth of 2,900 meters in mid-May, and 9-5/8 inch casing was set to approximately 2,200 meters. A second well was spudded in June by Transocean's Discoverer 534 drillship in 1,340 meters of water. Details on additional wells have not been released.

Reliance estimates gas in place at over seven trillion cubic feet, and recoverable reserves at over five trillion cubic feet. However, integrated 3-D seismic and well interpretation indicates that the reserves could be significantly higher. In late 2002, DeGolyer and McNaughton was preparing an independent engineering report that should verify reserve figures.

Reliance plans 25 development wells.

A Little NELP For Their Friends

The Dhirubhai Field discovery came on the first well drilled in the deepwater block off the Andhra Pradesh coast. It came just 20 months after the receipt of exploration licenses covering the block.

India has been working to expand its domestic upstream industry in recent years, said Ian Blakeley, regional manager of the sub-continent for IHS Energy. Imports account for about 70 percent of India's energy consumption while only six of the 27 basins in the country have been explored, according to Niko.

"In the late 1990s India realized it had to increase its indigenous production and attempt to move toward self-sufficiency," Blakeley said. "At that time the country drafted the New Exploration Licensing Policy, or NELP, which broke away from the long-standing tradition in India of going through a series of inconclusive licensing rounds that, because of the bureaucracy, remained pending for years and years."

Three licensing rounds have been held under the new policy with a fourth planned later this year.

NELP I was launched in January 1999 and was closed in August of the same year. Twenty-four of the 25 blocks on offer were awarded. The Reliance Group discovery is on a block the firm acquired in this licensing round.

NELP II was launched in December 2000 and completed in March 2001. All 23 blocks offered were awarded. NELP III was launched in March last year and closed in August. Twenty-seven blocks were offered under this round and in November the Cabinets Committee on Economic Affairs cleared the award of the 23 blocks that received bids.

The Indian government has worked hard to generate interest among international oil companies for its licensing rounds, but with limited success. The government has conducted road shows in London, Houston, Calgary and Singapore to promote the acreage.

"Each NELP licensing round has generated little interest from the major international firms," Blakeley said. "I think this lack of interest is generally due to a widely held perception that India has relatively low hydrocarbon potential and is a risky venture, particularly in deep water. These companies would rather invest in known producing deepwater regions than a risky venture in India.

"Whether or not the recent discovery by The Reliance Group will redress this imbalance and change the attitude toward India remains to be seen," he added. "I think this giant discovery will make people sit up and think more generously about what India has to offer."

The fourth NELP licensing round is scheduled to launch in April.

They Are Not Alone

Smaller, independent international firms, however, have staked claims in India and that investment is starting to pay off for some. Blakeley said a great deal of seismic data has been shot over the acreage awarded in NELP I and NELP II and drilling has gotten under way in recent months.

Edinburgh-based Cairn Energy, aggressive in the early licensing rounds, drilled a series of wells in 2001 on a Krishna Godavari block that is to the southwest and adjacent to the Reliance block where the giant discovery was made.

Cairn drilled six wells on the KG-DWN-98/2 block during 2001 — five discoveries and one appraisal well. The firm estimated gross unrisked reserves of at least 200 million barrels of oil equivalent for the block.

Two of the wells were gas discoveries and two were oil and gas finds. One well was a small, sub-commercial oil and gas discovery.

"Cairn's success first highlighted the potential of the Krishna Godavari Basin and, of course, that has been continued with the Reliance Group discovery right next door," Blakeley said.

Reliance picked up 12 exploration blocks in NELP I and another four in NELP II.

The company is actually a petrochemical firm with an oil and gas division, but when the changes were made with NELP the company decided to expand its oil and gas operations.

In 2001 the firm reportedly acquired more than 10,000 kilometers of 2-D seismic and 5,800 square kilometers of 3-D seismic over its NELP I acreage position, and last year the company launched a big exploration program targeting high impact, deepwater turbidite prospects off the east coast. The giant discovery came on the first well.

The company plans to drill 31 wells under the NELP I initial exploration program with a budget of $350 million (US).

Political Factors

While in-place reserves of seven trillion cubic feet is impressive, more important is the impact it will have on India. Reliance has announced that the structure has the potential to supply 1.4 billion cubic feet of gas a day.

"ONGC, the national oil company, which has all the prime acreage in India, only produces 1.9 billion cubic feet of gas daily from all of its operations and India's total gas production is in the range of 2.5 billion cubic feet per day," Blakeley said, "so virtually half of the country's current total output can be matched from this one discovery."

What's more, Reliance estimates it can deliver the gas to market within three to four years — an ambitious goal, he added.

"At the moment, everybody is waiting for the independent engineering report to certify the reserves," Blakeley said. "When that is released people will sit up and take notice."

Experts say this discovery could have an enormous impact on India's gas picture. There is a big demand-supply gap in India and at present there are numerous proposed LNG projects as well as some pipeline projects that could be affected by the new reserves from this discovery.

"If these reserve figures are certified by an independent source, the regional impact of the discovery will cast a shadow over a number of LNG projects," Blakeley said. "Potential pipeline projects could be impacted as well. Unocal is attempting to push forward a proposal to export gas from Bangladesh to Indian markets."

Unocal has made a big discovery with about 2.4 Tcf of reserves in Bangladesh (in-place reserves of about six Tcf) that the firm is refusing to develop until there is a recognized market and the company sees India as that market.

"However, this is a politically sensitive issue," he continued. "Bangladesh has enormous reserves that a recent study by the U.S. Geological Survey in conjunction with the Bangladesh government estimated at 32 trillion cubic feet. Unocal has said the reserves could be as high as 60 trillion cubic feet. But because of the strained relations between the two countries, Bangladesh does not want to be seen exporting gas to its neighbor.

"The Reliance discovery could cast even more uncertainty over any pipeline project from Bangladesh," he said. "If India can supply its own needs the firm will have no interest in working with Bangladesh."

To Market, To Market

Ultimately, the impact on the market is how any discovery must be judged. The Indian government has indicated that even after the gas from this find is absorbed there will still be a demand-supply gap of approximately 1.8 billion cubic feet of gas daily, leaving room for LNG and pipeline projects.

Despite its size and potential impact on India's natural gas supply, developing the new deepwater discovery will be challenging. The discovery is off India's east coast, but the major industrial markets are in the country's north and on the west coast. A costly pipeline will be necessary to move the gas to the markets with high demand.

The geology also will drive up the cost of development. Obviously, deepwater fields are more costly, but the reservoir is relatively shallow subsea, which can be a problem.

"The structure is 177 square kilometers and this vast size coupled with the lower pressure in a shallow reservoir will require a lot of development and production facilities. That drives up the cost of development," he said. "There is also some concern that low reservoir pressures may reduce sustainable flow rates."

One industry watcher estimated it could take in excess of $2 billion to develop the field, but Blakeley doesn't see Reliance walking away from the discovery.

"Due to the potential impact this find could have on India there will be some pressure from the government to develop the structure," he said. "Also, The Reliance Group is such an aggressive company that their track record over the last five years has surprised the industry. But obviously, they will need help to develop the field since the investment is so high."

The Reliance discovery has enhanced the prospectivity of neighboring blocks. Two blocks adjacent to it were awarded under NELP III late last year, according to Blakeley. The block immediately to the east of the discovery was awarded to Reliance. A block to the northwest was awarded to another Indian company, but Reliance is actively pursuing a farm-in on this block.

Blakeley said the firm has indicated this block has as much or more potential as the discovery block.

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