Cairn to raise east coast spend on easier norms

Pared-down programme focuses on more prospective areas

The country’s hydrocarbon-rich east coast is set to witness more investments with Cairn India about to commence exploration work at its offshore block KG-OSN-2009 in the Krishna-Godavari Basin. Official sources said that Cairn has just received the regulatory nod for the pared-down minimum work programme (MWP) for the block, as demanded by the company, paving the way for exploration to begin.

The immediate investment commitment in the KG-OSN-2009 block by Cairn, which has so far focused its exploration efforts on its Rajasthan fields, will be around Rs 500 crore. Thanks to the development, Cairn, which is already producing oil from the Ravva field off the east coast, would join the bandwagon of RIL and ONGC, which have a strong presence in exploration and production off the east coast.

Earlier, the company had requested the oil ministry to limit its work commitment to just 65% of its planned MWP at the KG Basin block off Andhra Pradesh, after the Cabinet Committee on Investment (CCI) declared 35% of the block as no-go area. Plans are currently under way for acquisition of over 1,000 sq km of 3-D seismic data.

“In the KG offshore block we have received approval to reduce the MWP in proportion to the ministry of defence’s no-go area which covers 35% of the block. Fortunately, initial studies reveal that the areas that we will retain are more prospective than relinquished areas,” said a Cairn India official, who did not want to be identified.

This will open up opportunities for larger play for the company in the hydrocarbon-rich region, even as it undertakes 4-D seismic work to identify more reserves in its Ravva fields and prepares the declaration of commerciality (DoC) for its Nagayalanka onshore block, which too is on the east coast.

Cairn officials confirmed that although Rajasthan has become the company’s mainstay as far as oil production is concerned, the company is now refocusing its attention on the east coast as well. “Together, with the Ravva, KG-OS/N and onshore KG Basin, we kind of reposition ourselves as emerging in the east coast area,” Cairn India CEO P Elango said at a recent analyst call.

MWP commitments are submitted by contractors while bidding for oil and gas blocks. It stipulates the minimum amount of work that the contractor is prepared to undertake during the exploratory phase including surveys, exploratory drilling, etc.

The CCI has so far this year cleared 25 oil and gas blocks for exploration and production activities with investments worth $13.42 billion and a further investment of $2.5 billion in the next few years. Apart from Cairn’s block, two others in the KG Basin — ONGC’s KG-OSN-2009/4 block and the RIL-BP combine’s KG-DWN-2005/2 block — had also received partial CCI clearance. While RIL-BP decided to surrender the block as as about 70% of the 1,949 sq km block fell in an area where DRDO and navy exercises are conducted, ONGC is said to be considering a reduced MWP on Cairn’s lines.

Oil production from Ravva is seeing a natural decline, averaging 22,600 barrels of oil equivalent per day (boepd) in the July-September quarter. The company has also completed a 4-D seismic study at Ravva to identify pockets of oil deposits that have been bypassed. It will soon begin targeted well drilling to extract oil from these wells.

“As we continue to improve the recovery rates and produce bypass oil in Ravva main field, an infill drilling campaign based on applying 4-D seismic technology has been scheduled during the second half of this financial year. Additionally, the government has allowed the development of contingent resources of existing discoveries within the block,” said Elango during the call.

The company has indicated that in its KG Basin onshore Nagayalanka block, the appraisal well drilled to evaluate the potential of Nagayalanka-SE discovery, resulted in a threefold increase in productivity, significantly improving the block’s commerciality. It did not elaborate on the extent of reserves found in the tight reservoir basin found in the mesozoic zone. A DoC for the block is expected to be submitted in this fiscal and a field development plan next year.

Cairn’s current production is 178,000 boepd and expects to exit FY14e at greater that 200,000 boepd, led by Rajasthan, which produced around 174,200 boepd in the previous quarter.

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