Hari Bhartia’s Jubilant Offshore Drilling Private Ltd has formally put its 10% stake in the Block KG-OSN-2001/3 on the block. The company has gone broke, and is now undergoing what is called an Corporate Insolvency Resolution Process under the new Bankruptcy Code. It is pertinent to note that ONGC has taken over 80% of the block from GSPC, at a cost of $ 995 million.
Attempts were made privately earlier to sell off this stake but there were not takers.
It remains a moot point whether buyers will indeed be found for this stake. There is no doubt that ONGC will invest in the block’s Deendayal field and integrate it with its other KG Basin offshore developments. Anyone who buys the 10% stake will have to end up investing more money, besides taking all the debt incurred by Jubilant.
Given the high cost of additional exploration and production from this high pressure high temperature block, with unstable geology, over and above the sunk cost, the breakeven gas price is likely to be significantly higher than the actual price of gas that the Deendayal field is likely to elicit for a long time to come.
ONGC RIL tenders contracts is not going to be an easy partner to deal with, particularly when the E&P major is in the driver’s seat. Cash calls for further work will be heavy and a return on investment, if at all, will be a long time into the future.
Treacherous geology will deter buyers: The eventual total investment getting the Deendayal field to full production has been pegged at around $ 4 billion. And yet the end result will be a gas production of a mere 5 mmscmd, as of now. At the gas price now prevalent for High Pressure High Temperature fields, this investment is unlikely to be recouped.
As of now, the equipment deployed in the field is proving to be insufficient to handle bottomhole fluid temperatures, which are as high as 460 degree Fahrenheit.
What makes it more difficult is that the field contains many faults and there is a need to deploy multiple horizontal wells to sustain production.
Then again, permeability and porosity are low, and due to this reason, the recovery factor is difficult to pull up even after hydro fracturing techniques are utilized
The sulphur in the natural gas is more than the normal level, so production and processing facilities will have to withstand high sulphur content in natural gas
It will take ONGC RIL tenders contracts a long time to ramp up production to the 5 mmscmd level.
The FDP will have to be reworked as GSPC’s projection shows a slow ramp up, from 0.8 mmscmd, going up to 1.6 mmscmd, then on to 3.5 msmcmd and finally to 5 mmscmd in the third year.
Production was meant to have started in December, 2013 but began much later in 2015. All deadlines are currently running well behind schedule.
There is no doubt that way too much money was sunk in for way too little production.
Tapping the reservoir is the challenge: It is important to understand that the Deendayal field — made up of the KG-8,15 & 17 discoveries — is not the only one capable of delivering gas in the KG-OSN-2001/3 block . There are six other discoveries — KG-16, KG-22, KG-31, KG-21, KG-19 and KG-20SS — in the block. GSPC had submitted Operating Committee (OC) approved DoCs for all six discoveries for review by the DGH.
Last heard, the upstream regulator had asked GSPC to prepare a robust dynamic model keeping in mind the retrograde nature of the gas reservoir before the Field Development Plan (FDP) for these discoveries is submitted. GSPC was also advised to carry out simulation studies before the submission of the FDP. ONGC is now expected to carry on the task. Even by DGH’s own estimates, the GIIP of the new set of discoveries is an impressive 8 TCF of gas.
Bad permeability and other geological complications make extraction of the gas a difficult affair and the actual gas produced is likely to be much lower. Nevertheless the point to note is that there is scope for more gas output, beyond the 5 mmscmd from the Deendayal field, in the block. ONGC is already thinking of tying in the KG-DWN-98/2 infrastructure with the Deendayal field. But even with fresh attempts to get the field to production, it remains a moot point when the discoveries in this block will begin earning a reasonable return on investment
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