Gas exploration set to spike as pricing favours new wells

NEW DELHI: Global gas prices are virtually at rock bottom, but a clutch of Indian companies is drilling

more wells. Reason? The government’s new pricing formula and a dip in exploration costs.

According to the new pricing formula, from April a unit of gas produced from existing wells will fetch

$3.15 per million British thermal unit (mmBtu), but gas from new deep sea wells will get $7 per unit.

Mukesh Ambani-led Reliance Industries Ltd (RIL) and partner British Petroleum (BP) are reworking their

portfolio of investments in the country.

In April, RIL invited tenders for drilling and recovering gas from three deep sea clusters off the east

coast; the oil and gas wells of the R-series, Satellite series and MJ-1 fields. “With cost of gas coming

down the service providers involved in extracting it have also had to reassess,” said a source involved in

the matter.

RIL-BP plans to invest $10 billion over the next 5-7 years to extract 2.5 tcf (trillion cubic feet) of gas, but

due to falling cost this has come down to $5-6 billion, sources said.

State-run Oil and Natural Gas Corporation (ONGC) “announced its $5 billion investment in two fields in

the KG-basin on March 29 after the government offered free market pricing for natural gas extracted

from deep-sea blocks,” a source said.

“This is the right time to drill new wells. Operational margins will increase with drilling cost going down,

while the gas produced will fetch a higher price,” an oil ministry source explained.

Cairn India will not benefit from the new price, but is still expanding its gas exploration. “Capital costs

have reduced so significantly that all gas explorers wish to take advantage of it. Production can be

increased as and when global prices improve,” said a source in the company.

NGS INDIA