Gas Buzz: RIL, ONGC, Cairn line up new investments

Companies are gung-ho as operational margins will increase with drilling cost going down, while the gas produced will fetch a higher price

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.

A deepwater gas exploration rig

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.

Read: India’s Cabinet clears new price formula for undeveloped gas finds