ONGC Videsh Ltd (OVL) to invest $ 1.5 bn in an Iraq oil block

ONGC Videsh Ltd, the overseas arm of state-owned Oil and Natural Gas Corp (ONGC), may invest over $ 1.5 billion in exploring for oil in a block that was awarded to it by the erstwhile Saddam Hussein regime.

"We are nearing finality on the contract for Block-8. It is likely to be signed in next six months," an official said.

Block-8, located in the western desert in southern Iraq bordering Saudi Arabia and Kuwait, was awarded to OVL in November 2000 by the then Saddam Hussein government. However, the government formed after the US invasion of the oil-rich country, sought re-negotiation of the contract which has now been concluded.

The post-Saddam Hussain regime had initially agreed to signing of a Production Sharing Contract (PSC), where OVL would have got ownership of the oil it produced from Block-8. But the success of post-war licensing rounds, where global majors committed to develop oilfields for a small fee, has seen Baghdad change track and offer a service contract to OVL.

The block already has a discovery and is estimated to hold 645 million barrels of in-place reserves, of which 54 million are recoverable, he said, adding OVL has committed investing $ 86 million in two phases of exploration and $ 1.45 billion in development of the reserves thereafter.

The contract would be a service contract wherein OVL will be paid about 18 per cent rate of return on its investment. The company holds 100 per cent interest in the block.

"We are currently agreeing on finer details of the contract," he said.
Exploration and development contract for Block-8, Western Desert, was signed by OVL with the Oil Exploration Company of Iraq, on November 28, 2000, at New Delhi.

As per the 2000 contract, OVL was to reprocess and interpret existing 2-D seismic data. It was also to acquire, process and interpret 1,000 km of 2D and carry out 300 sq km of 3D seismic survey besides drilling two wells.

The service contract now being drawn would be similar to the one China National Petroleum Corp (CNPC) had signed recently for developing Al-Ahdad oilfield in central Iraq. "It will be a service contract wherein OVL will be paid about 18 per cent rate of return on the investment it makes in finding and producing oil from Block 8," the official said.

It would act as the operator of the field until it recoups all its costs and set up a joint operating company with the local operator to take over once development costs have been repaid.

Baghdad has, however, refused the Tuba oilfield, for which OVL, in consortia with Reliance Industries and Algeria's Sonatrach, were in negotiations before the US attack on Iraq.

Source: Economic Times

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Energy: The pros and cons of shale gas drilling

Natural gas has been the ugly stepchild of our national energy debate: Never enjoying the political muscle of oil and coal, and never capturing the imagination like solar panels and wind farms. And to top it all off, it was in short supply.

But that's changing and now this stepchild is being touted as the hope of the future - the answer to our energy problems.

What's brought about the change is there's a new unconventional process for extracting natural gas from shale, a dense rock formation two miles underground.

And if you're sitting on top of it, you may become a new American phenomenon: A "shaleionaire."

And yet, if the BP spill last summer taught us anything, it's that exploring for energy has safety risks. But as we first reported in November, that can get lost in all the excitement.

What is increasingly evident is that shale gas is overwhelmingly abundant right here in the U.S.A.

"In the last few years, we've discovered the equivalent of two Saudi Arabias of oil in the form of natural gas in the United States. Not one, but two," Aubrey McClendon, the CEO of Chesapeake Energy, told "60 Minutes" correspondent Lesley Stahl.

"Wait, we have twice as much natural gas in this country, is that what you're saying, than they have oil in Saudi Arabia?" Stahl asked.

"I'm trying to very clearly say exactly that," he replied.

Chesapeake Energy is the largest independent gas producer in the country. McClendon is on a mission to get the U.S. off foreign oil and dirty coal.

Gas has nearly half the carbon emissions of coal, and no mercury.

"But natural gas is still a fossil fuel," Stahl pointed out.

"So is it perfect? No," McClendon said. "The answer is it's not perfect. But for the next 20 years, natural gas is probably our best bet. And the good news is, we've got it. And we've got as much of it as anybody else in the world."

There are shale formations across large parts of the country, and there is production or exploration in over 30 states. It's an American energy renaissance.

Some 10,000 wells will be drilled in northwest Louisiana, in some of the poorest communities in the country, where impoverished farmers are becoming overnight millionaires as they lease their land for drilling.

"I never dreamed of money like this," C.B. Leatherwood told Stahl. "

Leatherwood, a retired oil field worker, got a bundle to drill under his farm: $434,000.

His cousin, Mike Smith, also profited: he was paid nearly $2 million.

"So what'd you do that day?" Stahl asked Smith.

"I sat back and thought about it for a, all day. And I said, 'I'm a millionaire.' And that didn't sound right," he replied.

They actually call them "shaleionaires," and they don't mind putting up with the noisy, smelly drilling when the wells are built because they get a cut of the profits, which could last for years and add up to millions more.

Within a year, shale drilling generated almost $6 billion in Louisiana in new household earnings. As the rest of the nation plunged into a recession, the region added over 57,000 local jobs, and the Cadillac dealership in town is hopping.

People have known for a century that shale contained gas, but it was too difficult and pricy to extract.

Produced by Shachar Bar-On

Source: http://www.cbsnews.com

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ONGC to invest $7.7bn in KG basin

Oil and Natural Gas Corporation (ONGC) plans to invest $7.7 billion to develop its gas field in the KG Basin, adjoining Reliance's prolific D-6 block, and produce up to 30 million cubic meters aday in five years. It plans to drill eight additional wells in the block to maximize output from the deep-sea field in the Bay of Bengal and has sought approval for the plan from the directorate general of hydrocarbons and the petroleum ministry. "The matter of drilling additional exploratory wells in the block was discussed in a technical committee meeting held on January 17, 2011 and subsequently a communication has been sent to DGH indicating requirement of 8 wells in the block, six in NDA and two in SDA," ONGC said in an email response.

ONGC said it had submitted a proposal for Declaration of Commerciality (DoC) to the DGH in re-Sabha that in-place gas reserves of 3.42 trillion cubic feet (tcf) have been established in the KGDWN-98/2 block, of this, 1.904 tcf is recoverable. The KG-DWN-98/2 block has 10 gas discoveries and Cairn India is already a 10% partner in the block. The company plans to produce 25-30 million standard cubic metres per day of gas from the block by 2016-17. The KG Basin is India's most prolific gas basin and home to some of India's biggest natural gas discoveries in recent years.

Reliance Industries discovered a giant gas field in the region in 2002 and started production from the gas field in 2009/10. Gas output from Reliance's field was ramped up to 60 mmscmd but production subsequently declined. State-run Gujarat State Petroleum Corp has also discovered natural gas in the same region. ONGC has been scouting for partners to develop the block as it does not have experience in developing fields in ultra-deep regions in the sea. spect of Northern Development Area and Southern Development Area in NELP Block KGDWN-98/2. "A total lifecycle cost as per the proposal for DoC is of the order of $ 7.7 billion," ONGC said.

On whether it is divesting a 30% stake in the KG-DWN-98/2 block, an official said: "ONGC had invited global majors to a data room for a possible tie-up in the integrated appraisal and development process of this block and adjoining nomination blocks. ENI and BG have evinced interest and the process of firming up the modalities of partnership is in progress." "It is too early to say when we will cement these partnerships with either BG or ENI, we still have to choose and talks are on, we are keen to forge these associations to gain technical expertise in ultra-deepwater exploration," AK Hazarika, chairman, ONGC told ET.

Last year, Minister of State for Petroleum and Natural Gas Jitin Prasada had informed the Lok Sabha that in-place gas reserves of 3.42 trillion cubic feet (tcf) have been established in the KGDWN-98/2 block, of this, 1.904 tcf is recoverable. The KG-DWN-98/2 block has 10 gas discoveries and Cairn India is already a 10% partner in the block. The company plans to produce 25-30 million standard cubic metres per day of gas from the block by 2016-17.

Source: Economic Times
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The explorers: Reliance and British Petroleum

Reliance helps BP break into its next frontier — India. In return, the company hopes to get an entry into energy’s big league.

Tony Hayward’s visits to India during his years as the CEO of oil supermajor BP was largely to fulfil his duties as a non-executive director of Tata Steel. But his agenda often included a lesser known item — a low-key meeting with Mukesh Ambani, India’s No. 1 billionaire on Forbes India Rich List and the chairman and managing director of Reliance Industries (RIL).

The two often caught up to discuss the contours of a nascent relationship between their companies. RIL and BP had already bid for and won an oil block in India. And now both began talking of a deeper relationship. But what shape this relationship would take was not clear even to those close to the two men.
The answer came this February. Even though Hayward had been forced by then to quit BP in the aftermath of the Gulf of Mexico oil spill, the new CEO Robert Dudley picked up the threads with RIL. BP announced it will take a 30 percent stake in 23 oil and gas blocks owned by RIL across India, including the producing Krishna-Godavari D6 block.

The two companies also agreed to form an equal joint venture to source and market gas in India. BP said it would make a total investment of $20 billion in these ventures. This would make the deal one of the largest foreign investments in the country.

However, those who have watched the two companies closely say that their coming together was not just the result of friendship; both BP and RIL had been pushed to the corner in their respective businesses and were looking for partners that would help them recover. The alliance was their best chance to achieve that.
To say that 2010 was annus horribilis for BP would be an understatement. The explosion at its platform Deepwater Horizon in April resulted in the biggest oil spill in history. The company is still cleaning up the mess — both physically in the Gulf of Mexico and financially in its balance sheet.

The world’s third largest oil and gas company posted a $4.9 billion loss in 2010, its first annual loss since 1992. It included a total pre-tax charge of $40.9 billion related to the blow-out. The company’s retreat from the US, at least for the medium term, now looks certain.

Though not quite as cataclysmic, the problems of Reliance Industries are quite challenging too. It faced technical issues at D6 (Reliance’s and India’s largest natural gas find) as a result of which its plan to step up gas production was shot to pieces. In fact, the production began to fall. Sustaining production even at levels achieved in March-April 2010 became tough. The company that had brought to production India’s biggest gas field was finding its management and technical bandwidth stretched to the limit.

RIL was also lagging behind in exploration of its portfolio of 20 other blocks that it had bid for and won over the years. There was bad news from drilling in KG D9 that everyone had hoped would be ‘another D6’. The well turned out to be dry.

Exploration at NEC-25, the third prospective block in the Mahanadi Basin had not really developed. For these and the earlier problems between Ambani and his brother Anil, investors were punishing the stock. RIL has lagged the benchmark Sensex for three consecutive years.

The hard work begins for both the companies only now. Given that gas prices are regulated by the government and mostly stay much below international prices, it will be a challenge to make the alliance work, especially in distribution and marketing. Reliance has little experience working with global majors and its earlier partnership with Chevron was short-lived. It will be interesting to see how BP and Reliance leverage their respective strengths.

Find Baby FindThere is one number that reveals how long an oil and gas company can sustain production. It is the Reserve Replacement Ratio (RRR), the extent of a company’s finds over the current rate of production. For Reliance, this number has been falling. “RIL has been unable to significantly add to its reserves since the D6 discovery,” says Neil Beveridge, senior analyst at Sanford C. Bernstein in Hong Kong. There have been a number of incremental discoveries, but nothing approaching the scale of D6. The BP deal will bring in the much needed cash to boost its RRR.

RIL has proved its capability in developing the D6 block. But managing an exploration campaign over a huge area involving billions of dollars in investment, simultaneous activity in exploration, appraisal of findings, development and extraction of oil is a very complex affair. With BP’s experience, Reliance will be able to take up such campaigns, says Narendra Taneja, south Asia bureau chief of Upstream, a global oil and gas newspaper published from Norway.

More urgent is the need to fix technical problems that have been hampering production at D6. Here too, BP will make a difference, having drilled in over 30 countries and developed proven reserves of 18.3 billion barrels of oil equivalent.

But investors point out that the deal does not seem to solve RIL’s problem of future growth. Analysts like Vidyadhar Ginde of HSBC expect an acquisition in the petrochemicals segment. The company has cash and cash equivalents of $7 billion on its books and is estimated to generate cash profit of $8 billion in 2011-12. Add to this the infusion of $7.2 billion from BP and it has sizeable wallet to shop with. It has already lined up investment of $7 billion that includes a few projects that are yet to take off. The problem of finding enough large investments is something that the company will have to continue grappling with for some more time —unless of course, the RIL-BP combo is able to find the next big one very quickly.

What’s in It for BPFor BP too, the RRR declined in 2010 after it sold assets around the world to fund liabilities in the Gulf of Mexico. However, it has struck two big deals this year that should increase the RRR — the Reliance deal, preceded by a share swap with Russian gas company Rosneft.

After reducing BP’s scope of operations in the US, CEO Dudley had been looking for growth and diversification opportunity. The vastly under-explored subcontinent was a compelling option.
 BP’s Energy Outlook 2030 forecast that India’s energy consumption, which grew by 190 percent over the past 20 years, is likely to rise by 115 percent over the next 20 years. International pressure to cut emissions will also boost gas consumption more than oil over the next few years.

But the real challenge for the alliance comes in the marketing of gas. When RIL first struck large amounts of gas, everyone started speaking of India’s transition to a gas economy. Nearly 10 years later, there is still a huge shortage of gas.

City gas distribution was once considered the Holy Grail of last-mile gas marketing in India. But by now, it has become clear to companies that competition is very stiff and margins very thin in that business.
The deal is a bold move by both companies to bet on India’s future energy profile despite the odds. If they succeed, some of the tarnish may just be wiped out from Tony Hayward’s legacy.

Source:Money control
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Mukesh Ambani's RIL signs $9 bn deal with BP

Mukesh Ambani led Reliance Industries Limited (RIL) has signed a 50:50 joint venture agreement with oil major British Petroleum (BP) for sourcing and marketing of gas in India. The joint venture agreement, valued at $9 billion, is one of the biggest foreign direct investments in the country.  According to the agreement, BP will get 30 per cent of RIL's upstream assets in 23 oil and gas blocks (including the producing KG D6 block) for $9 billion.

BP will pay RIL an aggregate consideration of US$7.2 billion for the interests to be acquired in the 23 production sharing contracts. Future performance payments of up to US$1.8 billion could be paid based on exploration success that results in development of commercial discoveries. These payments and combined investment could amount to US$20 billion.

Mukesh Ambani said: "We are delighted to partner with BP, one of the largest energy majors and one of the finest deep water exploration companies in the world. This partnership combines the skills of both companies and will be focused on finding more hydrocarbons in the deep water blocks of India and significantly contribute to India's energy security."

"This partnership meets BP's strategy of forming alliances with strong national partners, taking material positions in significant hydrocarbon basins and increasing our exposure to growing energy markets," said Mr. Carl-Henric Svanberg, Chairman of BP.

Source: http://profit.ndtv.com/news/show/mukesh-ambani-s-ril-signs-9-bn-deal-with-bp-141776

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ONGC fuel subsidy bill up 21 per cent in Q3

State-owned Oil and Natural Gas Corp's fuel subsidy bill will increase by nearly 21 per cent to about Rs 4,222 crore in the third quarter this fiscal. 

State fuel retailers Indian Oil Corp , Bharat Petroleum Corp Ltd (BPCL) and Hindustan Petroleum Corp Ltd (HPCL) together lost about Rs 15,750 crore in revenues on selling diesel, domestic LPG and kerosene below cost of production in October-December quarter, an official said here. 

"Of this under recovery, upstream companies like ONGC, Oil India and Gail India will bear one-third," he said. 

As per this subsidy sharing formula, ONGC will chip in with Rs 4,222 crore by way of discount on crude oil it sells to IOC, BPCL and HPCL. 

The subsidy outgo of ONGC in Q3 of last fiscal had stood at Rs 3,487 crore. 

The official said while OIL will pay Rs 558 crore in subsidy during Q3 of this fiscal, GAIL will give Rs 418 crore. 

While, petrol price was freed from government control in June, state oil firms continue to sell diesel, domestic LPG and kerosene at government ruled prices which is substantially lower than cost of production. 

IOC, BPCL and HPCL currently lose Rs 6.80 per litre on diesel, Rs 18.66 per litre on kerosene and Rs 366 per 14.2-kg LPG cylinder.

Source: Economic Times

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RIL's KG D6 output set to rise by April

OIL regulator Directorate General of Hydrocarbons (DGH) on Tuesday said that natural gas output from Krishna Godavari's D6 block is likely to touch 60 million metric standard cubic metre per day (mmsmcd) in April this year from prevailing 52-53 mmscmd. 

"They (RIL) are producing natural gas from 18 wells currently. By April 2011, 22 wells will start producing gas. Once all 22 wells come on stream gas output will touch 60 mmsmcd," S K Srivastava, director general of DGH told reporters in the national capital on Tuesday. 

Head of oil regulator also added that production is likely to touch 80 mmscmd by 2012-13. 

Natural gas production from D6 block at KG basin operated by RIL and Niko Resources saw a 15 per cent dip in production during November-December last year. The output was as low as 45-46 mscmd from 53-54 mscmd owing to reservoir complexities. 

Exploration companies sometime face technical issues with reservoir underground. It happens because of gas pressure after wells go on-stream.

"Wells behave differently at different times," Srivastava replied when asked the reason for dip in production. 

In India, the share of natural gas has reached 11.15 per cent in the commercial energy basket after production from KG D6 that was about 8.6 per cent earlier. RIL commenced natural gas production from prolific KG basin in April 2009. The company reported 20 discoveries out of which D1 and D3 are with maximum reserves. 

At present, domestic gas production in the country is close to 165 mmsmcd.

Out of this, power companies utilize 40 per cent gas while fertiliser companies use another 30 per cent. Rest of the gas is supplied to petrochemicals, steel, refineries and city cooking gas units among others. 

Meanwhile, Srivastava said auction for shale gas blocks exploration will be done this year-end. "Resource assessment, policy framework and legislative changes are in progress (for the auction)," he said. 

Shale gas is a cleaner source of energy found in shale rock formations. At present, shale gas is produced only in North America. The estimated shale gas reserves in the US are 125 trillion cubic feet (tcf) and 50 tcf in Canada.

Source: My digitalfc

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