Ravva consortium against deepwater gas development

Vol 10, PW 8 (10 Aug 06) Exploration & Production

GAIL must agree to pay a higher price for Ravva gas before the Cairn-led consortium agrees to develop a promising new deepwater gas prospect.

Such is the consensus emerging among consortium members Marubeni, ONGC, Videocon and, of course, operator Cairn Energy. The prospect in question goes by the name LO (Lower Oligocene) 110 - the only gas prospect at Ravva that sits in deeper waters and which consortium partners believe could produce 3.5m cm/d additional gas.

But doubts about the viability of LO 110 development have surfaced, despite GAILs agreement to pay more for gas it already receives. Last month, after four years of persuasion, GAIL agreed to pay $3.50 per mmbtu from July 2005 till November 2008 for 1m cm/d it receives from the older gasfield at Ravva the earlier ceiling price for this gas was $2.96 per mmbtu.

The new price for Ravva gas does not justify developing the LO 110 prospect, says a source. Ravva partners originally thought a deepwater rig would be needed to develop LO 110 but later concluded a jack-up with a 15,000-psi BOP stack would be enough.

We have done a lot of work on this prospect and are continually refining our knowledge of the subsurface geology, we hear. This is a high temperature/high pressure prospect.

Still, the cost of development would be $300m over three years and involve drilling at least two exploration wells that could later become producers. Only after drilling can we draw up a production profile, says a source.

Given the high expenditure involved, Ravva partners are firm they wont develop LO 110 until GAIL agrees to pay substantially more than what it has agreed to pay for the older Ravva gas. When steel prices and rig rates were low we calculated that for development of LO 110 to be viable we should sell the gas at $3.33 per mmbtu, says a source.

Today the price must be more than $3.5 per mmbtu and closer to $4 per mmbtu. Some months ago the consortium wrote to the ministry requesting a better price for LO 110 gas.