SWP jacket mishap complicates PMT development plan

Vol 12, PW 18 (12 Feb 09) Exploration & Production
     

One immediate fall-out of the February 3 South West Panna (SWP) platform jacket accident is that the start date for production from the new oilfields planned to boost declining output will be delayed until at least after the summer monsoon season.

Original plans envisaged the SWP platform (jacket and topside) installed by the end of this month so that drilling on three wells could begin next month to develop a new hydrocarbon discovery. Each well is expected to cost $17m, we are told, and should produce between 700 to 800 b/d additional oil, most of which will compensate for the 15% to 18% natural decline in production from other PMT fields.

Internal estimates put the cost of the SWP platform project at around $130m, but with the delay and associated costs of retrieving the jacket from the seabed an even more critical issue for the PMT consortium is the economic viability of the project as a whole. “The SWP project was viable only because it was clubbed with the PK (platform) project ($170m),â€‌ an industry source tells us.

On its own, we are told, the internal rate of return for SWP was just 10.5% - well below the minimum requirement of 12% - but the internal rate of return for PK was about 17%. “When both these projects were put together the combined IRR worked out to 12.5%, barely crossing the minimum required.

â€‌ Now, thanks to the capsized jacket, the costs of the SWP project will rise significantly, pushing down its internal rate of return even below the originally calculated 10.5%. To make matters worse, the current low crude oil prices will worsen the SWP internal rate of return.

Under the original internal rate of return, the SWP project had not been approved by ONGC’s board. Nevertheless, the PMT consortium went ahead based on the combined threshold.

When the SWP jacket is retrieved from the seabed, we are told, its â€کintegrity’ will have to be thoroughly tested at an Indian or overseas shipyard before it is re-installed. “There will be significant additional costs and time required for this exercise,â€‌ we hear.