Exercise caution when you bid for CBM blocks

Vol 13, PW 9 (08 Oct 09) People & Policy

With just four days to go before the NELP-VIII and CBM-IV deadline on October 12, here follows a cautionary tale about the perils of blindly snapping up CBM acreage in India.

We are not qualified to cast doubts on the quality of NELP and CBM data on offer, but we are saying investors should be wary of any bold claims made by the DGH. Or you could end up like GSPC, which is now saddled with north Gujarat block BS (3)-CBM-2003/II, after its partner and operator ONGC (70%) walked away in December 2008.

GSPC and ONGC joined forces to win this block during the CBM-II round in 2003. But after drilling eight coreholes and two test wells over two years that cost the consortium $1.2m, ONGC threw up its hands and gave up.

GSPC acknowledges that hydrocarbon exploration is a gamble, but it is upset that â€کexperts’ who should have known better, misled it. “DGH and ONGC bosses influenced our decision to bid for this block,â€‌ GSPC told PETROWATCH last week.

“Very senior people from the DGH and ONGC told our MD (DJ Pandian) and chief minister (Narendra Modi) that this block had reserves of 3-tcf. We believed them and went ahead.

â€‌ He adds that the DGH and ONGC were “morally duty boundâ€‌ to tell GSPC of recoverable reserves and not just reserves as a whole. GSPC says subsequent testing of cores and samples showed that the block contained mostly lignite at depths between 1100 and 1500 metres.

“Lignite is not mature coal,â€‌ says GSPC. “There’s no CBM production from lignite anywhere in the world, except Powder River Valley in the US.

But that’s different geology.â€‌ GSPC says it presented test results to the now retired top DGH official who initially promoted the block.

“He saw the results and admitted he had made a mistake,â€‌ says our source. “But what use is that nowâ€‌