India attracting independents with new license, royalty terms

Deepwater tariffs cut in half in effort to stem production decline

Jeremy Beckman
Editor, Europe

• There are three main reservoirs in the Ravva field development shown above. Pipelines will bring production ashore. [95,387 bytes]
• Location of the PY-3 oilfield in the Cauvery Basin, offshore Madras. [106,516 bytes]

Negotiating production sharing contracts (PSC) in India has always been a slow process. Too slow for some leading oil companies, who will happily subject their staff to jungle warfare, but draw the line at long hours in an office plotting a path through red tape.

India is trying to reform its image, in light of forecasts that domestic oil needs will double to 3 million b/d or more by 2010. The nation's latest exploration license policy, relating to 31 new Indian offshore blocks, promises to speed up awards of PSCs to within nine months of bid receipt.

In addition, foreign oil companies will not be bound as before to admit ONGC or Oil India to their licenses. Royalties for any production from the newly opened deepwater areas will be half the normal Indian offshore tariff.

Deepwater, in India's case, means below 400 meters. All current production comes from shallower basins, thought by some state oil industry officials to be mature. Yet, as two UK independents have recently discovered, there may be plenty of unrealized potential on India's doorstep.

London-based Hardy Oil & Gas was traditionally a smaller player in the North Sea and the Gulf of Mexico. Latterly, it has expanded its horizons to the Timor Sea Zone of Co-operation and western Australia's Carnarvon Basin, where it recently became an operator. But it wanted to extend its presence further to South Asia.

Having gained gas acreage onshore Pakistan, Hardy's general manager, Joe Woolf, then approached India's government in 1995. Within a year, Hardy was operating a new field development, PY-3, in India's Cauvery Basin which produced first oil this July.

Cairn Energy, based in Edinburgh, is best known for its Sangu project off Bangladesh. A year ago, it gained control of the Ravva development offshore southern India through acquiring the Australian operator of the project Command Petroleum. Production is steadily rising as Cairn introduces new drilling and reservoir engineering techniques.

The swift course of both events belies India's image as a place where time has little meaning. In both cases, production was achieved with participation from state oil concerns. Now the two UK companies look well placed to secure more attractive Indian offshore acreage.

Confidence building

When Joe Woolf initiated discussions with state and industry officials, the response was virtually repetitive: "We need to find equity oil outside India to counter falling domestic production." But when Hardy examined the track record on India's basins, "we found it, in fact, to have been lightly explored," Woolf says. "Certainly not mature by North Sea or Gulf of Mexico standards. And when we looked at the drilling picture, their knowledge was relatively sparse - enough for us to add some real value."

India's oil industry is dominated by ONGC, which employs 140,000 people to produce 600,000 b/d. A leading North Sea operator can produce twice that amount of crude with around one-twentieth of the personnel. It will also encourage its individuals to take on broad areas of responsibility, whereas in India, overmanning has traditionally stifled individuality and audacity. With personal survival dependent on not making mistakes, there has been little incentive to innovate.

However, westerners with a will to enter Indian ventures can pass on their expertise to nationals. Hardy's own strengths, according to Woolf, are subsurface engineering and project management, based on its experience in the North Sea. "These two, added to international capital, will help us to build substantial business in India."

Hardy took the view that it should demonstrate its commitment to India's oil industry, which it did by taking a 15% stake in Indian independent HOEC. The latter is a partner on the PY-3 project, along with ONGC and Tata Petradyne.

PY-3 and surrounding block CYOS-90/1 became available when previous operator Vaalco Energy India ran out of money, stalling the development. Hardy bought the subsidiary from Vaalco, also taking on its interests in three Indian offshore licenses. However, it stuck to the development plan of the previous regime, including the locations for forthcoming development wells.

The field, discovered in 1988, lies 10 miles offshore the Madras area. Production is through four subsea wells tied back to a floating production unit offloading to a floating storage unit. During last year's development phase, Hardy gained its first experience on an ONGC drilling unit (a drillship). "We thereby learned a great deal about their capability," says Woolf.

"We drilled the deepest well to date offshore India, in 235 meters of water. ONGC's staff in turn learned how to drill in deeper waters. Now they're upgrading the drillship with a view to exploring in up to 400 meters of water."

The FPU currently produces 10,000 b/d with storage capacity of 400,000 b/d. The plan is to raise production through a second development phase next year, with another drillship lined up for appraisal drilling and water injector wells. "PY-3 is by no means the summit of our aspirations for India," says Woolf, "but it has demonstrated our ability to bring fields there onstream quickly.

"Now we're looking for bigger projects. There are a number of other proven discoveries yet to be developed." Hardy is looking at other field takeovers, where it could apply its own technical, commercial and managerial style. But it would also consider taking equity in a project operated by someone else, provided the partners demonstrated viability.

Of the other licenses Hardy picked up from Vaalco, CBOS-1 may be the most interesting. This license, equivalent in size to 17 North Sea blocks, lies in the Cambay Basin offshore northwest India. Six wells have been drilled on the acreage to date, three of which encountered oil. One might be commercial.

The prime area is in very shallow waters close to the shore, where there is a high tidal and current range as well as nearby mango swamps, which makes a barge a candidate for production. Appraisal drilling will begin early next year using the Transocean Jupiter jack-up. "Because of the difficulties of moving the rig around, it makes sense to drill some deviated wells," says Woolf.

Hardy's passage around India has been eased partly by the nation's continuing strong links with the UK, he adds. Prince Philip was recently in Madras opening the company's new office. But as a smaller oil concern, Hardy also aided its case through being flexible in its dealings with the Indian authorities - more so than a giant corporation that will not sanction expenditure until every aspect of a work program is approved. "We think there's a better way of working in India," Woolf says.

Ravva ups production

When Cairn Energy (Command Petroleum India) took over operation of the Ravva oil and gas field late 1994, daily production was around 6,000 b/d. The new PSC then implemented a field development plan which has led to production rising to a level today of 35,000 b/d of oil - 6% of India's output.

Ravva was discovered by ONGC in the late 1980s. The prognosis was 118 million boe recoverable - that estimate rose to 227 million boe as flank drilling extended the field limits. Cairn operates with 22.5%. Partners are ONGC, Videocon Petroleum India, and Japan's Marubeni (Ravva Oil).

Seven platforms are strung out across Ravva's three main reservoirs. According to Cairn's asset manager for India exploration, Barry Smith, this is a multi-layered reservoir sequence, mainly of Miocene age. "The main sands within the objective sequences are relatively continuous and reservoir quality is good. However, the structure of the field is complicated. But we have improved our knowledge of the field's internal configuration, allowing us to reassess its potential."

When Cairn came in, it found that ONGC's engineers had expertise, but mainly in reservoirs of poor quality. Cairn introduced different skills for the field development and appraisal stage. "We improved the field's subsurface image by reprocessing the 3D seismic grid and employed modern core recovery practices to optimize downhole data collection. We used state of the art pressure gauges to construct reservoir models that predict more accurately reservoir extent and performance.

Since early 1996, 16 wells have been drilled - currently four exploration and three development wells remain to be drilled, and these should be completed by the middle of next year. All the recent oil discoveries have been in the range 5-10 million bbl. The facilities are sized so that production can be raised to 50,000 b/d at modest expense. All the platforms have spare well slots. Most of the production wells are deviated from, the vertical, with a maximum angle of 60 degrees.

Ravva lies in shallow waters less than 20 meters deep in the Krishna Godavari Basin in the Bay of Bengal, outside the main monsoon flight path. Cyclones occasionally pass through, but the production facilities are designed to withstand these forces. Most of the platforms are normally unmanned, with shut-in controls. "During rough weather, the only impact has been to change the drilling schedule. Recently, for instance, we were unable to move the rig, so we drilled a follow-up well from the same platform, which avoided having to put the rig on standby."

Oil, gas and water are piped to the nearby onshore process and storage facilities and then to a mooring buoy from where they are shipped by tanker to a refinery in Visakhaptnam. Sales gas production from the RG-2 well - 2/3 associated gas and 1/3 non-associated gas - is then piped to a shore-based terminal for separation and onward sale into the local gas network.

Based on a pretty limited production history, Smith says, the field's life expectancy is 20 years. "There is an area around the RB platform where aquifer support is below average for Ravva, so we are augmenting the natural support of the aquifer system with additional sweep capacity from water injection. For example, two of the reservoirs in the RB platform area are isolated, and a dedicated injector, RF-4, is being completed to enhance recovery."

More exploration leads have been identified in the Ravva license area, but only a few look ready to drill. Cairn and its partners aim to clarify the picture through acquiring 200 km of transition zone 2D seismic in the northern part of the block.

Cairn is also negotiating for two offshore exploration blocks in the Bay of Bengal and the Gulf of Cambay. The latter has been sparsely explored while the former lacks sufficient data sets. But based on what data is available, this block has features similar to Ravva's, which it adjoins. Once the awards are made, Smith says, "we would launch into technical work programs straightaway".

Copyright 1997 Oil & Gas Journal. All Rights Reserved.