Indus has reported its maiden interim results for the six month period ending September 30, 2008.
Commenting, Marc Holtzman, Non-Executive Chairman, said, “Indus has had a successful first six months as a listed Company and remains well placed with solid funding, an additional discovery since listing and a strong work programme planned for 2009. Looking ahead, Indus is in a solid position with a fixed contract in place for the sale of its gas and, with the field development plan for SGL now submitted, all key obligations under this contract have been completed. We are looking forward to the year ahead with confidence.”
As of December 9, 2008, the following work program has been completed on Block RJ-ON/6 under the production sharing contract (“PSC”):
The work undertaken to date fulfils all of the minimum work obligations required as part of the PSC on the Block. Any additional work undertaken is with a view to maximize the exploration and appraisal potential in the Block.
SGL was declared commercial in January 2008, following an independent assessment of reserves by Industry leading consultants DeGolyer & MacNaughton of Dallas, Texas (“D&M”).
As announced on 6 June 2008, Oil and Natural Gas Corporation of India (“ONGC”) exercised its option under the PSC to acquire a 30% interest in respect of the SGL Field discovery. Following the exercise of this option, Indus’ participating interest in the SGL Discovery is now 63%.
The exercise of this option is a positive step for Indus and also underlines the potential of the SGL Discovery. Under the PSC, ONGC is responsible for its share of the development costs in respect of the SGL Field as well as 100% of the applicable royalty and any other tax calculated with reference to income from the field except income tax as outlined in the admission document. ONGC, being a licensee, is also obliged to pay the license fees in respect of the Block.
An area of 195 km2 has been proposed as the “SGL Development Area”. A field development plan was submitted ahead of the required date on the 2 December 2008 to the PSC Management Committee (including DGH, ONGC and the Ministry). Upon approval of the plan (expected in Q1 of 2009) and the extent of the development, the area approved will be known as the SGL Field and the participants will be able to develop and produce hydrocarbons from this field until the termination of PSC.
In November 2008, following the analysis of new 3D seismic data, which provided a better understanding of the discovery compared to previous 2D data and also provided additional seismic coverage, the Management Committee approved an increase in gross (100%) original gas in place (OGIP) estimate of 328 BCF, with “Proven plus Probable” (2P) well head recoverable gas reserves of 246 BCF. The previous approved OGIP and reserves were 238 BCF and 179 BCF respectively.
On a comparable basis, TRACS International Ltd in their competent person’s report dated 29 May 2008 in support of the AIM admission, used the D&M Independent Reserve Report figures of GIIP 245 BCF and 2P reserves of 192 BCF. The new data used for the Management Committee upgrade has been provided to D&M for their review and consideration. D&M are expected to report their findings in January or early February 2009.
A term sheet has been signed with GAIL India Limited (“GAIL”), for the supply of 33.5 MMcf of natural gas per day for 12 years. The term sheet is currently being revised to include ONGC as a party to the arrangements. Under the term sheet, GAIL is required to install a pipeline for the supply of gas to a nearby power plant owned by Rajasthan Regional Vidhyut Utpadan Nigam Limited (RRVUNL). The RRVUNL plant is currently producing 110 MW of power, which is being expanded to 270 MW.
An initial supply of 7 MMcf of gas will commence in late 2009 or early 2010. This amount will increase to 33.5 MMcf per day, likely at the beginning 2011, by which time the Company will have installed a CO2 removal plant to strip out excessive carbon dioxide from the feed gas.
The price of gas and supply under the contract with GAIL is fixed until 2013 and as such any change in the wider economic conditions will have a limited impact on Indus. Gas prices (except prices of LNG) have also remained unchanged in India regardless of reductions in oil prices Worldwide.
Furthermore, despite significant falls in the prices of alternative fuel sources in recent months, the price at which gas will be supplied under the contract with GAIL continues to be considerably lower. There remains, as such, a strong incentive to switch to gas supplied by Indus on price, let alone guarantee of supply. The prices of alternative fuel sources would have to decline further by some considerable margin for this balance to change.
The Company, along with the other SGL field participants, will be required to install appropriate production facilities, including an estimated 14 production wells over the 12 year life of the sales contract, a gas gathering station and gas treatment facilities to meet the contractual requirements. Installation of the production facilities is expected to commence from Q2 2009 following approval of the field development plan.
The Company believes that the PSC participants will be able to access required financing to fund their respective share of development plan capital expenses without impacting the exploration activities elsewhere in the Block.
The SSF-2 discovery well was drilled in February 2008. Wireline logs and petrophysical analysis provide strong evidence of clean, gas charged sand encountered in the Baisakhi and Bedesir sequence. The SSF structure was defined by several 2D seismic lines and carries contingent resources according to the Competent Persons report.
As previously announced, testing of the likely gas bearing zones has been delayed due to a stuck drill string in the bottom hole. A competitive tender process has been completed to procure a work over rig in order to re-enter the well; however, the Operator is currently reviewing its options and may abandon the SSF-2 well in favour of a new well to conduct flow tests on the SSF discovery.
SSG -1 Well
The SSG-1 well was drilled to a depth of 3,500 m, initially targeting the Pariwar formation of a Lower Cretaceous age. The SSG-1 well lies some 9.86 km south west of SGL-1 discovery well in the Shahgarh Subbasin of Jaisalmer Basin. The SSG-1 well was spudded on 22 August 2008 and was referred to as “SFT-7/L” in the Competent Persons Report and the AIM Admission Document.
In September it was announced that during the drilling operations, several instances of clean gas charged sand horizons were encountered and that testing was required. Subsequently, a zone at 3,398-3,401 m was selected for testing using a TCP perforation system. During the test, gas was burned continuously for 6 hours before the well was shut in. At the same time, water was also produced from a separate interval above this test zone. The test zone produced gas only.
The SSG-1 well contains a water column of 1,600 m, which needs to be drained. The column is equivalent to 2,300 psi of back pressure. With the water column present, the stable tubing head pressure was 300 psi on half inch choke size. Accordingly, the Operator has announced the SSG-1 well as a discovery under the PSC.
The SPF-1 well, which was drilled to assess the Pariwar – P10 sequence, was successfully drilled and cased as planned to a total depth of 3,564 m in July 2008. Wireline logs indicate the well intersected three gas bearing reservoir intervals in the Early Cretaceous Pariwar formation. A 6m gas charged interval was intersected at a depth of between 3,267-3,273 m, a further 8 m interval was encountered between 3,226-3,234 m and the final 12 m interval at a depth of between 3,208-3,220 m.
During initial testing of these zones, gas and water (interpreted as formation water) were produced and gas was flared continuously for 48 hours.
Further testing, which will require production logging tools, will enable the Company to obtain a better analysis of the gas/water behaviour and obtain pressure and flow rates. Certain components, however, remain unavailable and as such testing has been delayed into 2009.
The SPF-1 well was referred to as “SFT-1/P” in the Competent Persons Report and the AIM Admission Document.
The Company announced the spudding of the OMM-1 well on 7 October 2008. This well, which is located approximately 1.4 km south west of the SGL-2 gas discovery well, initially targeted the Sanu formation (D2 sandstone).
The Sanu formation was encountered at an approximate depth of 2,200 m with no substantial gas bearing formation. While drilling continued to appraise the Pariwar formation the well had to be abandoned at 2,913 m before reaching the revised target depth due to drilling difficulties.
Significant progress has been made since Indus successfully listed on the AIM market of the London Stock Exchange earlier this year. During the next 12 months, there is also a strong work program in place. This program includes the development of the SGL field, testing and commencement of appraisal of the prospects and discoveries listed above, drilling of exploration/appraisal wells in additional prospects and leads that where identified in the Competent Person Report, results from processing and interpretation of the acquired seismic data and also the planned acquisition of an additional 300 km2 of 3D seismic data.
The Company is well placed to make further and solid progress in the year ahead.
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