MUMBAI: Essar Energy will start exploratory drilling at its blocks in Mumbai High field and Vietnam in September-October, hoping to discover reserves to increase its crude oil production.
Even as energy companies across the world are reducing capital expenditure as crude oil prices have crashed 50% since June, Essar plans to go ahead with its exploratory drilling. Simultaneously, the company is executing a plan to ramp up its coal bed methane output from 0.5 million standard cubic mettres per day (mmscmd) now to 3 mmscmd by 2016-17, said Manish Maheshwari, chief executive officer - exploration and production at Essar Energy's oil and gas arm Essar Oil.
"We would be drilling a couple of exploration rigs in Mumbai offshore and Vietnam in the fair weather window later this year. Depending on the results of the initial drilling, we will decide how many wells we want to drill," Maheshwari told ET.
Currently, the company produces a very small quantity of crude from its Mehsana oil and gas block. An increase in crude production could help the company improve its margin at its Vadinar refinery which has a capacity of 20 million tonne per annum.
Essar Energy holds 30% stake in one shallow water offshore exploration block MB-OSN-2005/3 near the Mumbai High field in the Mumbai offshore basin, while the rest is owned by ONGC. In Vietnam, the company acquired 100% stake in Block-114 in 2007 with a production sharing contract with the Vietnam government.
Essar now holds 50% in the Vietnam block after it sold an equal stake to ENI International B.V. The company has concluded mapping the prospect based on 3D seismic data for the two blocks and hopes to start drilling. Maheshwari said that the company hopes to drill the wells at a significantly lower cost as service providers are cutting costs by up to 30% to get jobs. Project costs in the E&P space has been on the decline as service providers and engineering companies are preparing to cut prices to grab a share of shrinking orders.
"The E&P sector has not seen any activity in India since 2010. We have assets at different stages and have prioritised certain assets. Now the focus is to ramp up production and convert these assets into mature producing properties," Maheshwari explained.
Billionaire brothers Shashi and Ravi Ruia-promoted Essar Energy sees its next big growth in the E&P business to come from coal bed methane gas production, where it has already become the country's largest producer after its Raniganj asset in West Bengal crossed 0.5 mmscmd output.
"We have a portfolio of onshore and offshore oil and gas blocks with 1.7 billion barrels of reserves. Our focus is to convert these reserves to production," Maheshwari said.
Crude oil prices have almost halved since June due to an oversupply in the market. Benchmark Brent crude touched lows of $45 per barrel in January against a high of $115 last summer. Oil has seen some gains and reached $58 a barrel but the outlook remains muted as demand is unlikely to pick up.