Essar oil's CBM holds double the amount of Gas than estimated

Essar Oil's coal bed methane (CBM) blocks hold about 7 trillion cubic feet (tcf) of recoverable gas resources, more than double the previous estimate, which may be worth over $4 billion at current prices.

"Essar's exploration and production business is set to become a major wealth creator for Essar Oil," the company, which engaged independent consultants to assess reserves in the acreage it holds, said in a filing to the stock exchanges.

Renowned international consultants, Netherland Sewell and Associates Inc and RPS Energy and Advanced Resources Inc of US have certified an aggregate in-place gas resources below coal seams (CBM) of 15 Tcf and recoverable CBM resources of around 7 Tcf in its Raniganj, Rajmahal and Mehsana blocks.

Previous assessments had put recoverable reserves and resources at 3 Tcf.

Besides, its offshore block in Nigeria holds an estimated 200 million barrels of oil equivalent resource, while its yet-to-be-signed Ratna and R-Series fields in Mumbai High hold 160 million barrels of oil equivalent.

Essar said it will start producing 9,000-10,000 cubic meters a day of gas from its Raniganj block in West Bengal by the second quarter. Peak production of 3.5 million cubic meters a day would be reached in mid-2013 and will last 20 years.

"The company has signed long term (gas sale) contract with two large industrial customers," it said.

With these reserves, Essar's E&P business is poised for significant growth.

Essar said its Raniganj block in West Bengal, which has in-place resource of 4.6 Tcf and recoverable resource of around 1 Tcf, will start production in the second quarter.

In Rajmahal block, where Essar has been declared provisional winner in the recently-concluded auction of CBM areas, in-place resource of 9.5 Tcf has been estimated with recoverable resource of 4.7 Tcf.

The company had stated in 2009 that it plans to drill 500 wells over the next 3-4 years to produce 3.5 mmscmd of peak gas output from Ranigang CBM block, whose life has been assessed at 20 years.

Essar will invest $300 million in the block but needs $150 million, for which it is in talks with banks.

Raniganj block is located in the industrial region of West Bengal with two major steel plants of SAIL, three existing and one upcoming power plant and a range of industries with a huge appetite for gas in the vicinity.

Raniganj is the country's oldest coal-mining zone. The block is located about 150 km from Kolkata near the steel city of Durgapur in Burdwan district.