Essar Oil will pump $500 million into Raniganj

Essar Oil Ltd, the oil and gas arm of the $15 billion Essar Group, plans to invest $500 million to develop more coal bed methane (CBM) blocks in Raniganj, West Bengal.

“The company, in all, plans to drill 500 wells in the CBM-bearing area of Raniganj and has already received approvals for the field development plan,” Naresh Nayyar, managing director, Essar Oil, said in a conference call on Monday.

Nayyar said for the year ended March 2011 the company registered a 25% jump in revenues to Rs53,119 crore in the last fiscal over Rs42,402 crore posted in the previous one. While its Ebidta, or operating profit, rose 43% at Rs2,780 crore in fiscal 2011, profit before tax (PBT) spiked to Rs835 crore from Rs29 crore for the year ended March 2010.

Nayyar attributed the growth to a higher throughput and a high gross refining margin (GRM). “The GRM, inclusive of sales tax benefit, was $6.91 per barrel for fiscal 2010-11, an 86.75% improvement when compared with a GRM of $3.70 per barrel in fiscal 2009-10,” he said, adding that the Vadinar refinery posted a record throughput of 14.76 million metric tonnes per annum (mmtpa).

“The phase I expansion of the refinery to 18 mmtpa is on track and mechanical completion is expected in a phased manner in the second and third quarters of the current calendar year,” Nayyar said.

The company is also implementing an optimisation programme to enhance the capacity to 20 mmtpa, which will be completed by September 2012.

Essar, one of the early entrants into the CBM business, is currently producing 35,000 standard cubic metres per day (scmd) of gas and will be starting commercial production in the next few months.

“We are awaiting a few statutory approvals and that can take some time,” said Nayyar and added that once the approvals are in place commercial production will begin. Nayyar said so far 33 wells in Raniganj are production stage and 30 more have been drilled.
He said the company is expecting to touch a level of one lakh scmd of gas production within one year of commercial production and has already tied up with few customers for its sale. The approved price for the gas is at $6.75 per million metric British thermal units (mmBtu).

“It is a broad-based price and will vary depending upon where we sell it and to whom we sell it,” Nayyar said.

An oil and gas expert from a leading international consultancy firm said the biggest problem with CBM gas is that it cannot be transported to large distances. “Most of the CBM gas is concentrated in the eastern parts and it is not connected to an overall gas network in the country. So in spite of being low-capex exercise, CBM is priced higher,” he said.