Essar to ink Ratna output deal in Q1

Essar Energy, part of the Essar group, expects to take the first step towards commercialising its largest oil reserve in three months.

The unlisted company expects to sign the production-sharing contract (a precursor to actual development work) for its Ratna block in the next quarter and start production by mid 2011, officials reportedly told investors on Monday.

“They expect peak production of around 35,000 barrels of oil per day,” said an analyst who attended the investors’ meet.

Ratna, off the western coast of India, is one of Essar Energy’s two oil-bearing blocks — the other one, in Nigeria, has been waiting for the signing for production contract for several years.According to Essar Energy’s presentation to analysts, Ratna accounts for 74 of the 87 million barrels of ‘2C’ crude reserves the company has.

‘2C’ contingent reserves are reserves that have a 50% or more chance of being recovered. They are known as contingent to reflect their uncertain nature. They are considered “potentially recoverable” from known accumulations, but are not currently considered commercially recoverable owing to constraints like environmental impact, policy or other commercial or technical difficulties.

Ratna, owned 50% by Essar, is likely to start with production of 7,000-8,000 barrels of oil and achieve its peak rate 2.5 years after starting production.

Besides Ratna, the company is also likely to start production of coal bed methane, similar to natural gas, from its Raniganj coal block within three months, marking its emergence from being primarily a refining player to a production, refining and retailing company.

The company has budgeted for a total expenditure of more than half a billion dollars for the block, one of the earliest coal bed methane blocks to be approved for production by the government. The block has around 0.2 trillion cubic feet of 2C gas, and will produce at the rate of 3.5 million cubic metres per day in about 2.5 years. It is expected to remain operational at peak rate for 14 years.

Essar has another 0.92 trillion cubic feet of 2C gas reserves, primarily in its recently-evaluated Mehsana block in Gujarat. With the new Mehsana estimate, Essar’s total oil and gas reserves have hit 274 million barrels of ‘2C’, from 83 million barrels of ‘proven and probable’ reserves announced in January this year.

The company also told analysts that its phase-I expansion of refining assets is on schedule. The expansion, which will increase its refining capacity from 14 million tonnes per year to 18 million tonnes and allow it to process heavier crude, will be complete by March 2011.

Essar Energy is rumoured to be planning a $3 billion IPO on the London Stock Exchange to fund its expansion and exploration activities. Company sources have, however, said that it is yet to zero in on any option, but a listing is one of the possibilities.