HOEC expects windfall from drop in oil field service costs

M Ramesh Chennai | Updated on April 30, 2020 Published on April 30, 2020

As it proceeds to bring to production an oil field in the Western offshore region, Hindustan Oil Exploration Company (HOEC) finds an unexpected windfall in terms of a 20-30 per cent fall in the cost of oil field services.

In March 2017, a joint venture of HOEC and Adbhoot Estates (owned by the promoters of Aban Offshore Ltd) won the ‘B-80’ oil field when the government of India bid out ‘discovered small fields’, which India’s public sector oil major ONGC had discovered but found too small for its time and attention.

Today, HOEC announced that it completed drilling a second well in B-80. The results of the drilling “surpassed our expectations”. The company estimates that when brought to production, it will produce 5,000 barrels (680 tonnes) of crude oil and 20 million cubic feet (20,000 MMBTU or 566,366 million standard cubic metres) of natural gas a day. The other well is flowing about 750 barrels and 5 million cubic feet of gas a day.)

HOEC’s Managing Director, P Elango, told BusinessLine today that the field would be brought to steady-state production level by December.

Earlier, the company had estimated the breakeven price of oil from the field at $35 a barrel. Now, thanks to the ultra-low oil and gas prices around the world and a consequent glut in the supply of oil field services, Elango expects to lower the breakeven price by $3-5 a barrel.

He said that until before the oil prices collapse began (a couple of months ago), an oil rig cost between $45,000 and $50,000 a day. In the coming months, rigs can be hired at between $30,000 and $35,000. And there are other services — helicopters, boats, manpower — that are all available much cheaper.

“Our estimate of the daily operating cost till before the price collapse was between $50,000 and $60,000,” Elango said. When the joint venture tenders for these services, it expects costs to have dipped by 30-35 per cent.

It also helps that since the field was won through a tender under the ‘discovered small field’ scheme, the JV does not have to pay the ₹4,500 per tonne OID cess on the crude produced. The gas is also free of government pricing, which is today $2.39 an MMBTU. The gas is to be plugged into the existing gas network of Gujarat, and Elango says that an expectation of $5 for the B-80 gas is not unreasonable, given that Gujarat users buy costlier imported and re-gassified LNG. Production of 20,000 MMBTU of gas should, therefore, yield $100,000 a day — gas alone should comfortably cover the cost of operations.

“We are determined to continue the momentum and complete the project to deliver the first oil and gas from both the wells,” HOEC’s statement of today, says.

More positives

Beneath the 56-sq-km B-80, which is part of the ‘Panna formation’, lies another hydrocarbon-bearing area, an extension of basaltic rock formation called Deccan Traps. “In an appraisal well to be drilled in the future, we will target this prospect,” Elango said.

Follow us on Telegram, Facebook, Twitter, Instagram, YouTube and Linkedin. You can also download our Android App or IOS App.

Published on April 30, 2020
This article is closed for comments.
Please Email the Editor