Oilex wants to drill the Cambay-78 vertical well to undertake testing the shallower OS-II zone and obtain core samples for the Eocene-aged EP-IV zone reservoir, a gas-rich but tight zone that has so far defied attempts to produce at commercial rates.

The core data is considered a vital piece to the puzzle to refine future drilling plans, completion methods and stimulation optimisation.

Back to basics

Energy News understands Oilex is planning to go back to basics at Cambay in order to better understand the potential multi- trillion cubic feet resource of the deeper EP-III/IV reservoirs, where the potential has been independently recognised, even if the method to win the gas from the rocks remains elusive.

Oilex is hoping to drill the vertical well to first assess the OS-II, the traditional shallow reservoir that has produced in the field since it was discovered in the 1950s, and where there is remaining undrained potential.

Success in the shallower section could be a quick money-maker for Oilex, but the real payoff is in the EP-IV, the unconventional zone that has twice been targeted by Oilex without much success.

The tight siltstones have been Oilex's focus for the better part of the decade, but unfortunately for the company, which is leading the charge in India's unconventional space, taking off-the-shelf technologies and completion methodologies designed for US plays turned out not to be a winning strategy.

The aim is to core the EP-IV in a vertical well, and use the data to better understand the tight siltstone. Earlier attempts attempted to skip over that step and focussed on establishing gas flows.

The new softly, softly approach recognises that even in the US the first wells into a new unconventional play are either marginal or sometimes fail outright, and that additional data is needed.

It can take time to match drilling, completion and stimulation methods, a process that requires plenty of wells, which is easy to do in somewhere like Texas, but less simple in India.

Cambay-76H, the first horizontal well in the field, suffered a downhole issue, after intersecting promising pressurised gas zones and the follow-up Cambay-77H has, until recently, been on production into a low-pressure pipeline, producing the bulk of the PSC's total production of 42 barrels of oil equivalent per day.

Cambay-76H was lost soon after drilling, while Cambay-77H showed minimal contribution from the fractures, suggesting the core is needed to define the completion technique. Water was also produced in the well, which needs to be understood.

And yet, the prize is worth it: some 927Bcf and 61MMbbl (2C) of well-defined contingent resources. There have been 41 well penetrations of the EP-III and EP-IV siltstone, with 16 flowing to surface.

Partner

To move the project forward and collect the vital core data Oilex needed the support of GPSC, its state-owned 55% partner in the field, something it won on Monday.

GSPC, which is estimated to be more than $6 million behind in cash calls for Cambay, has left Oilex to pay the bills for more than a year, after a disastrous attempt to develop assets at home and abroad, including a development in the Krishna-Godavari Basin that has swallowed more than $1.5 billion to date without delivering production.

India's auditor general found the project was badly planned and that GSPC had chased the development of a structurally complex, high-temperature and high-pressure deepwater field without the necessary skills.

That report, combined with the fact that the KG Basin project's resources have shrunk from over 20Tcf in 2005 to possibly 1.8Tcf, has left GSPC effectively paralysed and unable to participate in the Cambay project.

Cambay could be important to GSPC's future, but it can't make the money available to keep up with Oilex's modest ambitions.

By allowing Oilex to sole-drill a well it is signalling it wants to keep its hand in and Energy News understands the relationship between the two companies is considered good despite the fiscal issues.

GSPC will maintain a 12-month back-in right, but until that happens Oilex will have the right to 100% of any production arising from Cambay-78. Despite not meeting its cash calls, GSPC has been receiving payment for the limited production from Cambay's other wells.

If GSPC elects to exercise its back in right it will pay to the Oilex 55% of any unrecovered expenditure, plus a small mark-up.

Oilex has also agreed to impose limits on recoverable expenditure for operating costs should the well commence commercial production.

Oilex managing director Joe Salomon said the company was pleased to have to have reached an agreement with its joint venture partner to progress the drilling of the vitally important well.

"This reflects a significant milestone in the ability of Oilex to unlock the Cambay field potential and assist in potentially securing an extension to the PSC term" he said.

"The agreement reinforces our determination to add value for shareholders by progressing the development of this key asset."

Heartland

In the event of success, the good news is that the Indian economy continues to grow and Gujarat is India's industrial heartland.

A large part of India's more than one billion inhabitants lack reliable power and rely on biomass for their primary source of heat.

India's power backbone is its coal-fired power plants, but the government is working to change that and switch the focus to gas.

Gas does not occupy a huge percentage of the market, but it is increasingly important with the government pushing compressed natural gas, particularly public transport and trucks to reduce pollution in its cities and downs.

India's domestic production has been declining and it is increasingly relying on LNG, mostly from Qatar, plus spot cargoes from places such as Australia.

There are more LNG terminals on the table, while Woodside Petroleum has suggested international oilers should consider help funding the development of a reticulation network, so there is somewhere for their gas to go, but that process could take some time.

If Oilex can develop the EP-IV it will have a ready-made market.

Drilling Cambay-78 will also allow Oilex to start the process of renewing the PSC, which expires in September 2019.

Oilex can renew the PSC for two periods of five years, but it needs to provide develop a field development plant, and that requires a field to develop by September 2017.

Drilling of the proposed well remains subject to funding, but it is hoped to spud the well in the first half of next year. There are rigs in country and the cost of the well is considered to be affordable.