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Shale, CBM key areas of focus in coming years

Aims to double investment in main Raniganj block

In deal with Gas Authority of India to sell output

Singapore — India's Essar Oil & Gas Exploration & Production Ltd is speeding up its plans to pursue exploration of unconventional hydrocarbons in India on the back of investor-friendly upstream policy reforms undertaken in recent years.

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The company's CEO, Vilas Tawde, said coalbed methane and shale gas would figure prominently in Essar's portfolio in coming years, as it aims to carve out a niche for itself at a time when India is making concerted efforts to boost the share of gas and clean fuels in its energy mix.

"Unconventional hydrocarbons is our prime focus and we are going to pump a lot of funds into that sector in India in coming years. We want to play a leadership role in that sector," Tawde told S&P Global Platts in an interview.

Essar Oil & Gas Exploration, focusing on the upstream sector, was carved out by the owners of Essar Group after they sold Essar Oil -- which mainly comprised of downstream and retail oil operations -- to a consortium comprising of Rosneft, Trafigura and United Capital Partners at $12.9 billion.

Essar Oil & Gas Exploration owns 2,500 sq km of CBM acreage in India, which comprises of the producing Raniganj East Block in the eastern state of West Bengal, as well as the exploration blocks of Rajmahal and Sohagpur. The company also has one conventional block in Mehsana, which has the potential to produce CBM.

Essar estimates that the blocks have reserves of up to 1.7 billion barrels of oil equivalent.

UNTAPPED POTENTIAL

Essar received environment clearance for exploring shale gas reserves in its Raniganj block after New Delhi overhauled its exploration policy and decided to allow operators freedom to explore both conventional and non-conventional sources, such as CBM and shale reserves, within the exploration acreage.

"There is a huge potential for shale gas and oil exploration in the Raniganj East CBM block," Tawde said. "Our Raniganj asset will help us to access vast untapped gas markets in eastern India and help us sell it at market-linked prices."

Tawde said Essar had so far invested around Rupees 40 billion ($577 million) in the Raniganj block.

The company has so far drilled 348 wells and currently 120 wells were producing assets. The company aims to spend up to $1 billion in shale exploration activity in that block if the initial test wells look promising.

Essar has already signed an agreement to sell entire production from Raniganj block to state-run Gas Authority of India Limited, Tawde said.

"We see that India is firming up plans to establish a transparent gas market. This will help us to sell our output at market-linked prices in coming years," Tawde said.

Commenting on other CBM blocks, Tawde said that the blocks currently are in the exploration stage with estimated CBM resources of 5 Tcf and recoverable volumes of 2 Tcf.

POLICY OVERHAUL

In early 2016, the government finally unveiled its long-awaited Hydrocarbon Exploration Licensing Policy, the first oil and gas fields auction in six years -- with the aim to attract investment into the upstream sector.

The policy was a sea change from the cost-recovery model to a revenue-sharing model and includes a uniform licensing system that covers conventional and unconventional hydrocarbons. It also features an "open acreage policy" that allows companies to evaluate and define the areas they want to bid for.

Tawde praised the policy reforms undertaken by the government in the past years in the oil and gas sector, mainly in the upstream sector.

"Some of the reforms, mainly in the areas of pricing, that we have seen in the upstream sector is quite encouraging and we are keen to expand our presence in that segment," he said.

Tawde said there was an urgent need to bring gas, crude oil and other energy products under the goods and services tax in order to make it more competitive for the energy sector and attract increased inflows of investment.

India in 2017 embraced a unified tax structure across a wide range of goods and services while it kept crude, natural gas and some oil products out of GST's purview. Government officials have said that New Delhi would look into the possibility of imposing GST on the energy sector at a later date.

But oil companies -- both state-owned and private -- have highlighted that the move to keep the five products out of the GST list could affect investments in infrastructure, as their input costs would rise because of the GST but they won't be able to pass on the tax burden to consumers.

"We are hoping that gas will be under GST very soon," he added. "If we are aiming to move towards a gas-based economy, we need to make investments in that segment attractive. We are expecting gas demand in India to grow annually by 6%-7% in coming years."

-- Sambit Mohanty, sambit.mohanty@spglobal.com

-- Edited by Geetha Narayanasamy, newsdesk@spglobal.com