Govt fixes Essar Oil's gas price at $5.25 mmBtu

The government has fixed $5.25 per million British thermal unit as the provisional sale price of gas Essar Oil is producing from its Raniganj Coal Bed Methance (CBM) block in West Bengal.

"We have received approval from the Ministry of Petroleum and Natural Gas for a provisional gas sale price approval," Essar Oil CEO and Managing Director Naresh Nayyar said in a conference call.

The ministry has approved a basic price of $5.25 per mmBtu plus $1 per mmBtu in transportation cost, he said.

At Raniganj, Essar Oil's first CBM block under development, 33 wells are currently producing about 35,000 standard cubic meters per day of gas.

The company, he said, will drill 500 wells to help output reach pleatue of 3.5 mmscmd in three years time.

The company has completed a 48-km Raniganj-Durgapur pipeline, which will help bring gas from the field to the industrial customers in Durgapur.

"The Field Development Plan for the Raniganj block that will allow Essar Oil to drill a total of 500 wells has also been approved. Commercial sales from the block are scheduled to begin in a few months post some statutory approvals," he said.

Essar Oil is investing about $500 million for producing gas from below coal seams, called Coal Bed Methane.

The company had last year signed production sharing contracts (PSCs) for four CBM blocks it had won under the recently concluded fourth round of auction. It now has five CBM blocks to produce gas from below coal seams.

The Raniganj block in West Bengal has in-place resources of 4.6 trillion cubic feet (tcf) and recoverable resources of around 1 tcf. In the Rajmahal block, one of the four areas for which Essar signed a PSC last year, the in-place resources have been estimated at 9.5 tcf, with recoverable resources of 4.7 tcf.

Currently five CBM blocks (with different companies) in the country -- Raniganj East, Raniganj South, Jharia, Sohagpur West and Sohagpur East, are currently producing 0.15 mmsmcd and output is expected to reach 7.4 mmscmd by 2013.

So far, government has awarded 32 CBM blocks, holding 62 trillion cubic feet of gas reserves, to different companies.