OilVoice - Indus Gas Announces Maiden Interim Results

Indus Gas Announces Maiden Interim Results

Sunday, December 21, 2008

Indus Gas Limited, the oil & gas exploration and development company based in India, reports its maiden interim results for the six month period ending 30 September 2008. Indus listed on the AIM market in June this year under the symbol: INDI.L

Highlights
- Successful admission to AIM in June 2008 – raising £25m
- New discovery in SSG-1 well
- Management Committee (including Government of India) approves SGL reserves upgrade from earlier 179 bcf to 246 bcf. Ongoing Competent Persons review for their independent assessment
- Field Development Plan for SGL submitted ahead of required date
- SPF-1 well flowed gas, awaits further testing
- Seismic programme on track
- Drilling of New well Indian Shingli-1 under way after moving the rig from OMM-1 well
- Approval for extension of Petroleum Exploration License

Commenting, Marc Holtzman, Non-Executive Chairman, said:
“Indus has had a successful first six months as a listed Company and remains well placed with solid funding, an additional discovery since listing and a strong work programme planned for 2009. Looking ahead, Indus is in a solid position with a fixed contract in place for the sale of its gas and, with the field development plan for SGL now submitted, all key obligations under this contract have been completed. We are looking forward to the year ahead with confidence”.

Operations Update
As of 9 December 2008, the following work programme has been completed on Block RJ-ON/6 under the production sharing contract (“PSC”):
i) Acquisition, processing and interpretation of 1,037 line kilometre (LKM) of 2D Seismic, representing an increase of 153 LKM since the last update in September, & 290 km2 of 3D Seismic;
ii) The acquisition of a further 112 km2 of 3D seismic since September bringing the total additional 3D seismic acquired to 165 km2;
iii) Reprocessing of 4,700 LKM of 2D Seismic;
iv) Drilling of 12 exploration/appraisal wells. Currently drilling 13th Well (Indian Shingli-1), which as of 16 December has been drilled to 3,300 m.

The work undertaken to date fulfils all of the minimum work obligations required as part of the PSC on the Block. Any additional work undertaken is with a view to maximize the exploration and appraisal potential in the Block.

SGL Discovery
SGL was declared commercial in January 2008, following an independent assessment of reserves by Industry leading consultants DeGolyer & MacNaughton of Dallas, Texas (“D&M”). As announced on 6 June 2008, Oil and Natural Gas Corporation of India (“ONGC”) exercised its option under the PSC to acquire a 30% interest in respect of the SGL Field discovery. Following the exercise of this option, Indus’ participating interest in the SGL Discovery is now 63%.

The exercise of this option is a positive step for Indus and also underlines the potential of the SGL Discovery. Under the PSC, ONGC is responsible for its share of the development costs in respect of the SGL Field as well as 100% of the applicable royalty and any other tax calculated with reference to income from the field except income tax as outlined in the admission document. ONGC, being a licensee, is also obliged to pay the license fees in respect of the Block.

SSF-2 Well
The SSF-2 discovery well was drilled in February 2008. Wireline logs and petrophysical analysis provide strong evidence of clean, gas charged sand encountered in the Baisakhi and Bedesir sequence. The SSF structure was defined by several 2D seismic lines and carries contingent resources according to the Competent Persons report.

As previously announced, testing of the likely gas bearing zones has been delayed due to a stuck drill string in the bottom hole. A competitive tender process has been completed to procure a work over rig in order to re-enter the well; however, the Operator is currently reviewing its options and may abandon the SSF-2 well in favour of a new well to conduct flow tests on the SSF discovery.

SSG -1 Well
The SSG-1 well was drilled to a depth of 3,500 m, initially targeting the Pariwar formation of a Lower Cretaceous age. The SSG-1 well lies some 9.86 km south west of SGL-1 discovery well in the Shahgarh Subbasin of Jaisalmer Basin. The SSG-1 well was spudded on 22 August 2008 and was referred to as “SFT-7/L” in the Competent Persons Report and the AIM Admission Document.

In September it was announced that during the drilling operations, several instances of clean gas charged sand horizons were encountered and that testing was required. Subsequently, a zone at 3,398-3,401 m was selected for testing using a TCP perforation system. During the test, gas was burned continuously for 6 hours before the well was shut in. At the same time, water was also produced from a separate interval above this test zone. The test zone produced gas only.

The SSG-1 well contains a water column of 1,600 m, which needs to be drained. The column is equivalent to 2,300 psi of back pressure. With the water column present, the stable tubing head pressure was 300 psi on half inch choke size. Accordingly, the Operator has announced the SSG-1 well as a discovery under the PSC.

Detailed testing, requiring production logging tools, will be required to obtain a better analysis of the gas/water behaviour and to establish the pressure and flow rates from this well.

SPF-1 Well
The SPF-1 well, which was drilled to assess the Pariwar – P10 sequence, was successfully drilled and cased as planned to a total depth of 3,564 m in July 2008. Wireline logs indicate the well intersected three gas bearing reservoir intervals in the Early Cretaceous Pariwar formation. A 6m gas charged interval was intersected at a depth of between 3,267-3,273 m, a further 8 m interval was encountered between 3,226-3,234 m and the final 12 m interval at a depth of between 3,208-3,220 m.

During initial testing of these zones, gas and water (interpreted as formation water) were produced and gas was flared continuously for 48 hours.

Further testing, which will require production logging tools, will enable the Company to obtain a better analysis of the gas/water behaviour and obtain pressure and flow rates. Certain components, however, remain unavailable and as such testing has been delayed into 2009.

OMM-1 Well
The Company announced the spudding of the OMM-1 well on 7 October 2008. This well, which is located approximately 1.4 km south west of the SGL-2 gas discovery well, initially targeted the Sanu formation (D2 sandstone).

The Sanu formation was encountered at an approximate depth of 2,200 m with no substantial gas bearing formation. While drilling continued to appraise the Pariwar formation the well had to be abandoned at 2,913 m before reaching the revised target depth due to drilling difficulties.

Financials
The listing on AIM raised £23.4m for the Company net of IPO related expenses. Against this capital raise, the Company cash balance as at 30 September 2008 was approximately £19.3m. The Company is in ongoing discussion with a European bank for syndication of a reserve based lending, which the Company believes will be available for drawing in Q1 2009. While part of the debt financing will be utilized for repayment of past exploration costs incurred by the Operator on the Company’s behalf and due for payment, the substantial portion of the debt financing will be used to fund the Company’s share of the SGL development costs. Indus believes that its current cash position is sufficient to take it through to the end of 2009 and beyond, by which time, the Company expects sales of gas from the SGL field to commence.

Outlook
Significant progress has been made since Indus successfully listed on the AIM market of the London Stock Exchange earlier this year. During the next 12 months, there is also a strong work programme in place. This programme includes the development of the SGL field, testing and commencement of appraisal of the prospects and discoveries listed above, drilling of exploration/appraisal wells in additional prospects and leads that where identified in the Competent Person Report, results from processing and interpretation of the acquired seismic data and also the planned acquisition of an additional 300 km2 of 3D seismic data.