Calgary firm gets lucky with 'elephant' Indian find
CALGARY -- Two misses, and then a strike.
It took just three tries for GeoGlobal Resources Inc. and its partners to tap into what could turn out to be the biggest discovery of natural gas in India's history -- and the start of a rocket ride for the tiny Calgary company, which has just seven employees.
Shares in GeoGlobal more than doubled yesterday, propelled by news of a massive natural gas find off the southeast coast of India.
Indian officials and state oil company Gujarat State Petroleum Corp. Ltd (GSPC) say the Krishna Godavari block, in which GeoGlobal has a 5-per-cent net stake, could hold 20 trillion cubic feet of natural gas worth $50-billion (U.S.).
Those numbers are still being firmed up, but it is clear that the partners have uncovered an enormous volume of natural gas. And they have done so after drilling just three wells, a significant accomplishment in a part of the oil industry that expects nine failures for every success.
The head of GeoGlobal, a geologist named Jean Paul Roy, knew it all along, according to other company executives.
Mr. Roy was utterly convinced that Krishna Godavari held a massive reservoir -- an elephant, in the parlance of the oil industry -- and even came up with a nickname. "He calls it the sleeping elephant," said Allan Kent, executive vice-president and chief financial officer at GeoGlobal.
GeoGlobal first bid on Krishna Godavari in August, 2002, acquiring its rights to the area the following February. Drilling began in August, 2004. In January, the drilling started on the third and successful well, KG#8.
The next job is to find out just how big the elephant is. GeoGlobal is not providing its own figures for the discovery. Mr. Kent will only go so far as to say that the 20 trillion figure is "possible."
With just one well drilled into the reservoir, it is hard to be certain how much gas is there, said Martin Molyneaux, managing director of research at FirstEnergy Capital Corp. in Calgary. "It's a bit of a leap," he said, adding that he has no doubt that KG#8 is a significant discovery.
If the initial claims hold up, GSPC, GeoGlobal and India-based Jubilant Enpro will have tapped into the biggest natural gas reservoir in India's history, larger even than the massive D6 discovery -- just to the south -- two years ago. That discovery also had a Canadian connection, with Calgary-based Niko Resources Ltd. and its larger partner, Indian conglomerate Reliance Industries Inc., finding fields containing at least eight trillion cubic feet of natural gas and perhaps as much as 14 trillion cubic feet.
Many of the foreign firms involved in exploration activity in India are Canadian. But Mr. Molyneaux doesn't expect that will remain the case for long. GeoGlobal's success, coupled with Niko's discovery, means that India's offshore -- formerly shunned as an exploration backwater -- will attract the attention of the world's larger energy companies, he predicted.
The work to come up with more certain reserves estimates will begin immediately, Mr. Kent said. The rig that hit pay dirt is already being redeployed to drill another hole. By the middle of next year, the three-member consortium plans to drill a total of 14 wells.
The lack of certainty about the size of the discovery did not seem to dampen investors' enthusiasm. Shares in GeoGlobal jumped 105 per cent on the American Stock Exchange, rising $3.56 to $6.95. Mr. Roy, with 62 per cent of the company, saw the value of his holdings rise by $120-million.
Mr. Molyneaux said significant challenges remain, even after the drilling is completed. The consortium will need to build a pipeline both to shore and to the markets in India that will use the natural gas. However, with the country's demand for energy soaring, there's no doubt that the output from Khrishna Godavari will be needed.
Back in Calgary, GeoGlobal is still trying to digest the magnitude of its discovery, Mr. Kent, the CFO, said. "This weekend has been overwhelming for me."
