The economics of production from Oilex’s (ASX:OEX, LON:OEX)...

The economics of production from Oilex’s (ASX:OEX, LON:OEX) Cambay field are underpinned by significant excess demand for gas within India’s domestic market, the company says.

In a quarterly update Oilex told investors that due to demand for gas from nearby industrial users strong pricing has been secured for Cambay’s production, and this is above the floor price recently established by the Indian government.

It adds that due to the proximity of existing industry (15kms away) there is also “very low” capital cost associated with gas sales to the local market, and the tie-in to existing gas transmission pipeline network.

“The Cambay field is expected to have robust economics, despite the recent sharp drop in oil prices,” Oilex said.

Financial modelling of the next three Cambay wells indicate, subject to the well’s configuration, recoveries between 531,000 to over 1mln oil equivalent barrels over a 10 year period. This would yield between US$1 (for the smaller configuration) and more than US$20 per oil equivalent barrel, and indicates well payback of 48 to 12 months respectively.

A well with a 700 metre lateral and nine fracks compares favourably with the prior commercial assessment of the project, Oilex said, and in that scenario the total recover is assumed to be 680,000 barrels of oil equivalent (boe) with a net present value (NPV) of US$15 per boe and a payback period of 22 months.

These financial models are based upon a price of US$8 per thousand cubic feet of gas, and a US$70 per barrel price of oil.

Oilex said the full field economics will be assessed after the completion of engineering studies for the project.

In the period under review, the three months to December 31, Oilex achieved its proof of concept work with the completion of the Cambay 77H well.