Cairn Energy of UK will invest between $630 million and $859 million to develop its natural gas discovery in the deepwaters of Krishna Godavari basin, off the Andhra coast.

"An investment of $630-859 million (Rs 2,900-3,950 crore) would be required to bring to shore gas from the D5 block in KG Basin," informed sources said.

The block, adjacent to Reliance Industries' gigantic 9.46 trillion cubic feet gas field in the same basin, holds reserves in excess of 1.26 trillion. It can produce between 30-40 million standard cubic feet per day of gas in two years.

"Cairn has conducted an extensive seismic acquisition and exploration drilling programme in KG-DWN-98/2 (D5) block in the KG Basin resulting in five oil and gas discoveries to date," they said.

Three of the five discoveries - Kanakdurga, Annapurna and Padmavati - in the block are commercially viable.

Annapurna is estimated to contain 400-600 billion cubic feet of gas while Kanakdurga has 40-80 million barrels of oil.

Padmavati is estimated to contain 70-80 million barrels of oil.

An additional 1.6 billion barrels of oil equivalent of gross ‘unrisked' reserve potential has been identified on Cairn's eastern Indian acreage.

"The discoveries are currently under evaluation prior to considering forward appraisal and development plans," sources said, adding that Cairn was looking for a partner for the high cost deepwater development.

Sources said Cairn was talking to state-owned Oil and Natural Gas Corporation for partnering in the development of KG block.

"Cairn is a small company and does not have resources needed to bring gas to shore. It is on the lookout for a partner who can invest in the development," they said.

The British company has already signed a ‘heads of agreement' with public sector gas transportation company GAIL for the sale of gas by Cairn to GAIL for the Andhra Pradesh market.

The HOA provides that Cairn and GAIL will, on an exclusive basis, enter into discussions with the intention of signing a gas sales agreement by Q4 2003.

Cairn holds a 100 per cent equity interest in Block KG-DWN-98/2.