Hindustan Oil Exploration : Q4 2023-24 Transcript

Hindustan Oil Exploration Company Limited

Q4 FY24 Earnings Conference Call

May 31, 2024

Moderator:	Ladies and gentlemen, good day, and welcome to Hindustan Oil Exploration Company Limited
	Q4 and FY '24 Earnings Conference Call.
	As a reminder, all participant lines will be in the listen-only mode and there will be an
	opportunity for you to ask questions after the presentation concludes. Should you need
	assistance during the conference call, please signal an operator by pressing "*" then "0" on
	your touchtone phone. Please note that this conference is being recorded.
	I now hand the conference over to Mr. Sumeet Singhania from Valorem Advisors. Thank you,
	and over to you, Mr. Singhania.
Sumeet Singhania:	Thank you. Good morning, everybody, and a warm welcome to you all. I am Sumeet from
	Valorem Advisors. We represent the investor relations of Hindustan Oil Exploration Company
	Limited. On behalf of the company, I would like to thank you all for participating in the
	company's earnings call for the company's fourth quarter and the financial year ending 2024.
	Before we begin, let me mention a short cautionary statement. Some of the statements made
	in today's earnings call may be forward-looking in nature. Such forward-looking statements are
	subject to risks and uncertainties, which could cause actual results to differ from those
	anticipated. Statements are based on management's beliefs as well as assumptions made by
	the information currently available to the management. Audiences are cautioned not to place
	any undue reliance on these forward-looking statements in making any investment decisions.
	The purpose of today's earnings call is to purely educate and bring awareness about the
	Company's fundamental business and financial quarter under review.
	Let me now introduce you to the management participating with us today in the earnings call
	and hand it over to them for the opening remarks. We firstly have with us Mr. R. Jeevanandam
	- the Managing Director; and Mr. Krishnan Raghavan - the Chief Technical Officer.
	Without any further delay, I request Mr. Jeevanandam to start with his opening remarks. Thank
	you, and over to you, sir.

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R. Jeevanandam:Thank you, Sumeet. Good morning. Hope everyone has received the updated earnings presentation. It is on our website for your reference. I have with me Krishnan Raghavan, our Chief Technical Officer and Daisy, our Company Secretary.

At the outset, we would like to highlight some of the achievements set to be "the firsts" such as - We believe that we are the first company which secured an offshore block in Discovered Small Fields Bid Round - I that has put the field on production within the stipulated time and shared the revenue with Government of India. We have paid Rs. 160.5 crores to the Government of India as a revenue share for B-80 block as on 31st March 2024. In addition, we have paid 10% of the total revenue as a royalty to the Government of India, Rs. 88.53 crores as on 31st March 2024.

Your Company has for the first time in over 40 years made a consolidated turnover of Rs. 830.27 crores in the year 2023-24. Net profit after tax has also, for the first time in the company's history, crossed Rs. 225 crores. All subsidiary companies are in profit mode in the current financial year '23-'24.

Having said all about our achievements, I will now start with the operational updates about the Eastern region. Dirok gas sales for '23-'24 is 1.95 BCF and condensate is 36,618 barrels compared to 3.11 BCF of gas and 58,768 barrels of condensate in the previous year. During the quarter, Dirok gas sale is 0.55 BCF and condensate is 10,917 barrels compared to 0.59 BCF of gas and 10,841 barrels of condensate in the previous quarter. Though this field can produce about 50 million standard cubic feet per day, we have to restrict the production due to lack of demand.

Major players, OIL and ONGC are selling the gas at the price applicable for nominated blocks. We are selling the gas at the PPAC price without any discount. Therefore, the gas from the nominated field is sold first and the balance demand is met by us at PPAC price.

The ceiling price fixed by the Government of India for nominated field is 6.5 per MMBTU. The price achieved by us under the PPAC is 8.82 per MMBTU in the current quarter. The PPAC price for May '24 is 8.9 per MMBTU.

Therefore, the customers who are mostly public sector undertakings would like to avail the low price from nominated fields of ONGC and OIL. Once the common carriers start working and the grid connectivity is established, this situation would get reversed. We believe that once the DNPL line becomes a common carrier, there should be some uptick in the volume. P&NGRB is in discussion with various stakeholders. We believe that once the IGGL lays its own line from Duliajan to Numaligarh, which is about 180 kilometers, the demand constraints would further be eased out. This enables to fully establish the connectivity of the Eastern Gas Grid to the Central India. Also, this will ensure that an increase in stabilized optics from '25-'26 onwards to achieve the full potential of the field.

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We have started the workover of Dirok-1 well. This well was completed with sands 12 and 15 with sand screen, which will be pulled out for further perforation and cleanup. While cleaning the sand 12 and 15, it is planned to test the Sand 9 and 10 for hydrocarbons with DST. On successful testing of Sand 9 and 10, the potential of the block would be enhanced substantially in addition to the revision of the resource in the existing producing Sands. Downside of this testing of Sand 9 and 10 is only the limited additional cost during workover.

After the workover of Dirok-1 well, Dirok-2 and 4 wells will be worked over. Re-processed seismic data with the revised geological model and the material balance is being reviewed by GCA and we expect an increase in the recoverable reserves of the field. After these workovers, we plan for additional two producers to ramp up to 70 million standard cubic feet per day. In essence, we keep ourselves ready to meet the potential increase in demand. Once the demand constraint is eased out by connecting Northeast Gas to the National Gas grid.

Our subsidiary, GeoEnpro, is the operator of Kharsang block and the group has 35% participating interest in the block. After the review of the production data, continuous workover is planned for producing wells to maintain the current production, as well as to increase the production.

We plan for drilling 15 wells to increase the production from upper Girujan and one exploration well to know the potential of deeper formation, such as Lower Girujan, Tipam and Barail. Some of the workover and additional perforations are providing positive results, though this block is producing from Upper Girujan formation for over 40 years.

The environmental clearance has taken considerable time and on obtaining the clearance, we will embark on drilling immediately, and the tangibles required such as wellheads, Xmas trees and tubulars were already procured and is installed. We believe substantial upside is in Lower Girujan, Tipam and Barail formations. This block would unlock substantial value after drilling the proposed exploratory wells. With the connectivity of Eastern Gas grid to National grid, monetization of the gas discovery will be faster, with a better price.

HOEC has 100% participating in the block AA-ONHP-2017/19, adjacent to Dirok, said to be Greater Dirok. Reprocessing of the seismic data has been completed, and our G&G team has completed the review. GTO has been approved to drill one exploration well with seven seismic signatures.

Due to heavy rain, drill fire and approach road could not be constructed in time to move the rig for drilling before August 2024. We have made an application for two years RSC extension. And once the extension is registered from MOPNG, we will drill one exploration well. And on success, we will drill the second well also.

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In eastern region, the expected capital outlay for the next two financial years is about Rs. 250 crores, which will be further added if there is sustained demand for gas supply.

Cambay blocks

In Cambay, the total contact area is about 38 square kilometers, with substantial number of wells for evaluation. Well data are being evaluated, and good potential exists in all the three blocks to enhance production. Once the ring-fenced R2 PSC is signed, we could add additional value to the Cambay blocks. Currently, these fields are breaking even with a meager contribution to the P&L account. In part, it is planned to have artificial lifts in all three wells.

We are planning for two development wells in Asjol and two in North Balol to increase the production as soon as we get the environmental clearance. EC was expected before March. However, it is delayed. We have submitted the due clarification for all queries raised by the EAC and we expect the clearance by June '24.

Now I move on to offshore blocks. We are pleased to inform that B-80 crude was sold at a price of US$80.27 per barrel. First offloading of 430,000 barrels of oil was completed and the total revenue of Rs. 287.37 crores is realized in the first quarter of '24-'25. Production from B-80 field for the year '22-'23 is 187,492 barrels of oil and about 1.85 BCF of gas and for the current year it is 320,887 barrels of oil and 2.13 BCF of gas.

Likewise production in the last quarter was 95,000 barrels of oil and 0.45 BCF of gas and the current total is 83,000 barrels of oil and about 0.32 BCF of gas. This reduction is mainly due to the blockage of the export flowline with intermittent times taken for chemical flushing to ease the obstruction.

We would like to inform you that the D1 well was activated by removing the blockage by chemical injection. In-house team as well as Baker carried out the operation in March '24 and the well is fully activated. When the two wells flow was established, we once again found obstruction in the oil export line and so could not test both the wells for its optimum flow for a sustained period. We tried by using various chemicals to remove the blockage in the export flowline but unable to get the required flow rate to test both the wells.

Therefore, we have mobilized the steam boilers and indirect water bath heaters with high capacity pumps to clean up the export flowline. The equipment and personnel are on board and once all the equipment are lined up, we will shut the production for some minimum period and after the due cleanup, we will line up both the wells. We honestly hope that this will help us to test the optimum potential of the well D1 and D2 and get a sustained flow rate. This period of shutdown should be minimal and we believe that the field will come up to normal production level by producing from both the wells.

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I move to PY-1 offshore. We are having all facilities, pipeline and other infrastructure required evacuation of gas and condensate. Current production from this field is minimal. Seismic data of this block was reprocessed and our in-house G&G team has evaluated and released three drilling locations. We have also carried out a third party expert review, which is echoing the views of our team.

The uncertainty on the gas water contact of north and south of the field is different which is indicating the high volumes, which will again be reviewed by a firm of experts in London. After the third-party review, being in line with our in-house interpretations, we plan for three development wells, and if everything goes as per plan, drilling of the first well will commence in April to June 2025.

Consequent to the issue of D1 well, which was resolved after a substantial time, and the continued low uptake of Dirok, we are unable to ramp up the production to the expected level. We are progressing with upgrade in the results of producing blocks by carrying out the material balance with the available production data.

We have also lined up the capital program for about Rs.1,000 crores in the next 3 years to drill a substantial number of developments and exploratory wells. This will create value below the ground as well as above the ground and position the company with a reasonable and stable cash flow to achieve its objectives.

Now I will update on the financial results. Standalone revenue for this quarter is Rs. 254 crores compared to Rs. 109 crores in the previous quarter. Revenue earned for the current financial year is Rs. 544.28 crores compared to Rs. 411.1 crores in the previous year. Revenue increased mainly from sale of B-80 crude in the current quarter.

B-80 revenue for the current quarter is Rs. 203.57 crores compared to Rs. 48.43 crores in the previous quarter. This is mainly due to the oil sales. Current quarter increase is mainly due to the oil sales of Rs. 172.42 crores. B-80 revenue for the current year is Rs. 354.47 crores compared to Rs. 144.05 crores in the previous year.

In case of Dirok, the revenue for the current quarter is Rs. 47 crores compared to Rs. 57 crores in the previous quarter. Revenue for the current year is Rs. 175 crores compared to Rs. 250 crores in the previous year.

Field operating expenses for this quarter in the standalone account is Rs. 67.93 crores compared to Rs. 76.23 crores in the previous quarter. Operating expenses for the current year are Rs. 267.7 crores compared to Rs. 169.51 crores in the previous year. Others including DDA, finance costs and others is Rs. 60.88 crores compared to Rs. 77.74 crores in the previous year.

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Value in stock in FSO as on 31st March is Rs. 33 crores whereas the value in stock in FSO in the previous year was Rs. 73 crores. Standalone EBITDA for the current quarter is Rs. 29.45 crores compared to Rs. 16.74 crores in the previous quarter. Profit after tax in the current quarter is Rs. 19.1 crores compared to Rs. 4.82 crores in the previous quarter.

EBITDA for the current year is Rs. 133.05 crores in the standalone compared to Rs. 223.17 crores in the previous year. This is mainly due to the reduction of revenue of Dirok by about Rs. 75.64 crores.

Profit after tax for the year is Rs. 84 crores compared to Rs. 163 crores in the previous year. Major reasons for the decrease in profit is reduction in the revenue from Dirok and charges of facilities have increased from 187 days to 315 days.

In consolidated accounts, the total revenue for this quarter is Rs. 330 crores compared to Rs. 193 crores in the previous quarter. This was due to crude oil sales from B-80 block. Revenue for the current year is Rs. 830.27 crores compared to Rs. 592.2 crores in the previous year. We are reaching about $100 million turnover.

The total operating costs in the consolidated accounts for the year is Rs. 552.15 crores compared to Rs. 358.31 crores in the previous year. For the current quarter, it is Rs. 241.54 crores compared to Rs. 137.2 crores in the previous quarter. Reasons for the difference as stated is the oil sales.

Consol accounts' EBITDA for this quarter is Rs. 77.67 crores compared to Rs. 80.14 crores in the previous quarter. EBITDA for the current year is Rs. 326.82 crores compared to Rs. 320.98 crores in the previous year.

Consolidated profit after tax is Rs. 70.61 crores against Rs. 40.57 crores in the previous quarter. This increase is mainly to the exceptional item of Rs. 32.87 crores due to fair value adjustment of the existing shares of GeoEnpro, consequence of business combination.

The consolidated profit before tax for the year is Rs. 248.29 crores compared to Rs. 197.29 crores in the previous year. Consolidated profit after tax for the current year is Rs. 226.43 crores compared to Rs. 194 crores in the previous year.

As on 31st May 2024, the outstanding loan in the standalone account is Rs. 75 crores and in the subsidiary account is about Rs. 58 crores. The company has repaid the loan of Rs. 242 crores in the current financial year. The company has "A" stable rating for Rs. 500 crores, bank loan from India rating. With the current cash position and with the continued production, we will meet all our obligations, including the proposed work program for the coming three years as planned.

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	That's all. We can open the forum for questions now.
Moderator:	Thank you. We will now begin the question-and-answer session. The first question comes from
	the line of Rishabh Daga with Motilal Oswal. Please go ahead.
Abhishek:	Sir, just two questions. So, one on the B-80. So, how long could the shutdown be? And once
	that is completed, then is it fair for us to assume that both the wells could produce at the same
	level where they were before the whole incident happened? So, I think at the gross level, they
	were doing about 3,000-odd barrels of oil equivalent per day. So, that's my first question.
R. Jeevanandam:	Thanks, Abhishek, and this work will be started and we expect a very, very minimal duration of
	the shutdown for cleanup operations. So, at the end of the day, it depends on the functioning
	of the equipments on board. So, we believe it should be a very minimal period. And now both
	of wells are getting activated. We will be able to test the capacity of the wells once the export
	line is fully cleaned up. Now, we believe we should be able to get back to the, before cyclone
	on June 2023. But there might be some variation in the gas production, a little increase in the
	oil production and we will test the flow for some times and we will let you know.
Abhishek:	That helps. And sir, if you can give us some updates on the individual gas grid, what is
	happening over there and when can we expect progress on increasing revenues from there
	from Northeast?
R. Jeevanandam:	Abhishek what I understood is that lines are laid. Now the compressor and the connecting
	facilities are to be made. Once that is, I mean, it takes some time and it should be operational
	at least by the third quarter and by all means, by the fourth quarter. That's what we expect.
	Meanwhile, the DNPL line, we are planning for a common carrier. Once that becomes a
	common carrier, then it will be further eased out and we will be able to ramp up the production
	little more than what we are doing now.
Abhishek:	And DNPL line for now, I mean, Oil India is using it or how does it work? And I think full common
	carrier, we can also use it.
R. Jeevanandam:	Yeah, I think Abhishek, it is a DNPL line is a contract carrier at the moment. So, now it becomes
	a common carrier. I think I understood that the DNPL Chairman is visiting there and the contract
	carrier is to become a common carrier. When it becomes a common carrier, you can, on tariff
	basis, you can pump the gas. That will get all the grid connectivity fully there, it can go to the
	Central India. That's the idea.
Moderator:	Thank you. Next question comes from the line of Vikram Kotak with Ace Lansdowne
	Investments. Please go ahead.

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Vikram Kotak:	Jeeva, I have two questions, but one I think you answered already to earlier participant. What
	are the CapEx numbers for next two years? That's question one. And also, what is the oil and
	gas mix now in B-80 for FY '24?
R. Jeevanandam:	See, Vikram, that CAPEX plan for the three years is about Rs. 1,000 crores. And what happens,
	we have to do that major junk for the B-80 development, that is kept for the third year.
	Previously, you can look at roughly around annual exposure is about Rs. 300 crores per annum.
	That will be supported by our cash flow itself. And mixed as such, we are producing about, say,
	1,400 barrels of oil and gas is almost equal in B-80 now.
Moderator:	Thank you. Next question comes from the line of Rishikesh with RoboCapital. Please go ahead.
Rishikesh:	Sir, my first question is, if you could highlight what is a net production for upcoming one or two
	quarters, and what net production are you targeting for FY '25?
R. Jeevanandam:	So we, because I don't go for any projections for this business, basically, because many
	important things we have to come up with. We can have the reference projections. We would
	be improving our current production level once both the wells are flowing from the B-80. And
	if there is an increase in the demand from the Dirok field. These both will be the determinant
	factors for the coming financial year to increase the production.
Rishikesh:	Sir, my second question is with respect to the B-80.
R. Jeevanandam:	Tell me what is the question.
Rishikesh:	My question is with respect to B-80. Since the chemical is not fixed in the export flow line, are
	we now mobilizing the rate? And when can we expect to get to the optimum production levels?
R. Jeevanandam:	See, we are in the process of cleaning up the export flow line. Once the cleanup operations are
	over, then we will be testing the wells for some period after we can get a choke site set on it
	and get the pressure stabilization. And then we will be observing for about seven - eight days,
	and that would be called as the sustained flow of the well. So, that way we will test both the
	wells in such a manner, then we will co-mingle both the production and that would be
	determined as the level of production from the field.
Rishikesh:	Also sir, if you could share your revenues from Dirok and B-80 for Q4?
R. Jeevanandam:	You wanted to know the revenue from the Dirok field and?
Rishikesh:	From B-80.

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R. Jeevanandam:	I just read it actually. I can tell you Dirok in quarter 4 is about Rs. 47 crores. And B-80 is, you
	have to look at one abnormality because the entire crude oil which was stored has been sold
	which is about Rs. 203 crores.
Moderator:	Thank you. Next question comes from the line of Rohit with Samatva Investment. Please go
	ahead.
Rohit:	Sir, my first question is, the problem at B-80 right now, so will it be impacted by the weather
	window? So, do we expect it to get the work done before monsoon or will it get postponed
	after the monsoon?
R. Jeevanandam:	We have carried out all the precautionary measures and the inspection and change of hoses
	and the maintenance of the SBM is carried out and under buoy hose inspection also carried
	out. And now no one can predict the fury of the monsoon. That's the position. So we are fully
	prepared for meeting any eventuality.
Rohit:	So, basically, it can be done during the monsoon. Is that right, sir?
R. Jeevanandam:	Yeah, that's right. Before the monsoon itself, we have taken care of it. We changed the hoses
	and we did carry out the SBM maintenance and we did inspect the under buoy hose. We believe
	that we have taken adequate precautions. But weather remains to be unpredictable by anyone.
Rohit:	So, right now in Q1, what is the production for B-80?
R. Jeevanandam:	Q4, quarter four, isn't it?
Rohit:	So, for quarter one, so both the wells are not functioning right at the level that we want to. So,
	right now, is both the wells shut or are we producing at lower level?
R. Jeevanandam:	So, we are today because of the blockage of the flow line, we will not be able to tell the exact
	volume, which comes a little more on one well, a little less on the other well. So, we will be
	able to get back to the normalcy once the cleanup is completed.
Rohit:	Sir, my second question would be, so if you look at B-80 overall, it's been three - four years
	since we started the field. There have been multiple delays, certain things which have not been
	in our hand. So, I just want to know, because of the various problems that have happened in
	the field, will there be any impact on the overall production? So, we were targeting to be
	around net, around 7,000 barrels. So, do you see any change in those numbers, any impact on
	those numbers because of the various problems happened over the last three to four years?
R. Jeevanandam:	Actually, if I tell you precisely, we have started on June 4th of 2022, about two years now. I
	agree with you. Now, see, we are not worrying too much about the below-the-ground reserves.
	And above-the-ground facilities are hammering us, which we are trying to solve one by one.

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	And if we sustain this production level, we will be planning for drilling three more wells to fully
	exploit the block. The expenditure level should be around $50 million. So, that's what we plan
	two years down the line. Once we reach to that level, we can reach to the plateau of production
	level what you are indicating to me. With the current two wells, we won't be able to reach to
	the level.
Rohit:	So, overall, there is no change. Once the problems get solved, we can still reach the level that
	we wanted to be earlier, right?
R. Jeevanandam:	What happened, the current production level of before June 2023 can be continued. But you
	reach to the level of the number you indicated to me, more than 5,000 barrels and gas and
	other things could be possible only after drilling the additional three wells, which entails with
	the cost of about $50-plus million, that we are planning at the end of the third year now. First
	two years, we will concentrate on our onshore and one well at the offshore. B-80, we will get
	back to drilling up, producing from five wells only on 2026-27, sorry, '27-'28.
Moderator:	Thank you. Next question comes from the line of Manan Mundra, an individual investor. Please
	go ahead.
Manan Mundra:	My question is regarding the Dirok field. Just wanted to understand was currently the reduction
	in the sales volume in the Dirok, is it due to the supply side pressures or the demand side
	pressures?
R. Jeevanandam:	If the wells are intact, we can be able to supply 45 to 50 million cubic feet per day even
	tomorrow morning. But the fact remains, we don't have the demand for that uptake. That's
	the reason we have to curtail ourselves.
Manan Mundra:	And once the Northeast grid gets connected and the Central grid gets connected, the demand
	is going to pick up. But just wanted to understand, is it going to impact the premium prices that
	we are charging? I am supposing the gas flow is bidirectional in the flow line. So, can you please
	clarify on that?
R. Jeevanandam:	What happens? You get a better price. Because it gets connected to the National grid. So, the
	additional cost to you would be only the tariff on the line, tariff for pumping the gas into the
	line. You will be getting the price, what is in the Western region, you should be getting the price
	the same in the Eastern region, but what you have to minus only the tariff charges. So, in effect,
	we should be able to always get around PPAC price.
Manan Mundra:	And that includes, I mean, after netting of the transmission charges, right?

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