HINDOILEXPNSEJune 08, 2022

Hindustan Oil Exploration Company Limited

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Management on call

Sonpal. Anuj Sonpal

Thank you. Good morning, everyone, and welcome to the Earnings Call of HOEC Limited for the

Key numbers — 40 extracted

rs,

on this Q4 FY22 earnings call. Jeeva, our CFO and Whole-Time Director, is with me. Valorem Advisors, our Investor Relations advisors, are also on the call. I hope everyone has received our updated

10 million

bilization of all parameters, the flow rate will be increased to meet the committed gas volume of 10 million standard cubic feet per day. Our gas processing capacity is about 15 million standard cubic feet

15 million

mitted gas volume of 10 million standard cubic feet per day. Our gas processing capacity is about 15 million standard cubic feet per day. Being an offshore block, B-80 development has posed multiple challen

40%

refinery, Assam Gas Company, BCPL and NEEPCO. Due to this, in Q4, the premium sales constituted 40% of total gas sales, fetching a premium of over $1 per mmbtu to the Government notified prices of

60%

ching a premium of over $1 per mmbtu to the Government notified prices of $2.9 per mmbtu. Balance 60% of the produced volumes were supplied to OIL at Government notified prices. However, lower offtak

28 million

ces. However, lower offtake by downstream consumers reduced our average production in Q4 to about 28 million standard cubic feet per day. Overall, Dirok field continues to perform very well, maintaining exc

1 million

ning excellent reservoir performance. Till date, the field has delivered nearly 50 BCF of gas and 1 million barrels of condensate. The Hollong Modular Gas Processing Plant emerged as the role model plant i

Rs. 38.24 crore

the financials. R. Jeevanandam: Thanks, Elango. We report that the Company made a revenue of Rs. 38.24 crore in the current quarter against Rs. 36.24 crore in the previous quarter. For the year end, the sta

Rs. 36.24 crore

ango. We report that the Company made a revenue of Rs. 38.24 crore in the current quarter against Rs. 36.24 crore in the previous quarter. For the year end, the standalone sales revenue is Rs. 130.5 crore, compa

Rs. 130.5 crore

gainst Rs. 36.24 crore in the previous quarter. For the year end, the standalone sales revenue is Rs. 130.5 crore, comparing Rs. 99.44 crore in the previous year. In the consolidated accounts, the revenue from s

Rs. 99.44 crore

he previous quarter. For the year end, the standalone sales revenue is Rs. 130.5 crore, comparing Rs. 99.44 crore in the previous year. In the consolidated accounts, the revenue from sale is Rs. 42.21 crore agai

Rs. 42.21 crore

ring Rs. 99.44 crore in the previous year. In the consolidated accounts, the revenue from sale is Rs. 42.21 crore against Rs. 43.93 crore in the previous quarter, and for the year 21-22, it is Rs. 155.73 crore c

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Guidance — 20 items

P. Elango

opening

“Therefore, the volume of gas to be packed in the line through B-80 gas will be discussed and agreed with ONGC.”

P. Elango

opening

“Post that, buyer will be formally notified to receive the gas to commence the commercial sales.”

P. Elango

opening

“Initially, the well will be flown at lower rates.”

P. Elango

opening

“Post stabilization of all parameters, the flow rate will be increased to meet the committed gas volume of 10 million standard cubic feet per day.”

P. Elango

opening

“This will be followed by D1 well on successful repair of the loss of hydraulic fluid, which is being attempted with ONGC support.”

P. Elango

opening

“Once a settlement agreement is executed and payment remitted, extension of PY-1 PSC for 10 years will be granted by the Government.”

P. Elango

opening

“In our Cambay assets, under approved field development plans, we will be drilling 2 development wells at Asjol and North Balol each.”

Akshay Satija

“So, by when can we expect this number to go up to 14 to 23 kind of levels?”

P. Elango

“The sales volume what we have committed is we expect the production to range between 12 million to 15 million cubic feet.”

P. Elango

“Out of that, internal consumption could vary between 2 million to 3 million cubic feet and the rest will be sent on sales.”

Risks & concerns — 15 flagged

It has been a difficult journey due to the disruption caused by the pandemic and later the cyclone.

— P. Elango

However, in D1 oil well, after holding the pressure for some time, we observed the loss of hydraulic fluid once again.

— P. Elango

We wish to clarify that both the wells have demonstrated the expected reservoir pressure while flowing, and we have not seen any issues with the productivity of the wells.

— P. Elango

When the timing is coming up for extension, Government is really putting pressure, pay up whatever was put as the demand by the Government, pay up tax to get the PSC extension.

— P. Elango

We'll be able to meet the demand of the market but it is very difficult for us to generate demand in the market.

— P. Elango

Also de-risk our dependence on Oil India's very old pipeline as such.

— P. Elango

Regarding D1 well, can you say how technically it is difficult to correct the problem or anything on that?

— Sunil Jain

— P. Elango

It's very difficult to really predict the outcome.

— P. Elango

Or is it just a question of the timing as opposed to effectively seeking any risk with the actual production outcome?

— Riddhesh Gandhi

So, this will always entail with some risk.

— R. Jeevanandam

And we cannot say it is risk-free by any means.

— R. Jeevanandam

But at the end of the day, the risk is there with all the blocks which are being operated because the production comes from the sub-surface.

— R. Jeevanandam

Or I mean just wanted to understand the reason for this and any risk associated with this.

— Riddhesh Gandhi

So, is there any risk to the pipeline itself or it's already been tested and you don't see any risk to supplying of gas from B-80 to wherever the customer location is?

— Rohith Potti

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Q&A — 20 exchanges

Sir, in your earlier presentations, we've talked about B-80 gas production could go up to 15 to 23 mmscfd. Now our current contract is 10 mmscfd. So, by when can we expect this number to go up to 14 to 23 kind of levels?

P. Elango

We've never mentioned anything beyond 15 million cubic feet as far as B-80 production is concerned. The sales volume what we have committed is we expect the production to range between 12 million to 15 million cubic feet. We will have our internal consumption of gas. So, we have safely made a commitment of 10 million cubic feet. We know that demand within the region is there, and we have the ability to deliver additional volume as well. But overall limit is 15 million cubic feet per day. Out of that, internal consumption could vary between 2 million to 3 million cubic feet and the rest will be

Sir, I have three questions, in fact. B-80 now, what should we take as a commissioning for oil? Should we take post the weather window or during the times….

P. Elango

As I said in my opening remarks, the rectification plan that we are drawing up for D1 would require the help of ONGC's dive support vessel. But these actions does not involve lifting of any heavy equipment. So, it can be performed during this weather window also. So, it doesn't have to wait for monsoon to be over. It can be performed. Obviously, we would look for the right condition before deploying the vessel. Secondly, this premium in the North-east gas of $1, now that gas prices are at $6.1, so we should continue to take $1 kind of a premium or higher than that or lower than that on the 40%

Coming to the Kharsang project. Outstanding issues related to the cost recovery limits to be referred to the Dispute Resolution Committee. And the second is the 18 numbers of wells to be drilled in the near future. So, could you update on this?

P. Elango

Yes. First is in Kharsang, we participate in Kharsang through our subsidiary entity, Geopetrol, we have a 25% stake in this. We are a non-operator there. We also have a 50% ownership of the operating company Geoenpro. So, all Kharsang matters are dealt by the operating company, one. And like every Pre- NELP block, there are a lot of legacy issues associated with these Production Sharing Contracts, which were signed 25 years back. When the timing is coming up for extension, Government is really putting pressure, pay up whatever was put as the demand by the Government, pay up tax to get the PSC

Congrats on getting the B-80 operationalized. Sir, my question is on B-80. With this new development, sorry, if have missed this, I might not be aware of it. But what is the kind of complication in D1 well? And what are the current volume? So, we had an estimated 8,000 barrel of oil equivalent per day. So, with only D2 operational, what should be the kind of oil we can expect for that to be operationalized as such?

P. Elango

The numbers that we have indicated as a total for both wells put together is somewhere between 7,500 to 8,000 barrels of oil equivalent. Out of that, the oil component was somewhere between 4,500 barrels to 5,000 barrels and the gas component constitutes the 2,500 in terms of oil equivalent, in terms of gas as such. Right now, the well that we have brought on production is predominantly gas. This also produces a little bit of oil. We've just started a few days back, and we'll be monitoring the volume that comes. Now whatever little volume that we produce along with the gas, we're able to expor

My question relates to B-80. Regarding D1 well, can you say how technically it is difficult to correct the problem or anything on that? Like in this well, you are sure that we'll start production?

P. Elango

It is technically difficult to answer this question seriously, because we, in consultation with the OEM and the experts, came up with a solution that worked in D2, but that did not work in D1 after pressure was held for some time, and did not subsequently work. So, we are consulting first to make definitely one more attempt. And what is the good news is, earlier we thought certain type of operations cannot be undertaken during the monsoon period. But the nature of solutions that we are looking at can be executed during this window also. So, that is our effort. It's very difficult to really pre

First, congratulations on starting off with the gas well. So, just wanted to understand, given now reasonable amount of free cash flow we're going to be generating out of Assam and the gas block and operations from the oil block, if you could outline to us the future plans you have with regards to sort of optimizing with the production out of all of our assets given the current oil and gas prices and the environment right now?

R. Jeevanandam

See, we have to come out of the working capital issues at the moment. That is our first priority. Once that is done, actually, the next priority is to bring down our loan in a manner that it is not strained at the daily moment, though it is about less than 9%. Then you look at now the Dirok, it will be a self-sustained unit because even if you wanted to ramp up to production of 55, that can be done with the existing wells, it is a small capital involved. Our major capital expenditure would move to PY-1, that will be our next priority. And parallelly, we will be moving some investments to the W

Congratulations on beginning production from B-80. My first question, again, is on B-80 itself. So, you mentioned that it will take some time to ramp up the production to 10 mmscfd. And you also mentioned that the pipeline is a little old. So, is there any risk to the pipeline itself or it's already been tested and you don't see any risk to supplying of gas from B-80 to wherever the customer location is?

P. Elango

No, we don't see any risk as far as the pipeline is concerned, this is a well-maintained pipeline of ONGC. What I really meant was ONGC had not charged this line with gas in the past because one of their field was not ready. Otherwise, it is a very, very well-maintained pipeline, there's absolutely no issue. What happens is, when you initially introduce the hydrocarbon in a line, you need to pack the line before it, please remember, from B-80 to Hazira, the distance is roughly 150-odd kilometers pipeline. It has got 2 sections. One is a section up to what we call WO platform of ONGC, which has

Sir, one general complaint what we have is, there is no confirmation of your lines in terms of any communication to the exchanges for the gas production or anything. Now you're saying on 30th the production started for the gas, the price after the result next day jacked up by 15%, 18%, but market is not aware. You are declaring it today that on 30th the thing has started and the price is already jacked up. Even whenever we complain or whenever we mail to Josephin, there is no communication at all saying we cannot disclose, what is happening. There is absolutely no communication from your side

P. Elango

First of all, just to clarify, we achieved specification of gas and injected into ONGC pipeline on 31st May, not on the 30th.30th we declared the results and 31st May only we could achieve the specification. Until then, it is about commissioning the system. There's no commercial production. In fact, we would have ideally liked to have commenced the commercial sales and made the announcement. But having this call, we thought we should disclose the current status as such. Now for us, the 2 things are important. One is to comply with all the requirements of disclosure as and when a major event oc

What I was saying, and this I mean it for every other audience and participants who may have this issue. So, what we thought was whenever we are certain about certain outcomes, then it is easier for us to communicate that. When we ourselves are not very certain, we just focus on the operational matters and ensure we complete an activity, we make the disclosure, and we will continue to do so.

Tejas Shah

Agreed. But I request even at the time of Valorem Advisors, there was your 31st last day, the management backed out and there was a notification saying production will not start because of whatever delay and the price went down and the management did not come for any explanation at all. Not on anything. So, even at that time, the investor lost money. I respect your question, but you're not dealing with a management which will ever back out from anything. We are very determined to meet all the promises we made, we are doing our very best to achieve that. And on communication, I told you, whenev

Sir, I just have 2 questions. One is on Dirok field. So, what is the minimum production we'll like to continue given that there might be a possibility that if production falls below that level, maybe because of the demand level or something? Coming back again to the optimal production might be difficult due to the nature of the field. So, what would be the minimum production that you would like to continue at Dirok? That's the first question. Secondly, on B- 80, so is it the problem that B-80 faced as anything related to the fluctuation in the production from the wells itself? I mean the fluct

P. Elango

To clarify, there is absolutely no problem with the well, I'd say. In fact, we also tested the D1 well for a very, very short period and brought the oil to the surface also. So, we don't see. And our technical team is able to monitor the pressure in the well even now remotely. So, there's no problem as far as the well flow or productivity of the well is concerned. And I'll try and explain. Each well, to open the well, it's kind of a remotely operated system. Please understand these wells are created at 80-meter water depth, and you have what we call the Christmas tree below the water. It is ve

What is the Indian value for gas from D2 which will be there for 10 million cubic feet, what you are saying? And expected profits out of that?

P. Elango

Can you repeat the question? From the D2 well, the expected sales is 10 cubic feet or 10 mmbtu. What will be the Indian revenue that we are targeting out of which? And what will be the profits coming out of that? Because you said some 100 is the cost and 20 is what you will need to share it with the Government as royalty or whatever. But what is the value on that? Actually, if we get the full flow of the 10 million cubic feet and price was fixed in terms of the Brent equivalent at 22% of the Brent. But till the time we reach that 10 million, even if you take the lower price around say $15 per

Congratulations for the commencement on B-80. With the commencement, we must be aware of the dynamic data and we must be more informed of quality of reserve as well as field life. So, what is our stance on that?

P. Elango

As I said, we are able to flow the well since 31st May now, 2-3 days. And the pressures are as per the earlier testing results as far as D2 is concerned. D1, we have flown it for a very, very short period just to test the system. As I said, the important aspect our technical team look at is what is the pressure being held by the well, and that is as per the expectation. So, we remain confident that we'll meet the tested number, which oil is about 4,500 to 5,000 barrels per day and gas about 12 million cubic feet per day. Sir, any sense on that field life in terms of number of years, any better

Congrats on getting B-80 on board. Sir, firstly, regarding the rectification plan and if that fails the subsequent plan that you have outlined, which was post the weather window, what would be the amount of money you would need to spend on both these plans? And the reason I ask is, you mentioned about the working capital issue and the liquidity issue and all. And recently you also pledge as well, so in that context I wanted to understand how much money do we need to spend on these plants to get the D1 wells onboard, in both the cases?

P. Elango

These operations essentially involve hiring the vessel from ONGC, which has a full complement of equipment and diving team, and we put our own team to supervise the job. So, overall, the estimate is about $400,000 for this operation, which we've made arrangements. But this is a rectification for the overall thing that you said, in case the rectification fails, the post-monsoon activity, if you have to overpay, what would that cost? Yes. Now this is for the rectification that we are talking during the monsoon period. Okay. And if it is post that, how much would that cost? If you have to do the

Congratulations for pre-commissioning of B-80. Sir, $95,000 per day comes to the group and $125,000 total operating cost, so that comes to around Rs. 340 crore. So, does that start as soon as the production is started or like it is linked to the commissioning of D1, D2 and other wells?

R. Jeevanandam

See, normally, it is under commercial sale. That is a relevant date for us. See, whatever the time which we spend, we may produce some oil, we produce some gas. Till the commercialization take place, the date of commercial production is considered to be the date for the commencement of revenue to us, which can be either oil or gas, whatever it is. So, the cost is also related to that. Yes, that's right. Because for this operating cost related to that because without these facilities, neither the gas nor oil can be evacuated. So, operating start, there it starts on the date of commercial sale o

Congratulations on getting B-80 started. Sir, most of the questions have been answered. Just a few clarifications and follow-ups. So, first was, sir, that assuming that D2 gets commercialized, which you said should happen in a few weeks, what is the kind of revenue that you mentioned that you can sort of do in this year, which will accrue to HOEC? I missed that number, sir.

R. Jeevanandam

I think subject to the caveat on D1 comes to production. We will start with the production of 2,000 barrels and ramp up to 4,000 barrels, and it can further be ramped up also. It will be a slow process. We will be keeping the system tuned towards to receive the oil to its capacity of the well. The test production of this well is more than 5,000 barrels. But we will be reaching to a number the plant can handle in a comfortable manner as such. So, till that time, it will be realizing on average production of, say, 4,000 barrel a day. So, you can multiply the 4,000 barrel into the price. Price, I

I just have 1 question in 2 parts. How do you see the volatility in the oil market? And what would be the realization for that in the company? And do you see the fuel prices to remain firm? And the second part is what would be your take on the volatility on the prices?

P. Elango

So, we are seeing whenever there is a higher prices, particularly the gas price at a higher level has a tendency to distract the demand, destroy the demand as such. That is what I understand is certainly, the Indian consumers are very sensitive to the price. And at the current price level, there is a reduction in demand across as far as gas is concerned. Oil daily (inaudible) (1:28:59) if you try to predict what really happened there -- Sir, I'm sorry, I couldn't hear the last part. I don't know there was some disturbance from your end, I believe. I was saying that Indian consumers, particular

I just wanted a little knowledge. On Dirok, you say, your production is 27.7 mmscfd, that is equivalent to 572 boepd. And as far as B-80 is concerned, you say it's going to be 10 million. So, what would be your boepd equivalent on that deal?

P. Elango

Now first of all, in Dirok, that is the number reported is 27 million cubic feet of gas per day as well as 500-odd barrels of condensate. That is not a converted number. It is straightaway liquid numbers only. The 10 million cubic feet of gas will be equivalent about... Somewhere around 1,650 barrels of oil. 1,650. But it is in volume conversion only. So, don't apply any price to that. So, your business is so complicated, I mean you've got profit sharing and profit petroleum, and so layman like us really don't understand too much. I mean, thank you for being patient on your con call. But at th

Most of my questions have been answered, but just 1 or 2 clarifications, if you could give me on one of the gentlemen who asked you about the possible revenue or the free cash flow. Is the Rs. 300 crore revenue that you quoted subject to $100 pricing and the current demand sustenance? Is it only from D2 well or is it including D1 oil?

R. Jeevanandam

It's the total as such. What I told is the total number as such. So, it's only from D2? Or it's entirely from B-80, all in total. From the D2 alone, it means the D1 also comes to play. And similar things on the free cash flow, right, of Rs. 400 crore. Yes. That's right. You are right.

My question was regarding the analogy you have given of a television and a remote for a layman. Just wanted to understand, suppose current resolution with the ONGC team doesn't work out during this monsoon period, so what is the next course of action when the winter window permits? And what is the timeline probably? And what is the cost timeline regarding the commissioning of the D1? That is the first question.

P. Elango

Yes. I think if this doesn't work out, as Jeeva was mentioning that, this is not a major equipment. This is an umbilical system, where we know for 70% of the system is working absolutely fine. There is a component, which can be lifted to the deck of a vessel, which can be performed during monsoon period and replaced or reconnected with the presence of experts as such. That's what needs to be done. And that cost we have estimated to be in the order of $1.5 million, and that can be performed immediately after monsoon, which is sometime in October, November period if our other attempts do not suc

Yes. It is just a reiteration of what you said earlier. Now, the B-80 total has a capacity of about 7,500 to 8,000 barrels of oil equivalent. Currently, we are producing about 20%, 22% of that, which is about 1,700 barrels of oil equivalent. So, this, we will be commercializing probably by the end of June, and we will start receiving revenues from the end of June. And the balance 80% of the production, we hope to start in the next maybe 2 or 3 weeks once when this issue gets solved, and if not, maximum by October, November. Is this the right understanding?

P. Elango

Yes. That's a correct understanding. I just want to clarify the capacity part that you mentioned that we expect both the wells together produce about 7,500 to 8,000 barrels of oil equivalent. The capacity that we have built is with future in mind, that individually, we have the capacity to process 10,000 barrels of oil and 15 million cubic feet of gas. These capacity has been built on the top side so that in future when we drill new wells or find the wells to be producing more, we are not constrained by the top side capacity. So, your 22% analogy may not be correcting, but your 1,700 barrels o

Speaking time

P. Elango

R. Jeevanandam

Moderator

Varatharajan

Sunil Jain

Nirbhay Mahawar

Ashwin Reddy

Akshay Satija

Riddhesh Gandhi

Rohith Potti

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Opening remarks

Anuj Sonpal

Thank you. Good morning, everyone, and welcome to the Earnings Call of HOEC Limited for the Fourth Quarter and Financial Year ending 2022. My name is Anuj Sonpal, CEO of Valorem Advisors. We represent the Investor Relations of HOEC Limited. Firstly, let me mention a short cautionary statement. Some of the statements made in today's con 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. Such statements are based on management's beliefs as well as assumptions made by and information currently available to 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 really to educate and bring awareness about the company's fundamental business and financial quarter under review. Now let me introduce you to the management participating with us in

P. Elango

Thank you, Anuj. Good morning, everyone. Happy to connect with you all on this Q4 FY22 earnings call. Jeeva, our CFO and Whole-Time Director, is with me. Valorem Advisors, our Investor Relations advisors, are also on the call. I hope everyone has received our updated earnings presentation. We've also uploaded it on our website for your reference. I'm pleased to share that the well D2, which is predominantly gas producing in our B-80 block has been brought online and gas production has commenced. After treating the produced gas to meet the specifications of ONGC, it is being pumped into ONGC pipeline to pack the line effective 31st May 2022. This is a 56-kilometer 14-inch line that has not been used by ONGC. Therefore, the volume of gas to be packed in the line through B-80 gas will be discussed and agreed with ONGC. Post that, buyer will be formally notified to receive the gas to commence the commercial sales. Initially, the well will be flown at lower rates. Post stabilization of all

R. Jeevanandam

Thanks, Elango. We report that the Company made a revenue of Rs. 38.24 crore in the current quarter against Rs. 36.24 crore in the previous quarter. For the year end, the standalone sales revenue is Rs. 130.5 crore, comparing Rs. 99.44 crore in the previous year. In the consolidated accounts, the revenue from sale is Rs. 42.21 crore against Rs. 43.93 crore in the previous quarter, and for the year 21-22, it is Rs. 155.73 crore comparing Rs. 113.86 crore in the previous year. Increase in revenue is mainly from increase in sales price of gas in Assam and higher realization for condensate due to increase in oil prices. The profit on standalone basis before exceptional items is Rs. 23.4 crore in the current quarter against Rs. 17.6 crore in the previous quarter. For the year 21-22 before exceptional items, the profit before tax is Rs. 70.19 crore comparing Rs. 37.47 crore in the previous year. However, after adjusting the exceptional items, the profit for the period after tax is Rs. 35.83

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