HINDOILEXPNSEQ1 FY23August 22, 2022

Hindustan Oil Exploration Company Limited

8,013words

110turns

16analyst exchanges

0executives

Key numbers — 40 extracted

rs,

n this Q1 earnings call for FY23. 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 ear

10 million

Post stabilization, the flow rate was increased to meet the committed sales volume of 10 million standard cubic meters per day. During June, the average gas sales rate achieved is about 7 millio

7 million

million standard cubic meters per day. During June, the average gas sales rate achieved is about 7 million standard cubic feet per day. D2 gas well successfully demonstrated its ability to deliver product

12 million

bic feet per day. D2 gas well successfully demonstrated its ability to deliver production of over 12 million standard cubic feet per day. However, we could not achieve the same success in D1 oil well, we th

25 million

the BCPL plant during April and May 2022. This has reduced our average production in Q1 to about 25 million standard cubic feet per day. However, share of premium sales is being maintained at a healthy 40%

40%

ion standard cubic feet per day. However, share of premium sales is being maintained at a healthy 40%. Subsequent to the BCPL coming online, we are witnessing improved offtake. Dirok reservoir perf

100%

peline in the forest segment. In PY-1 Eastern offshore fields where our participating interest is 100%, an in-house designed low cost gas dehydration unit was commissioned. We achieved the dew point s

Rs.65.66 crore

are the financials. R. Jeevanandam: Thanks Elango. We report that the company made a revenue of Rs.65.66 crores in the current quarter against Rs.38.84 crores in the previous quarter. The consolidated account

Rs.38.84 crore

ango. We report that the company made a revenue of Rs.65.66 crores in the current quarter against Rs.38.84 crores in the previous quarter. The consolidated accounted is 93.42 crores against 44.42 crores in the

93.42 crore

he current quarter against Rs.38.84 crores in the previous quarter. The consolidated accounted is 93.42 crores against 44.42 crores in the previous quarter. Increase in revenue is mainly from B-80 gas sales

44.42 crore

ainst Rs.38.84 crores in the previous quarter. The consolidated accounted is 93.42 crores against 44.42 crores in the previous quarter. Increase in revenue is mainly from B-80 gas sales from 4th June 2022 fo

Rs.13.45 crore

in the previous quarter. Increase in revenue is mainly from B-80 gas sales from 4th June 2022 for Rs.13.45 crores an increase in sale of gas in Assam of about 12 crores mainly on account of higher realization f

Guidance — 20 items

P. Elango

opening

“We plan to rectify and reconnect the hose in the first available weather window and resume the production from the gas wells as soon as possible.”

P. Elango

opening

“Considering that the wells have performed to our expectations, we believe that we will be able to overcome the remaining challenges post monsoon.”

P. Elango

opening

“The final investment decision will be made following an independent technical review and risk mitigation.”

P. Elango

opening

“In our Cambay assets under approved field development plan, we will be drilling two development wells with Asjol and North Balol each.”

P. Elango

opening

“Further development drilling will be undertaken after execution of the Ring Fenced PSC for Palej.”

P. Elango

opening

“The land acquisition and preliminary EIA studies will be initiated in the near future.”

P. Elango

“Yes, we have two separator systems in the plant, with one system we will be able to essentially produce from both wells.”

Akshay Ajmera

“So basically, my question is, there was a communication earlier that $90,000 will be the revenue per day.”

Akshay Ajmera

“So roughly $50,000 will be the revenue that will be generate?”

Management

“So, effectively there will be no impact on us.”

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Risks & concerns — 9 flagged

The final investment decision will be made following an independent technical review and risk mitigation.

— P. Elango

So, if you can just clarify once again, because it was very difficult to comprehend.

— Akshay Ajmera

I know it’s very difficult in the normal course of operations to really for such kind of request, but that would be a welcome step, because there’s a lot of anxiety in investors as to wait for an entire quarter for what has happened and what is not.

— Dharmendra Vohra

For a right weather, it’s difficult to give a timeframe but it is not a long-term issue.

— Management

So, after B-80 comes on full stream then we will look at independent review of those technical work as well as certain risk mitigation work before we embark on the drilling campaign in PY-1.

— Management

What the government will do is really difficult to predict.

— Management

And so, not for FY23, but for FY24 assuming all things are, all the oil wells are completely on stream, what could be the approximate, I know exact numbers are difficult, but what will be the approximate cash generation that will be there assuming oil and gas prices stay where they are currently?

— Vaibhav Badjatya

But these working capital issues are not very difficult to manage.

— Management

we’ll be able to manage it and we are not finding it very difficult to do that.

— Management

Q&A — 16 exchanges

Congratulations on the B-80. Sir, in our presentation, we’ve mentioned that we have some topside issues. So, if we could throw some light on it, is it regarding the production separator?

P. Elango

Yes, we have two separator systems in the plant, with one system we will be able to essentially produce from both wells. We have a problem in one of the separator systems delivered by Expro and they are now looking at either, the rectification or replacement of the system. But currently that is not really a constraint to bring the wells on production. Just a follow up on your question. So what would be the capacity of our MOPU including the production separator and test separator respectively, so can we run both production and separator in parallel and what would be the combined capacity of th

Sir, my question is regarding your earlier opening comments on the MOPU revenue. So, as we understand that from 14 July the fields remain shut-in and so, could you please clarify the MOPU revenue stream on and the standalone entities paying to the MOPU and we are getting more MOPU revenues as such?

Management

Okay, thanks for the question. The fundamental fact is this is a separate contract with the B-80 field with the subsidiary company. So, normally, any facilities of this nature, on contract will have certain allowed downtime there on, if the downtime not exceeds that limit, then we have to charge there, but in this case, there is no problem because of the MOPU, only small, small issues are coming. There should be a reduction in the revenue and similarly with other facilities of FSO thereon. whenever there is no operation, we have to take a cut in our operating rates to standby rates. So, if you

There is no impact on us due to the windfall tax. Zero impact. Varatharajan Sivasankaran: Either any unit, in case the production have or be it on some other run rate?

Management

I think Jeeva will explain in detail. The windfall tax has two factors firstly on the volume of production and previous year production. If the volume of production on the previous year is less than two million there is no tax in the current year. We will not be able to reach the two million barrels of production. So, effectively there will be no impact on us. Varatharajan Sivasankaran: Any guidance we can give on the cost, we are paying to ONGC in terms of processing as well as transporting our gas? Transporting gas through ONGC line, tariff charges would be there, tariff charges would be a p

Sir, first of all, I wanted to thank you for making such an effort despite such difficulties in B-80. So, thank you for that and thank you for being transparent. My question is that we have committed a volume of 10 million cubic feet to GSPC. So, will there be any penalties if we are not able to deliver it for let’s say, whatever time it takes to bring that back online?

Management

Yes, there is in the gas sales agreement that we have exhibited with GSPC we have made the first year free of any take or pay or supplier or pay obligations just to stay ensure that both their side and we side have time to stabilize the operation. So, therefore, there is no penalty for non-supply. However, we give the forecast to them about every fortnight related to what would be the estimated production if during that fortnight, they would book the capacity for transporting the gas in the GAIL system, whatever actual cost they incur, based on our forecast, which is given on a fortnightly bas

Just for clarification, so the problem which we are facing is in both D1 and D2 right?

P. Elango

The D2, there is D2 gases there is no problem. Because, as you produce the gas well, it also produces along with that some volume of oil, that oil cannot be stored in MOPU, it needs to be continuously exported into FSO through the hose connectors which connects between the CALM buoy, FSO. So essentially, when you produce from the gas well also you’ll be producing some small volume of oil which needs to be continued to be exported into the FSO. As we pointed out, since there is a problem in that hose connection, so we could not produce the gas well also, otherwise there is no problem. Once as s

Just a small request in order of the propriety and transparency, B-80 probably investor community is looking B-80 as a significant event in the operations of the company. So, don’t you think it is a material event in case of disruption or resumption of the activities, and it is not a proper on our management to provide timely information to the exchanges or the investor community at large. I know it’s very difficult in the normal course of operations to really for such kind of request, but that would be a welcome step, because there’s a lot of anxiety in investors as to wait for an entire quar

Management

We kind of agree but, I agree it would have been good to have shared such information. But please understand our effort whenever a problem of this nature occurs is to go and rectify the problem. And in this case also we thought we will be able to fix the issue because this is only, there’s no problem with the well, there’s no problem with any of the process system as far as D2 is concerned, things are going pretty well and we have one almost three weeks of production in June, we raised invoices, we realized revenue and in fact, the first quarter of July as well things were going very smooth. S

I just have a couple of questions. The first question is, any range of timelines that can be provided to resolve the D1 issue. So will it be, an upward limit of five months, six months or anything like that is it possible to share?

Management

So, the D1 oil well is concerned what we are looking at is post monsoon typically post monsoon you’re looking at October, November period for that. As far as D2 gas well is concerned within the monsoon period, we are looking at a two, three days of weather window to go and fix it up. Perfect. So, I understood that D2 well is a very short cycle probably less than a week. So you mentioned there are two probable kind of problems that could be there. So, if it is a severe problem which requires a deep sea diving mechanism what is the timeline that would be, the outer limit of the timeline there wo

Just wanted to understand with regard to D2 well, since the problem were into MOPU so can it be done during this current term monsoon time and how soon it can be come on stream?

Management

One is D2 gas well can be fixed during the monsoon period only. But we are looking for right weather window during the monsoon itself. For a right weather, it’s difficult to give a timeframe but it is not a long-term issue. So, we are just looking at the forecast and looking at that. So, it is a like a one week kind of thing or something like that? So, work itself is two, three days, but hopefully by maybe by the end of this month or early next month we should get a window, things start getting better from September onwards that we are not looking at monsoon the end, but during the season itse

There is no intimation to the stock exchange regarding windfall tax gain. Plus the D1 well was closed much prior maybe in June it self it was closed still there was no intimation, this one on continuation with the earlier speaker. Even I have sent mails also rigorously to the new CS, but there was absolutely no communication. If you can throw some light on this?

Management

We have answered the question in respect of the previous speaker and noted your suggestions and comments. We’ll also look at the requirements. Our priority has been, our focus has been to address the operational issues as such. And we thought it is appropriate to do open communication once in a quarter to everyone together. We will look at other ways of ensuring that there’s a common communication and update happens. The only reason why I’m pushing so much is the people or investors are losing faith in terms of the communication if something goes wrong. The information is not private to all th

So my question related to upcoming gas price hike in October 2022. So APM gas price formula mostly mark to various global gas prices, which are at a record high level. So do you think the government formula and lastly, do you see any probabilities and the government can introduce cap or ceiling to the gas price going forward?

Management

Yes, if I rephrase the question you’re asking about whether there is a possibility that government can take the gas pricing formula and introduce any other new restrictions on that. The honest answer is we really don’t know. We both now, if you look at the gas revenue going forward for the company is predominantly from B-80 and PY-1 both are governed under different price regime. Dirok is of course very important asset and any change by the government would have an impact there. What the government will do is really difficult to predict. Okay. And sir lastly could you please share what is your

Sir on this pricing freedom on oil sales that has been notified by the government, how do you see that, because it can work against as well given that oil companies can probably make Russian crude as benchmark rather than brent which was earlier for their marginal supply. So, how do you see that, can it impact our realization in B-80 whenever it comes on stream?

Management

See, what we have planned is to follow the e-auction model that we followed for discovering the gas price, essentially. My question was around oil, not gas, gas is pretty much clear. But on the oil, is what my question. I was saying that, our plan is to replicate that same model for oil also, which essentially today, the policy is that you cannot export the oil out of the country, but you’re free to sell it to any of the domestic refineries. So we have a group of public sector refineries, as well as private sector refineries. So what we were thinking is to, share the part of the settled crude

Jeeva sir can you just elaborate on the cash flow position as of 30th June so what is the amount of liabilities that are going to come to you in this financial year and against that what is the current cash balance?

Management

I said there is working capital issue, I cannot say no to that. But these working capital issues are not very difficult to manage. The moment I’ve got some revenue from B-80 and with the good gas price and what I’m getting it from the Dirok, we’ll be able to manage all obligations. We have some teething troubles, couple of months, we will be able to manage with our existing contractors. In case we are not able to get B-80 on stream in the next five or six months will the cash flow from the rest of the fields Dirok even at the higher prices will those be enough to meet the liability? Absolutely

So, just wanted to understand from you sir, as you have mentioned that there is no penalty in case of for non-supply of gas to GSPC whatever we have committed. So, when is this period going to expire, as you have mentioned that for the first year, there is no penalty and what could be the penalty going forward. That is my first question.

Management

So, the first year we started the supply in June. So till June 23, there is no penalty for supply, there is no supply of pay or take or pay clauses. After that we agree for 75% take or pay clause, if they are not able to take the gas they will pay and if we are not able to supply, there are mechanism that we can top up the supplies during the period that year. At the end of the year, there’ll be a reconciliation whether on days, and when we were ready to deliver whether they have taken the gas or when they were ready to take the gas, whether we were able to supply or not. So, that’s how we hav

Sir, just wanted to understand what is the quantum of crude we have accumulated till now?

Management

It’s about 15,000 barrels.

Sir, my basic question is that, what is the capacity of the test separator and production separator and can it happen that our both the well start operating and we don’t have the proper separator capacity or something like that?

Management

No, we have not so far put both the wells simultaneously on production so far. But both the separated together will be able to operate the volumes with some modification that expro will be undertaking. So, we do not expect this to become a constraint as soon as the D2 well is ready, D1 well is ready.

Thank you for your understanding on all the questions. At the macro level prices of both oil and gas are strong and we expect it to remain so. We will remain focused on bringing B-80 to a stable operational mode. Our plan is to engage internationally reputed consultants and contractors post monsoon to find permanent solution. This may involve repairing and where required replacing the connecting system and few topside facilities to bring both the wells of B-80 on sustained production mode. When both the wells are brought on full production mode, the revenue generated will be adequate to addres

Management

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Speaking time

Management

Moderator

P. Elango

Rikesh Parekh

Akshay Ajmera

Rohith Potti

Jayesh Gandhi

Vaibhav Badjatya

Yash Mandawewala

Manan Patel

Opening remarks

Anuj Sonpal

Thank you. Good morning, everyone and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of HOEC Limited. On behalf of the company, I would like to thank you all for participating in the company’s earnings calls for the First Quarter of Financial Year 2023. Before we begin, let me mention a short cautionary statement as always. 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. 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 purely to educate and bring awareness about the company's fundamental business

P. Elango

Thank you Anuj. Good morning everyone. Glad to connect with you all on this Q1 earnings call for FY23. 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. Q1 FY23 marked an important milestone in the development of our discovered small field DSF block B-80 in Western offshore. We achieved first gas and first oil production in June, after all the installed facilities are integrated and commissioned. After executing the agreement with ONGC and meeting the required specifications, the commercial gas sales commenced to GSPC on 4th of June. Initially, the D2 gas well was flown at a lower rate to stabilize the operational parameters. Post stabilization, the flow rate was increased to meet the committed sales volume of 10 million standard cubic meters per day. During June, the average gas sales rate achi

R. Jeevanandam

Thanks Elango. We report that the company made a revenue of Rs.65.66 crores in the current quarter against Rs.38.84 crores in the previous quarter. The consolidated accounted is 93.42 crores against 44.42 crores in the previous quarter. Increase in revenue is mainly from B-80 gas sales from 4th June 2022 for Rs.13.45 crores an increase in sale of gas in Assam of about 12 crores mainly on account of higher realization for condensate and gas due to high prices. The profit on standalone is 34.21 crores against 23.47 crores in the previous quarter, excluding exceptional in the previous quarters. In the consol accounts the profit after tax is 32.7 crores against 7.6 crores in the previous quarter. The total expenses of standalone including DDA is 35.99 crores comparing 20.85 crores in the previous quarter. Statutory levies royalty and cess are ad valorem which is increased from 6.59 crores to 9.74 crores as B-80 being operational from 4th June 2002 operating cost B-80 along with other block

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Hindustan Oil Exploration Company Limited

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