HINDOILEXPNSEQ2 FY'23November 17, 2022

Hindustan Oil Exploration Company Limited

11,540words

171turns

20analyst exchanges

0executives

Key numbers — 40 extracted

rs,

with you all on this Q2 FY'23 Earnings Call. Jeeva, our CFO and director is with me, Valorem Advisors, our investor relation advisors are also on the call. I hope everyone has received the updated Earn

60%

ploaded it on our website for your reference. As you all know, in B-80 at block level, HOEC holds 60% through revenue sharing contract. However, the services to B-80 field is at arm's length with subs

100%

enue sharing contract. However, the services to B-80 field is at arm's length with subsidiaries at 100% for MOPU and FSO. Accordingly, the revenue earned by subsidiaries are consolidated. During Q2, th

11 million

MBTU. We will be amending the gas sales contract accordingly. And we are currently producing about 11 million standard cubic feet of gas per day from D2 gas well. This allows us to deliver the full contract v

10 million

cubic feet of gas per day from D2 gas well. This allows us to deliver the full contract volume of 10 million standard cubic feet per day. Our priority now is to focus on resuming production fr

25 million

ormed well during Q2 both in terms of volume and value. At volume level, compared to Q1 average of 25 million standard cubic feet per day, we achieved average daily gas sales of 34 million standard cubic feet

34 million

ed to Q1 average of 25 million standard cubic feet per day, we achieved average daily gas sales of 34 million standard cubic feet per day. Further, the share of premium gas sales increased marginally to 45%,

45%

llion standard cubic feet per day. Further, the share of premium gas sales increased marginally to 45%, and the premium gas sales we realize the minimum $1 premium over the applicable government notifi

Rs.81.69 crore

Jeeva to share the financial. Thanks, Elango. We report that the company made a total revenue of Rs.81.69 crores in the current quarter against Rs.70.19 crores in the previous quarter. In the consolidated accou

Rs.70.19 crore

We report that the company made a total revenue of Rs.81.69 crores in the current quarter against Rs.70.19 crores in the previous quarter. In the consolidated accounts, it is Rs.125.79 crores against Rs.91 crore

Rs.125.79 crore

rrent quarter against Rs.70.19 crores in the previous quarter. In the consolidated accounts, it is Rs.125.79 crores against Rs.91 crores in the previous quarter. If we take the revenue for half year for `22-23, it

Rs.91 crore

70.19 crores in the previous quarter. In the consolidated accounts, it is Rs.125.79 crores against Rs.91 crores in the previous quarter. If we take the revenue for half year for `22-23, it is 215.83 crores com

Guidance — 20 items

P. Elango

opening

“We will be amending the gas sales contract accordingly.”

R. Jeevanandam

opening

“and with the commencement of oil well in B-80, a meaningful profit will be reported in tandem with the top line of the company.”

P. Elango

“If you could just let us know what is giving us the confidence that we can compete this by end of December given effectively, historically, we've been inconsistent in actually achieving our target base?”

P. Elango

“So, overall, our expectation is now that the weather is reasonably good, we don't anticipate any problem.”

Ritesh Gandhi

“So, effectively if I understand what we will be able to complete in December is effectively just doing sort of like quick fix if you will to get the production going and then we will undergo a more and longer process for a permanent solution, is that understanding right?”

R. Jeevanandam

“That's why we will be raising equity and debt as appropriate considering the development opportunities to pursue.”

Rohith Potti

“So, D1 from what I understand, if it works will be a permanent solution and D2 right now is a temporary solutions, is that correct?”

R. Jeevanandam

“Now, we would be procuring the spare hose for under buoy as well as floating, which we will be stocked.”

R. Jeevanandam

“Even if any subsequent leak, we will be able to use the new hose immediately.”

R. Jeevanandam

“Now, we will be placing order for it and get it on board.”

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Risks & concerns — 9 flagged

We have initiated the site grading work in the difficult forest segment for the proposed 18-inch pipeline, that is from Dirok gas to Duliajan marketing hub independently without relying on Oil India pipeline network.

— P. Elango

What we are planning as such, this will be continuing according to us.If any problem arises, and before the month of May itself we will be changing with the new hoses in a way that we don't want to take risk in the monsoon.

— R. Jeevanandam

So, any major challenge that you foresee while implementing the permanent solution?

— Karan Mehta

Wherever we have got more participating interest, we want to dilute and reduce our risk exposures at the asset level.

— R. Jeevanandam

I think you need to clarify, one, is like your D1 the in the line issue which was supposed to be replaced for the D1 point to flow, which was using pressure, that is one part, not connected with your weather window.

— Tejas Shah

D1 line as you rightly observed had a pressure loss.

— P. Elango

The pressurization is required to keep the well on open condition, the pressure was not holding, we did some diving, identified there is a hydraulic pressure loss.

— P. Elango

That will take the pressure of that 4,000 barrels of oil which you're planning to produce.

— Tejas Shah

But overall, currently, there is a volatile market.

— P. Elango

Q&A — 20 exchanges

Just to clarify on B-80. You guys gave a clarification on the 3rd of November to the exchanges that the trials were on and that you would inform us when the sale would have started. And I think in the studies and representation, you have implied that on the 4th of November started. So, I just want to understand, have the sales actually started or other trials is still on and how should we be looking at it?

P. Elango

The sales has started. Just a small request, sir. Because you said in your press release also that you would inform the exchanges when sales would start and we didn't get the clarification until the results. So, if you could just keep us updated, would be extremely helpful. The other question is with regards to effectively speaking on D1. So obviously, we've had a whole host of problems with the actual execution of the B-80. If you could just let us know what is giving us the confidence that we can compete this by end of December given effectively, historically, we've been inconsistent in actu

A couple of questions. One, on the cost of repairs. After the September month, October so far and November, whatever we have spent and what do you plan as an estimate for fixing the D1 well as well? So, if I were to look at overall cost of having like normal production in B-80, what is the cost we are looking at before that normal production starts?

R. Jeevanandam

The cost of repairs, which we are anticipating for the D1 well should be in the order of around $250,000, roughly about Rs.2 crores. And the expenditure incurred for fixing the repairs in November, which is also in the order of about Rs.2.5-3 crores. Because of monsoon, we had to wait for some period. Now the intended repair to carry out the D1 well should be around Rs.2 crores And in the case of subsidiary if it's possible to give us a top line and EBITDA for last quarter? Too much to predict at this stage. We wanted to put the field on production and it's having three combinations. We have t

So, just to continue on B-80. So, D1 from what I understand, if it works will be a permanent solution and D2 right now is a temporary solutions, is that correct?

R. Jeevanandam

Rohith, I would like to tell that there was a leak, leak got fixed. Now, what has happened we don't have a spare hose with us at that point in time. Now, we would be procuring the spare hose for under buoy as well as floating, which we will be stocked. Even if any subsequent leak, we will be able to use the new hose immediately. This costs about $250,000 to $300,000. Now, we will be placing order for it and get it on board. This is you're talking about D2, right, the gas well? No-no, both the wells, D2 and D1, both are having oil production. So, to have a continued production from the field, w

Actually, I just need a clarification. I think I joined the call little late. I may have missed it. I think somebody was asking about confirming the sales in D1 well, right. The gas sales have started again, right from 4th of November is what I wanted to understand.

P. Elango

Yes, gas sales have started from 4th of November. In the announcement we only mentioned about we will notify again as and when the oil production starts. And the next clarification actually is a little bit of understanding, I'm a bit confused. I think what we are planning now is the temporary fix has been done, right. So now, we are going to do additional hose for which we are going to place an order with some company in Dubai. But I think you are also mentioning that we are planning to do some permanent fix and for which we are tying up with the UK company. So, I am a bit confused like are we

So, the first question is if I understand correctly, you mentioned that sale contract with GSPC has some changes in the pricing and 22% of oil which they bid, has now changed to one month price of IGX. So, is that understanding correct? Yes, what we have agreed with GSPC is in the Indian gas exchange, the prices are discovered through a competitive process for monthly sales, weekly sales, daily sales. We have agreed that we will adopt those prices to govern the sales in future. So, what we have agreed is exactly what you said. So, does that not defeat the purpose of e-auction that we conducted

Manan Patel

There was a substantial jump if I notice from our annual report in other financial liabilities, so almost Rs.90 crores and then there are other payables of Rs.57 crores. So, these are entirely new items on our balance sheet. So, if you can help us understand what are these things for? This is basically working capital issues. Some of those financial liabilities which is a long-term borrowing. HDFC loan, left out period of repayment 18 months, out of which 12 months, have to move from long term to short term. So, that is where the short-term liabilities are more. Other than that, some of the wo

So, I just wanted some clarification related to the permanent solution. So, any major challenge that you foresee while implementing the permanent solution?

P. Elango

I think the word temporary and permanent created some confusion. All we're trying to do is to ensure the system performs without any failures both during fair weather window period as well as the rough monsoon period. So, based on our initial experience, whatever we have created in the first time, could not really withstand the roughness of the monsoon. As the weather improved, we were able to fix some of the issues and bring one well on production. We will do what is the right technical solution to bring the other well on production, then before the next monsoon comes which is typically May,

We have had close to one and a half year of delay in B-80. Delay in offshore oil projects is a very normal thing. So I'm not disappointed with that. But the way management has handled that delay, we talk about quick fixes, we talk about working capital challenges, the whole approach seems to be very short term-ish, which shows lack of commitment of management as well as board. So, is there any gap in my understanding and why is this happening? Because the prices we are getting is definitely going to be way beyond what we had anticipated.

P. Elango

Those are very strong words. These are your perception. So I will leave it at that. But short term working capital challenges to execute offshore oil project seems very, very short term-ish approach. Why are we not capitalizing on our balance sheet? These delays were very much expected… I mean, it can happen in any of the oil projects. So why are we not fixing it? Why are we not adequately capitalizing our balance sheet anywhere on that? Balance sheet is adequately capitalized as required. And any unforeseen situation comes such as no revenue from Rs.1100 crore assets for four months, that cau

My question is on the equity fund raise. I think earlier participants had asked the question and probably the response was already sent. But since I have the opportunity I'll ask one bit again. The equity fundraise that we're doing, I think we appreciate that you the prices are better in terms of realizing the asset value of the block. But is there a possibility that we could dilute at the block level or is it technically or legally not possible? The dilution at the block level is an ongoing process at the right price, at the right time… we don't have any blocks which are having high participa

Management

Sorry to belabor on this point again, but on this point on taking a quick fix, just to clarify, I know you've clarified it well, but I think in the opening remarks, you mentioned that you are also appointing an reputed engineering firm so that they can evaluate and give you a report so that in the next monsoon systems and processes we are better equipped. And I think, in the AGM also, you'd mentioned this. And I think you'd also given the name of one of the contractors. So can you just clarify, this is in addition to whatever you mentioned, this is in parallel to whatever you've met in terms o

P. Elango

Correct, in addition to that. Rohit Balakrishnan: What would the cost entail on -? Cost of replacement No, no, I'm saying, this this consulting engagement that you are planning to do, to get an overall view, what would be the cost of that, any idea right now? Overall, we have small umbilical hydraulic hose issue in the D1. That is an umbilical with about 10 cores, which gets connected to the subsea tree. One core is having a leak, that goes to the surface control subsurface safety valve, that we are going to fix with a sealant. That is a one type of a job on the D1. Now, to produce from the D1

Any update on the PY-1 extension and feasibility study that we were to conduct before drill?

R. Jeevanandam

PY-1 extension is there up to 5th December and before that, we will try to secure the further extension of the block. We carried out an extensive G&G review and now we have got locations ready. When we are having adequate to capital we will be embark on the drilling operations.

Yes, I explained to you that we will be raising some equity and we have the internal accruals that would meet the entire expansion. As soon as we raise equity, we will go ahead with this. Sankal Gopalakrishnan: So, that can be an investment of about Rs.200 to 300 crores?

R. Jeevanandam

Not Rs.200 to 300 crores. We initially start with about $24 million expansion, followed by another $26 million. But initial, we start with the first well,which should be about $8 million. Sankal Gopalakrishnan: Can you repeat? $8 million. Sankal Gopalakrishnan: $8 million for the first well? Okay. So, the earlier investment which you made in these two wells have been in return of? That has paid off as such, but that is deepening of the existing well. Now, this would be a new well in an area other than the old wells. This would be our value creation for us for getting back the money invested in

Sir, can you also clarify that with the new pricing that exists for Dirok that was announced on 1st October, what will be the revenue and contribution from Dirok on a quarterly basis?

R. Jeevanandam

See, any increase in revenue, you can assume that would be the additional revenue up to 60%. The balance goes as to the royalty and cess to the oil produced. So, if you look at that previous price say about $7 and this is about $9, that is the percentage increase, in that you can take 60% would be the contribution. It goes with the two caveats of continuing uptakes from the customers and price. Offtake some extent seasonal. One quarter maybe high and another quarter maybe less. And just to clarify on B-80, you mentioned that you will have a quick fix with the sealant in December and then the p

What is the expected top line after December from the D1, D2 and Dirok, if you can throw some light approximate in terms of Indian rupees?

R. Jeevanandam

At Assam, right now the revenues in the order of Rs.62 crores. That may increase with the increased gas price subject to the offtake of the gas,. So, accordingly, if the price difference is say 20%, than 62 croes will become 20% more. The price is now known for next six months, you have rightly observed, that should be around 30% increase in expected revenue in Assam provided the offtake is continuing as happened in the last period. B-80 as such, there are two wells one is underproduction and we have to fix the D1. Second thing we should know the oil price, and third the gas price as such. The

Regarding PY-3, there has been an update. I think the operator is trying to secure one FPSO from Norway. So, since you are also shareholder in that, do we have any additional update if we have secured that FPSO, or we are planning something on that side?

Uday Varankar

PY-3, we have not. If any update comes, we will let you know in the next quarter. Additionally, any new fields we are going to bid for? As such, nothing has been announced. If anything, comes then our team will evaluate.

I have only two points. One is regarding the FSO and this subsea valve and actuator. We are operating in an oil and gas construction company. Normally, whenever we are getting equipment, these are designed for 100 years from conditions and they are factory tested at site so that there is no offshore failures or negative. So, why these equipments are failing in the first year itself? Good question, Mr. Agarwal. You are right. Companies like ONGC would adopt that kind of a standard. I think we all need to keep in mind, this field B-80 was discovered sometime in the mid-80s and ONGC found unecono

Sushil Agarwal

My only point for this is that if it does not work and we'll be in December. If it doesn't work, we pull the tree cap and then we'll tighten the joint. We are not having umbilical directly connected, we have a flying lead. The leak is only at the flying lead. So that we change the flying lead ,in a manner that gets connected with tree without any leak.

Hi, my question relates to the fundraising. So what is the timeline for it? And what quantum of money are you planning to raise? And then, if we can break it down to the use of the funds, how much in CAPEX, how much in working capital, and how much do we pay debt, so, if you can just throw some light on that? Quantum approved by the shareholders is Rs.250 crores. So, that is the number. We intend to raise this within a period of say three months. End use for a major portion goes for the development of PY-1 -drilling of wells and for working capital. We need about say Rs.100 crores. If we are a

Natwar Gupta

So now, the first the Rs.250 crores that you're planning to raise is that totally going to be equity or you did mention that it could be debt as well. Now, what is the price at which you will issue equity? And would it be a rights issue? Or is it the new shareholder? We have to be fair to our stakeholders. When we look at equity fundraising, we should be fair both to the new equity holders who are coming into the business, as well as the long-term existing shareholders. We Keep that in mind. I'm a minority shareholder. At a lower price, I would like to participate rather than someone new comin

Sir, the D2 well, when you're producing gas as of now, you said there is some oil also coming. So there's some number currently we're producing and storing.

R. Jeevanandam

At the 10 million cubic feet we are getting around 300 barrels per day. So currently that is being stored in this? It is stored in the FSO. As far as the GSPC contract is concerned, this IJX basis is only for the next five to six months. Once the second year kicks in, we will go back to the original contract or how is that? Correct.

Right now, can you comment on the volumes at Dirok so far in this quarter?

P. Elango

Volume has been pretty similar to the last quarter. But have we added any new customers in Dirok in terms of customer base including? Not new customers, but the existing customers are continuing to take the volume similar to the last quarter at least in – Second question is on PY-3. So last time, what I recall, there was a plan that was given to you or the costing was given to you from the existing operators for PY-3, which you thought was too high is what I understood in the last time you mentioned. Has there been any progress in how you would want to deal with PY-3? We've been focused on B-8

Given the high prices we've seen and we've lost that window, are we seeking damages to the delay on account of B-80 from the supplier or any other manufacturer, service provider?

P. Elango

No. Sir, just as a suggestion. Even if your D1 plans get delayed or it gets pushed out or something, can I please request at least the communication coming out on the status rather than filings, please? I think communication could have been better and should be better please. Sure. Thank you. We take the next follow up question from the line of Mr. Manan Patel from Airavat Capital. Please go ahead, sir. One question on Dirok. So, now, I have seen some update that we have started grading and site clearing for the pipeline. So, is that laying of pipeline contingent on the Indradhanush gas grid o

Just wanted to understand on the equity raising. Would the current shareholders of the company be allowed to participate in the same or would it be at a higher level?

R. Jeevanandam

We have not come out with any fixed mode of raising equity. We will inform you at the appropriate time. Is rights issue also an option that can be considered? All options are being evaluated and we will come out with the right option at the right time. I really appreciate all the hard work put in by the management and the entire team of HOEC because this is not an easy thing, from past five years, you guys have been continuously working towards it with very good commitment levels. So, really appreciate the efforts and the commitment that the company has been showing towards the assets and to c

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Speaking time

R. Jeevanandam

P. Elango

Moderator

Ritesh Gandhi

Sivasankaran

Rohith Potti

Manan Patel

Tejas Shah

Nirbhay Mahawar

Rohit Balakrishnan

Opening remarks

P. Elango

Hindustan Oil Exploration Company Limited Ladies and gentlemen, good day and welcome to Q2 FY'23 Conference Call of Hindustan Oil Exploration Company Limited. 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. I now hand the conference over to Mr. Anuj Sonpal from Valorem advisors. Thank you, and over to you, sir. 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 Hindustan Oil Exploration Company Limited, (HOEC). On behalf of the company, I'd like to thank you all for participating in the Earnings Call for the Company's Second Quarter and First Half of Financial Year ending 2023. Before we begin, let me mention a short cautionary statement. Som

R. Jeevanandam

comparing Rs.35.68 crores in the corresponding period. The total expenses in the consol accounts including DDA Rs.105.71 crores comparing Rs.59.08 crores in the previous quarter. Half yearly is Rs.164.79 crores for '22-23 comparing Rs.47.8 crores in the corresponding period. Operating costs accounted for B-80 in the consolidated accounts for '22-23 including MOPU and FSO is Rs.72.52 crores. Finance costs and DDA is Rs.35.16 crores, which makes a total of Rs.107.68 crores out of Rs.164.79 crores in the half yearly accounts. The major chunk of expenditure is flowing through B-80. EBITDA in consol accounts for this quarter is Rs.46.16 crores comparing Rs.52.97 crores in the previous quarter. Half yearly accounts for '22-23 is Rs.99 crores comparing Rs.41 crores in the previous period. Consequent to the commencement of production from B-80 field with gas well effective 04th November. and with the commencement of oil well in B-80, a meaningful profit will be reported in tandem with the top

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