Hindustan Oil Exploration : Q2 2023-24 Transcript

	Hindustan Oil Exploration Limited
	Q2 FY24 Earnings Conference Call
	November 13, 2023
Moderator:	Ladies and gentlemen, good day and welcome to the Q2 FY24 Earnings 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 star, then zero on your touchtone phone. Please note that this
	conference is being recorded. I now hand the conference over to Mr. Anuj Sonpal from Valorem
	Advisors. Thank you and over to you Mr. Sonpal.
Anuj Sonpal:	Thank you, Michelle. Good morning, everybody, and a very warm welcome to you all. Also,
	wish you a Very Happy Diwali. My name is Anuj Sonpal from Valorem Advisors. We represent
	the Investor relations of HOEC Limited. On behalf of the company, I'd like to thank you all for
	participating in the company's earnings call for the Second Quarter and First Half of financial
	year 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. 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 and financial quarter under review.
	Let me now introduce you to the management participating with us in today's earnings call and
	hand it over to them for opening remarks; we firstly have with us Mr. R Jeevanandam --
	Managing Director; Mr. Krishnan Raghavan -- Chief Technical Officer.
	Now, without any further delay, I request Mr. Jeevanandam to start with his opening
	remarks. Thank you and over to you sir.
R Jeevanandam:	Thank you, Anuj. Good morning. Wishing you a very happy Diwali. Hope everyone has received
	the updated earning's presentation. It's in our website for your reference. I have with me Mr.
	Krishnan Raghavan, Chief Technical Officer, heading the operations and subsurface team. We
	will be strengthening our team by inducting a CFO, Senior Production Engineers, Senior Drilling
	Managers, and technical advisors to increase the operating and managerial capability of the
	company. Some of the technical persons have already joined and others will also join shortly.
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We are pleased to inform you that Q2 gas offtake from Dirok has increased to an average of 23 million standard cubic feet per day from 10 million standard cubic feet per day in the previous quarter. I will start with the operational update from the Eastern region.

Dirok gas sale is 0.56 BCF and condensate is 10,350 barrels compared to 0.24 BCF of gas and 4,573 barrels of condensate in the previous quarter. Though, this field can produce about 50 mmscfd, we have to restrict the production due to lack of demand and the volatility in offtake due to break-down plant maintenance of major consumers. This is further compounded by dual pricing for gas produced from the nominated fields of OIL and private players. The ceiling price fixed by GOI for nominated field is US$ 6.5 per MMBTU, whereas for private producers and for non-nominated fields, the price fixed by PPAC is $9.20 per MMBTU as on Oct 2023. Therefore, the customers who are mostly public sector undertakings would like to avail the low-price gas of $ 6.5 per MMBTU before availing the gas from private players at a higher price. This has caused lower offtake of Dirok gas, and the situation would get reversed once the gas line of IGGL, GAIL and DNPL are connected and commissioned. We believe that this could get completed latest by first quarter of 24-25. Once IGGL lays its own line from Duliajan to Numaligagrh which is 180 Kms, the demand constraint would further be eased out and the connectivity with the gas grid in central India will be fully established. This will ensure an increased and stabilised offtake from 2025 onwards.

In order to keep ourselves prepared and to ramp up production, three legacy wells Dirok-1, 2 and 4 will be worked over to enhance the production as well as to get additional data. This program is expected to start in the 4th Quarter of this financial year. I am happy to inform that the re-processed seismic data is quite encouraging and the material balance in the field would be higher than expected. In-house G&G study is in progress which will get validated by third party reserve auditors and the new reserve numbers would be updated as soon as the study is completed. Data from workover results would also be included with the production data to re- estimate potential of the block. After these workovers, we plan for drilling two additional producers to ramp up to 70 MMSCFD subject to the growth of demand and connectivity to National gas grid.

As informed earlier, the balance 50% share capital of GeoEnpro is transferred and is now a wholly owned subsidiary of HOEC. GeoEnpro is the operator to Kharsang block and HOEC will have both directly and indirectly 35% participating interest in the block.

There are 70 wells drilled in the block, out of which 28 wells are on production, 9 are gas wells and 4 exploration wells were abandoned. The wells were drilled and produced from Upper Girujan. No wells were drilled and tested to know the potential of deeper formations such as lower Girujan, Tipam and Barail . This block is producing from Upper Girujan formation for over 40 years. Current production is about 432 barrels against about 350 bbls in previous 6 months

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average. This was possible after some acid jobs and workover in some wells. Approved work program already exists for drilling 6 wells to the depth of about 1500 meters, to target additional production from upper Girujan. Tangibles required such as wellheads, x-mas trees and tubulars were already procured. On obtaining EC clearance, which is expected by end December 2023, we should be drilling these six wells, which should increase the production to about 1000 barrels per day.

Substantial upside has been identified and evaluated by GCA both in the lower Girujan, Tipam and Barail formations. While drilling 6 development wells, we will finalise an appraisal program for deeper formations by drilling a well to a depth of 3000 meters by obtaining consent from JV partners. The deeper formations are expected to be gas and on discovery, monetising gas will not be difficult. We believe, by that time, eastern regional pipelines will get connected to the National gas grid.

Block -19, an exploration block called Greater Dirok, where seismic reprocessing is completed, our team will release the Geo Technical Order before this month end. GTO of the exploration well will be evaluated and risked before the commencement of drilling. This block is located between Dirok and Kharsang, which is 100% owned by HOEC.

We have work program lined up for drilling 6 development wells and one exploration well in Kharsang, and one more exploration well in Block-19. In addition, planned for intervention of 2 wells for workover in 2024-25. We also plan for 2 development wells in Dirok and 1 appraisal in Kharsang in 25-26. The expected capital out lay for the next two financial years is about 200 Crores.

Cambay blocks

In Cambay, all three blocks are having marginal production and total contract area is about 38 square kilometres., with 34 drilled wells, and the data is available. In-house G&G and reservoir team is re-evaluating the potential of all three blocks to enhance the production. Currently, these fields are breaking even with a meagre contribution to the P&L account.

In Palej, planned to have artificial lifts in all three wells and the required SRP's are being sourced. After seeing the results and on signing the PSC for R-2 contract area, we intend to have 3D seismic acquisition and drilling of additional wells.

In North Balol, we are producing from two wells one drilled by ONGC and one by HOEC. We plan to drill additional two producers immediately after getting the environment clearance. Similarly, to drill two producers in Asjol and, the number of wells will increase based on the drilling results.

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Offshore blocks:

In B-80, we have removed the wax deposition in the export line and restarted the production from D2 well. Production from this field is only for 1.5 months in this quarter. D2 well production is little over 1000 barrels per day and the gas is about 5 MMSCF per day. D1 well was producing before the cyclone and was shut-in during the cyclone. Post cyclone, we were trying to open the well for production, but it could not be activated. It is believed that there could be some mechanical obstructions, which needs to be removed. We have engaged Baker Hughes to study the issue and come out with a solution. Baker Hughes has commenced the study and based on their recommendation we will do the remedial action to restore the production from D1 well.

Under-buoy hoses have been received and kept in stock. Replacement work will begin after securing a DSV for this job. We endeavor to carry out this work before the onset of monsoon. We are currently focused on activating the D-1 well.

Presently, the total oil in stock in the FSO is about 372,000 barrels. Revised samples were sent for analysis and the results are expected by the end of November 23. We have engaged M- Junction, an auction platform to auction the crude among potential buyers. This process is expected to be completed by Dec 2023 and the first offtake could be in Jan 2024.

In PY-1 offshore, US$ 383 million was invested and mostly impaired but this block has 8 slot platform, 56 Km pipeline, onshore processing facilities for about 55 mmscfd with storage tanks for oil. Currently, this field is producing less than 1 mmscfd to breakeven. Seismic data of this block was re-processed, and our in-house G&G team is reviewing. After the in-house studies, we will engage a third-party expert in fractured basement reservoirs in London to review and confirm the proposed well locations. We plan for three development wells and if everything goes as per plan, drilling first well will commence in the end of first quarter of 24-25.

Now I will update the financial results of this quarter:

We report that the standalone revenue for this quarter is Rs. 72.56 crores compared to Rs.108.69 crores in the previous quarter. Revenue from offshore B-80 block is Rs.19.03 crores and the previous quarter it is Rs. 83.44 crores. This reduction is mainly due to shutdown of the field for want of cleaning the oil export line, which took about one and half months.

In case of Dirok, revenue in this quarter is 49.68 crores compared to Rs.21.17 crores in the previous quarter.

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The total reduction of Rs. 36.13 crores in sales, is due to shut-down of B-80 field for a substantial period in this quarter. We have an improved offtake of Gas in Dirok but this volatility in offtake will end once Duliajan gas station is connected to the national gas grid.

Field operating expenses for this quarter in the standalone account is 50.46 crores compared to 73.07 crores. This reduction is mainly due to non-operating days of B-80 field. Total expenses excluding DDA, finance costs including stock adjustment is Rs. 21.78 crores compared to Rs

62.64 crores in the previous quarter. DDA for this quarter is 4.77 crores compared to 8.85 crores in the previous quarter.

Oil in stock in FSO as on 30th June 2023 is 2,92,000 barrels and now increased to 329,000 barrels as on 30th Sep 2023. Out of which 60% belongs to HOEC.

Stock adjustment and credit for the current quarter is Rs. 43.52 crores, whereas it was Rs.27.70 crores in the previous quarter. This difference is mainly because of price of crude oil, which is US$ 74.93 per barrel on 30th June 2023 and US$ 93.54 per barrel on 30th Sep 2023.

Standalone EBITDA is 49.05 crores compared to 37.82 crores and the profit after tax is 38.74 crores compared to 21.34 crores in the previous quarter.

In consolidated account, the total revenue for this quarter is Rs. 119.74 crores compared to Rs.

187.14 crores in the previous quarter. This was due to loss of day rates for FSO and MOPU of Rs 33.77 crores due to shut-down of the B-80 field.

Operating expenses including facilities in the consolidated account for this quarter is 63.63 crores compared to 84.38 crores in the previous quarter. This reduction in cost is due to reduction in field operating costs due to shut down of B-80 field for about one and half months. Total costs excluding DDA, finance costs and including stock adjustment in consolidated account for this quarter is 42.91 crores compared to 77.43 crores in the previous quarter. DDA for this quarter is 18.37 crores compared to 20.06 crores in the previous quarter.

Consolidated profit after tax is Rs. 43.17 crores against Rs. 66.07 crores in the previous quarter. EBITDA for the current quarter in the consolidated account is Rs.70.64 crores compared to Rs. 96.86 cores in the previous quarter.

This reduction is mainly due to shut-down of B-80 field and the loss of production from D-1 well as well the charter rates for FSO and MOPU.

Geoenpro Petroleum Limited hitherto an associate of HOEC is consolidated in the current quarter, which makes the consolidated book value of equity shareholder's to Rs 1090 crores.

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	As of Oct 2023, the outstanding loans in the standalone books are Rs. 112.34 crores and in the
	subsidiary books is Rs. 77.50 crores. Company has obtained "A" stable rating for Rs. 500 crores
	bank loan from India Ratings. 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.
	Our discretionary planned capital expenditure for the next three years is estimated to be Rs
	835 Crores from 2024-25 to 2026-27. This is mainly for drilling 11 development wells, two
	exploration wells and 5 rig intervention for work over in 2024-25. We planned 5 development
	wells in 2025-26 and 3 development wells in B-80 in 2026-27. This capex can be met by internal
	accruals and when necessary additional equity will be raised.
Moderator:	We will now begin the question-and-answer session. We'll take the first question from the line
	of Rikesh Parikh from Rockstud Capital LLP. Please go ahead.
Rikesh Parikh
Rockstud Capital LLP:	I would just like to understand the problem on B-80 D1. So exactly what is the nature of the
	problem, when it was being impacted and kind of what will be the cost to remediate it and
	when do we expect it to restart?
R Jeevanandam:	Two possibilities, one mechanical issue, second reservoir issue. Based on in-house analysis, it
	is a mechanical issue. It is being studied by Baker Hughes and we expect a solution to this issue
	shortly. So, this is not going to be a very expensive proposal at this moment, and once the study
	is completed, we will have a full update on this.
Rikesh Parikh
Rockstud Capital LLP:	Sir, when the problem has occurred and when do we expect it will be activated?
R Jeevanandam:	When we recommence the production, after opening the D2 well we plan to open the D1 well.
	Well is not getting activated, since then we have been addressing this problem with the various
	experts in-house and third-party experts from outside. Finally, we engage the Baker Hughes to
	carry out the study and advise.
Rikesh Parikh
Rockstud Capital LLP:	My understanding is that the D1 well is largely an oil producing well. So, the oil production
	capability at B-80 will be majorly hampered because of this, right?
R Jeevanandam:	That's right till the last quarter.
Rikesh Parikh

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Rockstud Capital LLP:	Second, regarding the Dirok field, it's a good progress we have made 85% completion. Just
	wanted to understand how fast can we increase the ramp up the production to 50 mmscfd,
	assuming that the Indradhanush pipeline get activated from 4Q?
R Jeevanandam:	So, as stated, we are going to work over three wells. Right now, these wells are capable of
	producing up to 50 mmscfd. Workover will not take longer time, with the three wells workovers
	and the existing three new producer, we will be able to go with the 50 mmscfd.
Rikesh Parikh
Rockstud Capital LLP:	But will be like three to six months or post our connectivity to Indradhanush.
R Jeevanandam:	And as soon as the connectivity is ready, we will be able to do that.
Rikesh Parikh
Rockstud Capital LLP:	And on the PY-1, what is the estimate we are taking for the drilling of the three wells cost and
	do we presume that the timeline approvals will be in 4Q?
R Jeevanandam:	We estimate the total well drilling and facilities to be US$50 million and in the next financial
	year, we'll be drilling the first well.
Rikesh Parikh
Rockstud Capital LLP:	In next financial year, weather window will be open in the -?
R Jeevanandam:	Before October the weather should be good, we should be able to do.
Moderator:	The next question is from the line of. Abhishek Menon from Motilal Oswal. Please go ahead.
Abhishek Menon
Motilal Oswal:	So, first question is if I look at slide 5 in the presentation, so your gross production is sort of
	6,694 BOEPD in first quarter, 6,531 BOEPD in the second quarter, but net production has gone
	down quite a bit. So, why is there a decline in net production but not so much in the gross
	production?
R Jeevanandam:	The net production is the right number and the gross production I have to check, I'm sorry
	about it because of the B-80 and Assam increase and probably the right number. Gross
	production of Assam was increased, and our share is only 27%. So that's why the gross number
	is correct and the less number for our share is due to the B-80.
Abhishek Menon

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Motilal Oswal:	Second, I think my understanding is in B-80,, one of the wells started towards the end of
	September. So, if you could let us know gross and net production from that well?
R Jeevanandam:	As I told in my presentation, it is currently about more than 1000 barrels of oil and about 5
	million cubic feet of gas per day from the D2 well, and D1 well, we are working on to activate.
Abhishek Menon
Motilal Oswal:	So, you should have a full contribution in the October to December quarter?
R Jeevanandam:	It's difficult to state a timeline for the D1 well. We are waiting for Baker study. Once the study
	is completed, then what type of intervention is required decide the timeline.
Abhishek Menon
Motilal Oswal:	So, basically Q2 production would at least be maintained and will be slightly higher than in Q3,
	right, that's a good number to work with?
R Jeevanandam:	We believe that so.
Abhishek Menon
Motilal Oswal:	I also want to check your standalone versus consol, so standalone numbers have gone up, but
	consol has gone down. So again, what has happened over there -- is that Assam, which is
	contributing to this or is there something else?
R Jeevanandam:	When you look at in standalone, we had a better revenue from Assam Dirok field and that's
	the reason it has gone up. In the consol it is less because we are not able to get the full
	production from D1 well, second thing is MOPU and FSO charges are getting reduced to 50%.
	That's the reason for this reduction.
Moderator:	The next question is from the line of Peter Shah from Unique Stock Broking. Please go ahead.
Peter Shah
Unique Stock Broking:	One is just for an information. Mr. Elango joined Deccan Gold in the form of non-executive
	director, but I think in the last con call he said he is retiring completely, and he wants to give
	time to the family. So, I really did not understand why he joined over there and why did he not
	continue at Hindustan Oil. On a personal level if you are aware of something you can throw
	some light? Questions are, one is this D1 gas production, I think we had a contract with GAIL
	where we are getting 22% of the value of the oil. Now, in the March '22-23 quarter, they had a
	call where they said for the first year of the contract there is no penalty, it is taken or leave kind
	of thing, but second year there is a penalty clause which will be considered at the end of the

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	year looking at how much we were able to supply and not supply. But I'm saying in the last con
	call what Mr. P. ELango said, there is no penalty as such. So, why there is divergent in both the
	statements? So, if you can clarify how much penalty will be levied? The second thing on Dirok,
	what is the average top line that we are expected to generate that is starting from '24-25
	onwards and do we not again face the problem of the duel pricing when the whole gas grid is
	connected?
R Jeevanandam:	On your first question, I have no idea. And the D1, this is an oil well, and the D2 is the gas
	producer. we have a gas sales agreement with the GSPC, not with GAIL. This will be valid till
	March '24. It is an year-end adjustment. So, we have got six more months to go on and we
	expect that at the end of the year we will be knowing whether we are short, or we are
	oversupplied. So, there is in between one-month shutdown by GSPC also. In overall, we should
	be in a position to say that number is not a big one and we believe that there may not be any
	penalty. In case of Dirok the current production numbers are given to you; it is a little over 20
	mmscfd for the gross 100%, and once the three lines are getting connected, we should be able
	to ramp up our production to 50 mcfpd. Once the IGGL line is get connected to the national
	gas grid and is fully established, we will be able to ramp up the production to 70 mcfpd
	effectively from the financial year of '25-26.
Moderator:	We'll move on to the next question, which is from the line of Ajit from Nirdal Securities. Please
	go ahead.
Ajit
Nirdal Securities:	How is this stock valued like whether at cost or NRV whichever is less or some other way?
R Jeevanandam:	It is mark-to-market, Ajit. Whatever the price is on the closing date of the books, that price will
	be taken into account.
Moderator:	The next question is from the line of Darshil Jhaveri from Crown Capital. Please go ahead.
Darshil Jhaveri
Crown Capital:	So just wanted to know, sir, with our B-80 field shut down, I think you mentioned the figures
	of how much revenue was around 33 crores, right?
R Jeevanandam:	It should be more than 33 crores because the reason for it is the differential amount in totality.
	There is an improvement in Dirok and there is a reduction in B-80.
Darshil Jhaveri
Crown Capital:	My line just got disconnected. Sorry, sir. Could you repeat, sir?

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R Jeevanandam:	There is an increase in the revenue in Dirok and there is a reduction in the revenue for about
	one and half months in the B-80. So, the overall net reduction amount which I told you is 36
	crores.
Darshil Jhaveri
Crown Capital:	From the field maintenance shutdown of B-80, how much would it be at? Will that come in Q3
	because of maintenance shutdown?
R Jeevanandam:	No, I don't think Q3 shutdown is not expected for a longer duration because the D2 well
	production will continue.
Darshil Jhaveri
Crown Capital:	So maybe can you quantify how much would we be able to increase our top line by Q3?
R Jeevanandam:	I think it's too difficult to put some numbers. It depends on the price, it depends on the quantity
	and let us not presupposes with any number and you can do the math.
Darshil Jhaveri
Crown Capital:	I think we have faced some issues in the current year, but FY25 onwards we would be going in
	full swing sir, like we would not have any other issue that we could foresee, right, we'll be on
	back to the run rate that we were before the cyclone, right, so that would be a fair assumption?
R Jeevanandam:	I think all technical experts are working at the moment. We have given to the best company,
	Baker Hughes International, it's a reputed company and we believe that we will have a solution
	to the D1 well. Once that comes on it and better offtake from Dirok, we'll be doing better
	numbers from. '24-25 onwards.
Moderator:	The next question is from the line of Riten Shaf, an individual investor. Please go ahead.
Riten Shaf:	My question is on B-80 field. So, B-80 field has not produced on both the wells with full
	potential since the commissioning and had some technical challenge like separator leakage and
	flow line wax choking problem. So, when can we expect the production from both wells
	continuously -- is it an operational team problem or a a geology and a reservoir issue, so could
	you throw some light on this like what is the future operational plan?
R Jeevanandam:	As I told you, our technical team is very confident that there is no reservoir issue. They're
	believing that there's only mechanical issues which they are discussing with the various people.
	Now the Baker is engaged and with that we should be able to get a resolution to this issue. On
	the top side, there is quite a lot of improvement has been made and some small issues are still
	coming up, which are getting addressed properly. So, we are talking to the contractor to keep

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