Hindustan Oil Exploration: Key Production Updates
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00:00Hello and welcome. You're watching The Smith Show here on NDTV Profit. I'm Harsh Saita.
00:12With me is Mahima Vatsajani. And our first management for the day is HOEC, Hindustan
00:17Oil Exploration. What a strong performer this has been over the last three months, giving
00:21nearly 40 percent returns to shareholders. And if you've timed the bottom right, it's
00:25given a 55 plus percent return to shareholders. So very, very strong. New blocks and plenty
00:30of things happening on this one. We have Mr. Ramaswamy, Ramaswamy Jeevanandam to join
00:36us for this chat. I want to first try and break down the Q1 numbers. You know, some
00:43amount of drag when it comes to your top line, both on pricing as well as on production.
00:50Walk us through that and has some of that reversed in Q2?
00:55Thank you for having me. See, the gross production is about 7,000 barrels and net production
01:03is about 2,500 barrels per HOEC share. And the price reduction as we see it actually
01:12that BIT gas price has been reduced from about 22 percent of the brand to 12 percent
01:20of the brand. That is an impact therein. But the volume remains the same for the previous
01:26quarter to the last quarter. And then Assam, the uptake is a demand, there is a demand
01:33constraint is there, which we are waiting for the national grid to get connected. Then
01:39the demand picks up means our revenue will move up.
01:42Okay.
01:43Yeah.
01:44Right, right. You can go ahead.
01:48Okay, now what is happening is our capability of producing going up to 40 to 45 million
01:54cubic feet of gas in the Diroc field, but we could be able to uptake only 50 percent
01:59of it. These constraints will go up once the northern gas grid get connected, then we would
02:06be able to double it. And in the month of June to October, the two quarters will have
02:13an impact on the western region because of the monsoon impact. That would be an ongoing
02:19issues and we will be sorting it out quickly and we will resume the production in the BIT
02:25also.
02:26So, in further in oil and gas business, rather than quarter to quarter impact, we would be
02:31looking into the value creation more. The value below the ground and above the ground,
02:37the difference only get impacted if you are not able to produce. So, that is the position
02:43of the company at the moment. We would be putting BIT on shortly and once the gas grid
02:48connected in the eastern region, we will be able to double it up.
02:53Got it. And how quickly do you foresee that you getting connected to the grid?
03:00This is carried out by the government project, by the government companies and we can make
03:05a guesstimate that should be before the end of this year, end of this financial year.
03:10Okay. So, would that be Q3 sir or Q4? When would you start recognizing avenue for this?
03:16When?
03:17It should be, it is better to take it from 2025-2026 financial year.
03:21Okay. Understood. Understood.
03:23Okay. Mr. Jeevananda, you know, I want to understand in terms of production targets,
03:28what are your targets for FY25 and specifically for the, you know, B80 block revenue as well
03:34as production targets?
03:38You have to look at the capital program. We are looking for an about 1000 crore capital
03:43program for the next three years. So, right now we are on 3000 barrels, we have to ramp
03:49it up to 15,000 barrels by end of 27-28. That is our target as such. Now, as you asked about
03:57B80, B80 we will be making about 2500 barrel of oil equivalent per day and the revenue
04:03depends on the price of oil as well as the gas, you know, that is linked to the oil price
04:09which is not possible to predict in an effective manner by anyone.
04:14Okay. And, you know, with respect to further tests in the new gas discovery for DROC, what
04:21is the update there? How are things shaping up there?
04:25See, you know that DROC is a stack of sands and many sands have not been tested. We have
04:32tested one of the untested sand, sand 9, that has given about 6 million cubic feet of gas
04:38at half inch ore. Now, that is on currently on production. Now, that will increase our
04:45recoverable volumes of DROC field. The people are working on it and we need the approval
04:51of our partners and DGH before we communicate the reserve numbers there. So, our side we
04:57completed the work and we are awaiting the partner's consent and DGH approval there.
05:04And so, just with regard to the B80, you had spoken in your Q1 update that you are looking
05:11for a houser to possibly try and ramp up production during monsoons. Has that arrived? Do you
05:18see that ramp up? You spoke about that a little bit. You said that there has still
05:22been a drag, but I want to understand a slightly more nuanced update on it.
05:27Houser is a nylon rope. It will not ramp up the production. It will enable us to recommence
05:34the production. On recommencement, we will be getting back to the previous production
05:39level at the moment. So, has that happened, sir?
05:44People are working on it and we are working on it with an old houser right now. And the
05:51new houser is expected before this month end. We should be able to put it on production
05:58shortly. That's our endeavor actually.
06:01Sure, understood. And sir, just with some of these new supplies coming on stream, what
06:09do you expect the impact on revenue to be at a normalized level? So, say F525, Q1, Q2,
06:15we have seen some amount of impact. But if we were to normalize that, say in F526, what
06:23would the numbers be? Of course, I understand there is a variable in terms of pricing, but
06:27outside of that, is there a broad number that we can arrive at?
06:32See, our visual projection is we can ramp up our EBITDA to 1500 to 2000 crores in 27-28.
06:39So, that will be staggering on year on year when our capital commitments get on to it.
06:44So, every year we are planning for 300, 300 plus crores of investments both onshore and
06:50offshore. By 27-28, we should be able to reach the target of our 1500 EBITDA to 2000 crore
06:57EBITDA there.
06:58Okay.
06:59So, that is a visual projection there.
07:01Right. Okay. And, you know, in terms of LNG pricing, what is your outlook going forward?
07:06See, right now it is around $13 per mm BTU. So, we feel that should be the level actually,
07:14but any aberration makes the price more, you know, but it will not come down much on this.
07:19That is what we feel.
07:20Right. And with respect to your camber blocks, you know, you have received environmental
07:25clearance after four years now. So, what is the kind of revenue potential there and
07:29what is the outlook for that particular block?
07:32See, what we are planning to do in Asjol, we are planning two horizontal wells and in
07:39Nagpallur, we are drilling two vertical wells and four wells we have to drill and test it.
07:44Our expectations would be in the order of 500 barrels oil equivalent on a gross basis.
07:52The price, I do not think able to decide anything on it and say the number there on, it is incorrect either way.
07:59Okay. Just for viewer context, I want to highlight 1500 crore in terms of EBITDA, 1500 to 2000 crore.
08:08So, you are currently a 4000 crore market cap company, sub 4000. So, FY27, 28 and EBITDA
08:161500 to 2000 crore is the guidance, currently sitting at roughly 300 odd crore.
08:22So, I want to understand a little bit more on CAPEX as well. So, you have guided for
08:27a 1000 crore CAPEX. You have suggested that most of it will be, at least all the organic
08:35CAPEX will be internally funded and you have also suggested a borrowing program of 750
08:41crore. Could you just break up this CAPEX for us, talk us through what the borrowing
08:45is going to be used for, just for viewer reference?
08:49See, right now, our current year capital program is for onshore. There is about some 250 to
08:57300 crores and the next year is a bit of an onshore and offshore about 350 crores and
09:04the last and 26, 27 would be an offshore only for 350 to 400 crores. This you can look at
09:11our EBITDA current last year and this year, we will be able to meet these capital commitments
09:16through internal accruals comfortably. We do not intend to borrow anything on it. But
09:20at the same time, this is an oil and gas company, you need some growth on our assets, portfolio
09:25of assets on upstream assets, particularly oil and gas assets. We have to bid for those,
09:31whatever the opportunity comes in OLAB and discover small field new rounds. So, we will
09:37be continuously bidding for it. For that, we have just having an enabling provision
09:43to the extent of 750 crores. This is to give for bank guarantees to Government of India
09:48and short-term funding if anything required on it. And in our endeavor as such, we do
09:54not want to borrow money and put the money on upstream assets. So, we will be getting
09:58more of an internal accrual and other equity funding if required.
10:02Got it. So, how long would the 750 crores sit in your balance sheet as borrowing for?
10:06No, no, we do not have any borrowing. At the moment, our net of borrowing is about 50 crores.
10:11Right, exactly. So, I just want to understand, no incremental borrowing at all?
10:16No, at this stage, we do not intend to borrow anything at all.
10:20Understood, understood. And sir, just with regard to profitability, you will have roughly
10:261500 crores to 2000 crores of EBITDA coming through. Very low interest cost.
10:32How would your PAT and how would your return ratios therefore align given this 1000 crores capex that you are doing?
10:40See, normally our margins are good. But to that extent, you have to have a successful development also.
10:49It is, oil and gas business per se is involved, exploration will have its own risk and development will have its own risk.
10:57And but for that, we should be able to substantiate a good margin that should be more than 40% gross margin.
11:03And we have some carryover losses in the books of account, which is about 900 crores.
11:09So, the profit after tax would not be impacting much and the tax outflow would start from 27-28 onwards.
11:17That is what we are planning right now in a manner that we will be more effective in creating wealth to the company in a continuous manner.
11:24So, we will be putting our additional cash into the upstream assets as much as we can,
11:31mostly on possibility of discovered assets and if required, we will go for some good exploration potential there also.
11:39Right. Well, Mr. Jeevanandam, thank you so much for giving us those comprehensive answers
11:43and taking our time and speaking with us at NDTV Profit.