Hindustan Oil Exploration Company Limited (500186) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Q4 FY '21 Conference Call of Hindustan Oil Exploration Company Limited. [Operator Instructions] I now hand the conference over to Mr. Anuj Sonpal from Valorem Advisors. Thank you, and over to you, Mr. Sonpal.

Thank you. Good morning, everyone, and a 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 conference call for the fourth quarter and financial year ended 2021. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings conference 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 conference call is purely 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 today's earnings conference call and give it over to them for opening remarks. We have with us Mr. P. Elango, Managing Director; and Mr. R. Jeevanandam, Executive Director and Chief Financial Officer. Without much delay, I request Mr. P. Elango to give his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good morning, everyone. Happy to connect with you all on this Q4 and annual FY '21 earnings call. Jeeva, our CFO and full time director, is with me. And Valorem Advisors, our investor relations advisers, are also on the call. I hope you all have received our updated earnings presentation. We've also uploaded that same on our website for your reference. For us in HOEC, FY '21 has been a year of singular focus on B-80. In April 2020, we were drilling our second well in B-80 in Western Offshore even as the pandemic wave 1 was sweeping across the country. Despite many challenges, we did not give up and completed the wells. Both the wells together flowed during testing 8,000 barrels of oil equivalent per day. Then to bring the field on production, working from home, we had to plan and source multiple long-lead project materials and import equipment from many parts of the world. Finding no suitable vessel in India, we mobilized an expensive new-generation DP vessel to lay the pipeline and a construction barge to execute the project during the limited weather window. We completed the mobilization and commenced the project execution one day in March. As the installation works were in full swing, second wave hit us, we again did not give up. We continued by implementing a strict COVID protection code incurring additional cost and time. We had completed over 95% of the work that pushed us into rough weather window of May. Finally, when just 1-week work was required to install the CALM buoy, we received the warnings of Cyclone Tauktae and immediately evacuated all our men and vessels to safety. We waited and remobilized again post the cyclone, not wanting to give up, but the weather was rough and visibility was poor. We finally had to give up. I am narrating this to share our deep sense of disappointment. We promised we would deliver and we did not. All I can say is we tried our best, but failed to achieve the target date. The CALM buoy now is safely docked for the monsoon season. Post monsoon, we will remobilize the marine spread, install the CALM buoy, connect it to the FSO and commission the process facilities to deliver first oil in Q3 of this year. At Dirok, too, challenges on the ground of running safe operations during a pandemic year continued. Our first priority has always been to ensure safety of our personnel and the facility. Despite the challenges, we continued to produce consistently at high production levels at Dirok. Average production of gas from Dirok for FY '21 was about 35 million standard cubic feet per day, which is close to the full planned capacity of 1 million standard cubic meters per day. The performance of Dirok reservoir has been promising and consistent. While we have delivered volume from Dirok over the last 3 years, our focus has now been to increase value from the gas produced in the context of low government-notified gas prices of $1.79 per MMBtu. As earlier announced, just a few days back, we concluded successfully the first-ever e-auction of natural gas produced in the North East region. The results of the e-auction indicate a very healthy demand with approximately twice the amount of volume available being bid for. The volumes are bid at over $1 premium to the existing 6 monthly government-notified prices. This is a significant development and has the potential to increase realized gas price from Dirok by more than 50% from the current levels. We have provided the details and an illustration in the investor presentation. please take a look at that. The current arrangement will continue with Oil India to ensure smooth transition using the pipeline infrastructure of Oil India. Once we move to the new arrangement, Oil India will act as a transporter for Dirok gas for which the modalities are being worked out. We are now awaiting DGH and JV approval and hope to complete this process of transition in 3 months and expect incremental revenues from Dirok to start from Q3 of FY '22. This pioneering e-auction discovered the market potential for natural gas in the North East region and in particular, upper Assam. We are in parallel preparing for the North East market being opened up for the rest of India as the North East Gas Grid, Indradhanush, is progressing at a rapid pace and is expected to commission the Guwahati-Numaligarh pipeline portion in 2023. In PY-1, production has declined and offtake has been inconsistent during the pandemic year. Our geological studies are being completed to plan the next drilling campaign in this unique fractured basement reservoir. The next drilling campaign in PY-1 will be planned after first oil from B-80. Although the current production from PY-1 is very small, we are hopeful of bringing the field back to producing to its potential after the drilling campaign. Final investment decision will be taken after independent technical assessment and derisking. In our Cambay assets, we have initiated the environmental clearance process to drill additional wells and the execution of R2 PSC in our Palej block is in final stages. That's the overall update of our business operations during FY '21. I would take few more minutes to briefly outline our growth strategy. At the macro level, effective supply control measures from OPEC and sharp revival in demand are strengthening the oil prices and this trend is expected to continue as more economies get back to normalcy. In India, government policy thrust is focused on monetization of assets held by public sector units. In upstream acceleration and production sector, HOEC is in an advantageous position to capitalize this opportunity with its edge in operating offshore fields. In a highly capital- and manpower-intensive sector, we chose the right asset and lean team model. Our idea was to emerge as the uber of oil and gas sector by building world-class competencies in both geoscience and drilling. Both these functions are held by professionals with global experience, Mr. Krishnan and Mr. Robert White. We chose Expro U.K. as our strategic partner to build, operate and maintain oil and gas process surface facilities, both in Dirok and in B-80. This strategy has served us well with less than 100 employees contributing about 8,000 barrels of oil equivalent per day to India's domestic production. Developing discovered resources fee in B-80 in a pandemic environment during a limited weather window has been a significant experience. We gained expertise in Western Offshore and learned a few lessons, too. HOEC is at the cusp of transformation, looking at a multifold increase in revenue during -- from third quarter onwards after we bring B-80 into production. In FY '21, HOEC's net in title production was about 2,300 barrels of oil equivalent with production mix of almost 90% gas and 10% oil. When B-80 is on full year production in FY '23, HOEC net share production will increase to over 7,000 barrels of oil equivalent with a production mix of nearly 50% oil. To drive the next level of growth, we have discovered resources within our existing portfolio that has potential to double this HOEC net share production to 14,000 barrels of oil equivalent per day. Further, we aim to add more resources by participating in the recently launched DSF bid round 3. We will also look for opportunity that shows up from the asset monetization policy of the government. Going to the next stage is not without its challenges. We have some immediate cost overrun issues to deal with, and there are legacy PSC issues to overcome. What I have outlined is a broad strategy. We will develop and roll out a clear road map and business plan over the next few months. I now invite Jeeva to share the financials.

Thanks, Elango. We report that the company made a revenue of INR 24 crores in the current quarter against INR 27 crores in the previous quarter. However, for the year, the revenue is INR 111 crores comparing INR 201 crores in the previous year. In consol accounts, it is INR 30 crores against INR 31 crores in the previous quarter. And the annual number is INR 125 crores in the current year against INR 224 crores in the previous. Virtually, there is a reduction of INR 100 crores reduction to revenue. The reduction in revenue is mainly from reduction in prices of Assam gas and the volume reduction in PY-1. The profit on stand-alone is INR 65 crores, which includes an adjustment towards the exceptional item, against INR 141 crores in the previous year. In the consolidated accounts, the profit after tax for this year is INR 53 crores against INR 133 -- INR 138 crores in the previous year. The total expense of stand-alone is INR 74 crores comparing INR 87 crores in the previous year. Operating costs are not linear to the production rate [indiscernible]. In the contract accounts, it is INR 89 crores comparing INR 113 crores in the previous year. Operating cash flow for the year before working capital change is INR 63 crores, comparing INR 140 crores in the previous year. In the consol results, operating cash flow stands at INR 54 crores comparing INR 132 crores in the previous year. The company cash and cash equivalent of about INR 60 crores as of 31st March 2021, and the control accounts cash and cash equivalent is INR 92 crores. We have a secured loan facility of INR 150 crores from Vyoman to meet the capital towards additional 10% participating in the block and the capital expenditure thereon, which has been fully utilized. And the investment on B-80, MOPU and SBM and the floating storage offshore would be on revenue mode only after the commencement of production from B-80. Having substantial investment yet to put on production get on to revenue mode, the meaningful number would be reported after the commencement of B-80 production. Thanks, Elango.

Thank you, Jeeva. Anuj, we can open the floor to the questions, please.

[Operator Instructions] The first question is from the line of Hardik Jain from White Stone Advisors.

Yes. Sir, in your opening remarks, you mentioned that -- you mentioned the statement where you said both the wells were tested and they flowed 8,000 barrels of oil equivalent per day. Can you just elaborate on this?

Yes. So we drilled 2 wells, which is D1 and D2 in B-80. We tested these wells and both the wells will produce both oil and gas in oil and associated gas. So overall, both the wells together will -- during testing produced 8,000 barrels of oil equivalent per day.

Sir, sorry, I lost your voice in the last statement. Can you please repeat?

Yes. I said both the wells together produce 8,000 barrels of oil equivalent per day, which means basically oil and gas together, right? So the...

Okay. So when we said that it flows, that means we tested it and the probability of us not getting that much quantity of oil and gas reduces after the test to a great extent?

Correct, correct.

Okay. And sir, now when we've seen our balance sheet, the capital work in progress is around INR 275 crores and we have 1 week's more work that we have to do when installing the CALM Buoy and FSO. So how much more investment will be done, sir, overall?

The total investment in the project, including all the facilities because we have a model of outsourcing at the field level, resulting at the corporate level, we have an investment about $100 million there on for it -- for our 60% investment. And the additional investments, which we are now looking for it how to optimize the cost, whether the existing facilities in the vicinity or we have to mobilize additional facility from somewhere else, once we have a clear idea, we would be able to estimate the cost properly, which will not be more than $2 million, $3 million.

Okay. And sir, my last question is regarding PY-1 because the production in the PY-1 has been erratic for last few quarters. So is there a possibility where we'll have to take some write-off or it will impact our balance sheet because the asset is not efficiently producing?

We have nothing in the balance sheet. Actually only have got only $12 million over an investment of $383 million made on the block.

Okay. So the pending cost that remains towards the PY-1 is only $12 million?

A little more than $12 million. If you wanted the exact number, it's about INR 90-plus crores.

The next question is from the line of Rohan Shah from Alpha Enterprises.

I had a question on the survey that we were about to publish on B-80. So any update on that status? And I also had a question on PY-1. I noticed in the notes in the results this time that the extension has not been granted for the next decade. So any idea when that will happen and any idea of -- is there any risk that this may not happen?

Okay. Let me answer the PY-1 question first. The government has rolled out an extension policy, under which there are 2 important criteria. One is related to the economic life of -- remaining economic life of the field, which they contracted us to demonstrate through a field development plan, which we have submitted and got it approved as well. So we have a field development plan, which demonstrate to the government's satisfaction, both economically and technically that the field can continue to produce for 10 years. The other requirement is the contractor should not owe any amount to the government. So we have an issue on the method of calculating the royalty. So that matter has been referred to the [ full ] Resolution Committee. So on that basis, the government has been giving us ad hoc extension. This is a method government is following in respect of almost all the blocks where the production sharing contract has come to an end, where there is a subsequent extension that's involved. So we don't see any risk in securing the extension once this issue is resolved, I think government would extend it for us next 10 years. And the question of B-80, I think you're referring to the reserve studies. We told earlier that we've engaged the GCA to do the estimate. Now finally, GSA required the field to be on production to confirm our full model as such. But meantime, because -- and we had thought we will complete the other facilities and bring the field on production during this quarter. But with this delay, we've got an initial report, which we have taken into account while doing our own assessment of the reserves, which will be published as part of the annual report.

Okay. Great. Yes. I look forward to reading it in the annual report.

The next question is from the line of Tejas Shah from Unique Stock Group. As a response, we will move to the next question, which is from the line of Sunil Jain from Nirmal Bang.

Two questions from my side. One is related to the postponement of start-up production. So how much cost overrun will be there because of that?

Okay. Now as you all know that we were in the field till mid-May -- mid-May or third week of May. Since then -- since under lockdown, which has begun -- can you hear me now?

Yes, yes.

Yes. We will complete the total cost assessment and we will report in the next quarterly call.

Sorry to interrupt, sir, but your voice is breaking. [Operator Instructions]

Yes, okay. so my second question is related to e-auction in Dirok. So you said that we will be realizing $1 extra. So how much volume we can sell through e-auction and when we can get full benefit of the same?

Yes. So we went for the e-auction with the full volume under 2 categories. One is what is called firm commitment, the other is a fallback basis. Fallback essentially involves no specific contractual obligation to take or supply the committed volume. Our strategy was really not to disturb the existing arrangement we have with Oil India. So currently, whatever production we are -- whatever we are producing, which is about 35 million standard cubic feet per day during the last financial year, the entire volume was being sold to Oil India. Oil India, in turn, was combining that gas with theirs and then distributing it. And then for e-auction, we gave -- we put 2 options, both fallback and firm. On the firm basis, we have received the first 30% of 1 million cubic meters per day, which is roughly about 10 million standard cubic feet per day. Whatever we are producing, 30% can be sold on a firm basis on a $1 premium over the government-notified prices. As and when the government-notified prices changes or increases or decreases, this will also the base price will change. But at every point in time, there will be a $1 premium. That's a firm committed. The fallback got bids for almost 70% of the volume. In fact, the total volume demand we received was close to 2 million cubic meters, which is double what we had -- or close to double of what we offer. Those will be on a fallback basis, which means we will stay connected with those customers. And whenever they have a demand, this gas will be diverted to meet that demand. Once again, the premium on the fallback is higher, ranges from about $1.25 million to $1.75 million over the government-notified prices. So on an average, we expect to basically clear the entire volume through this method. Of course, fallback doesn't have any specific obligation. Whatever there is -- they don't take, it will be delivered to Oil India. So the whole purpose was to -- before we go ahead and expand the capacity of Dirok facilities, we wanted to test the market and discover the market price. Obviously, what we have got in return is demand has been confirmed for almost 2 million cubic meters per day, which is 70 million standard cubic feet per day. And the premium of between $1 to close to $1.75 per MMBtu. So overall, this quarter, we will be doing all the transition because we don't want the pipeline to the customer facilities. We'll have to use the Oil India pipeline by paying some tariffs to them. So we are in that process. So from Q3 onwards, we expect to come and see sales under this methodology and realize better prices over and above the government-notified prices, which should be minimum $1 more.

Sir, you said Q3 you will be starting this process?

Yes.

And whether you need to with Oil India will have any objection to this or any...

Oil India being our joint venture partners, they are -- they hold 40% stake in Dirok, right? They are also co-sellers. So we were able to persuade them that this is in the best interest of all the parties to realize better market-determined prices. Unfortunately, Oil India, for the gas that they produce, they cannot sell it at a price other than the government-notified prices. So everything is being done with full support and cooperation of Oil India.

Okay. Yes, great. That is true. And once the prices increased from 1st October of notified price by the government, so we will be getting additional $1 for that 30% committed?

Correct.

The next question is from the line of Riddhesh Gandhi from Discovery Capital.

I just had a question with regards to your B-80. Just to clarify, do you guys have externally certified reserves that you will receive and are you going to be sharing that in the annual report. Or this is your own internal estimate that you'll be sharing in the annual report?

In the annual report, we'll be sharing the -- our own internal estimate, which is verified by the external party.

Okay. So this is effectively equivalent of notified reserve, is it?

Yes. The results in the annual report will indicate the total reserves held by the company across, all its assets. The B-80 one, which forms a material majority of it has been independently verified by the independent third party.

Got it. And so for any reason we are holding off until the annual report? If it's already ready, any reason we aren't ready sort of disclosing?

So normally, we announce the -- we disclose the reserves, that is a practice all the companies also follow along with that of the annual report. So we just wanted to follow the same practice.

Okay. Got it. And just so I understand this actually, I mean, the $1 higher price is applicable on how much percent of your Dirok production? And for how long is the agreement, given it's starting in Q3. And let's say, as expected, there will be a revision in prices in October, which are being indicated to be reasonably higher with 50% to 70% higher than where they are right now. So it will be $1 higher than that amount?

Yes. It will be higher $1 than that amount. And the contract we are initially signing is for a 2-year period with all the customers. Because the demand received was close to 175% of the volume that we offered, we expect the uptake to -- we expect to sell the -- almost the entire volume through this method. The only thing to understand is 30% is on a firm basis where there's take-or-pay firm commitment by the customer. The other 70% is on a fallback basis, so we would be meeting the -- depending on the demand. But generally, what this e-auction indeed confirmed to us is there is unmet demand from the existing customers. All these are existing customers, all of them are new customers, all of them are -- existing customers are Oil India. Most of them are major players like NTPC, NRL, BCPL, major public sector undertaking. We're not talking about [ tea estates ] and smaller players. Therefore, we expect the volume to be taken at the premium of at least $1 more than the government-notified prices, whatever that may be.

Which is, in any case, lower than what would be market prices?

Yes.

Got it. And just a last question, if you could just give us an update on actually Kharsang?

Yes. In Kharsang, the production is -- this year's production is on an average around 550 barrels per day with the oil prices strengthening. That revenue from there should increase. As far as PSC extension, that field also was ad hoc extension pending resolution of some of the cost recovery issues, some forest clearance confirmations, et cetera. And the operator of the field is handling those lines.

Next question is from the line of Nirbhay Mahawar from N Square Capital.

Yes. Sir, Just wanted to follow up regarding your production growth. You mentioned 2,400 barrels of net production will move to 8,000 post B-80 and 14,000 to other organic field expansion. Is this correct?

I said 2,300 will go to about 7,000. That has the potential to go to 14,000 once we make additional investment in existing portfolio. So what I wanted to outline was our existing portfolio has the capacity to deliver volume. Obviously, this will involve additional investment by way of drilling wells.

So with B-80 cash flow, would it be fair to assume that we should be able to do it through -- largely through internal approval?

Yes. Post B-80, we will be able to phase it in a manner.

Okay. And wanted to understand your perspective on potential of DSF 3, what kind of opportunities exist for company like HOEC?

Overall, there are -- after taking the feedback from the industry, the government has increased the individual acreage size of each block than what it used to be in the previous bid drawn. So the acreage sizes are large. Overall, there is close to 13,000 square kilometer of discovered area across the country or in offshore. We, as a company, having experienced the -- having experience both in Western Offshore and Eastern Offshore, we'll be looking at opportunities, particularly in the offshore area as such, which is more of a high risk/high reward -- fall in the high risk/high reward category where the competition also would be lower.

Okay, okay. So you would -- would it be fair to assume that in this category, probably a number of bidders would be restricted to 3, 4, 5 only because I think very few companies in any case have participated in DSF 1 and 2. So...

In terms of the offshore, currently, there are only 3 companies in India with -- other than ONGC. Totally, if you include ONGC, there are only 4 companies in India with experience in offshore production. One is, obviously, ONGC, Reliance, Cairn and HOEC.

[Operator Instructions] The next question is from the line of Rikesh Parikh from Barclays.

Yes. Sir, can you throw some light on the marketing plan for B-80 gas? I mean have we done any firm science by now?

Yes. On B-80, one of the important things when you do marketing type of, particularly through the e-auction mode, one is the government policy now makes it mandatory that you can conclude gas sales contract one day by following the e-auction route. And one of the requirements in e-auction is really about when will you specific date, volume, quantity and some quality aspects as such. Now having done the e-auction exercise for Dirok, we've got the whole template now. And within a matter of 3 weeks, we'll be able to complete the whole e-auction process and conclude the buyer. In terms of the infrastructure, the gas pipeline from the mobile process unit has already been connected to the ONGC's existing pipeline, the hot tapping work has been completed. And ONGC's pipeline would take the gas all the way to Hazira and Hazira is a delivery point. It's very -- in 3 weeks' time, we can conclude that e-tendering process. But we will do that closer to commencement of production.

And the e-tendering will be like a government price plus or minus kind of a pricing?

There is no particular methodology. The different companies have followed different, meaning one can put up LNG, the benchmark, and people can quote a premium or -- sorry, a discount to that as such. So different companies have followed. In North East, we follow this government pricing benchmark because the North East customers are used to the government pricing metrology. In Western, which is a much more -- freer market, [ our ] market, I know other companies like Reliance followed a different metrology of linking the price to the Asian LNG import as a benchmark. Basically, you need to provide a benchmark and then ask the bidders to do that.

Okay. So it will be once we are ready with the infrastructure we'll be able to auction, right?

Correct, correct. Yes.

Yes. Now coming to the Dirok auction, I think that is very encouraging that we are getting some additional demand over there. Just wanted your thoughts once we have the second phase up and running, will we -- are you under commitment to supply to Oil India or we can use this opportunity to do a direct market having seen the demand?

We can do a direct market. There's no obligation to supply to Oil India.

There is no obligation, that's helpful. And just last question...

[Operator Instructions] The next question is from the line of Tejas Shah from Unique Stock Group.

Can you list the quality of oil and how much it is at a discount to the Brent for the B-80?

Yes. The quality of oil is pretty close to Brent. So we expect the discount -- we have not done the full benchmarking, the discount will be a minimum discount.

And what is the now average price realization we are looking at? And what will be the revenue if it can come in Indian rupees?

We had earlier kind of indicated that at a price of about $55, the netback will be about $25 per barrel.

But now being -- the prices being higher, would it be prudent to increase it to $65 or $70 or...

No. This is -- whatever is the prevailing price, see the crude oil prices are -- will be determined based on the prevailing international market price that point in time, right. In Q3, whatever is the prevailing price, whenever we sell what we sell the oil, we will get that. So it's -- generally, the companies take longer term beyond that. And it's basically anyone's take on what price one wants to continue. All we can say is we've kept the -- our cost base is such that we will be making margins even at a $35 oil price.

The next question is from the line of Sadanand Shetty from Truequity.

Yes. Mr. Elango, what is the profile of customers who have bid in e-auction? My second question is, how is the price trend? Has it been volatile since the time it began? Is there any time where it has been in discount also to ATM prices?

Yes. Just the first question. In terms of the customer profile, majority of them are government of India public sector companies, such as Numaligarh refinery, BCPL and NTPC power plant and fertilizer plants. So the customers are all -- majority of them are -- and there is state-governed power companies also. But overall, it is all central public sector entity. All of them are currently drawing gas from Oil India, and Oil India has a track record with all of them and all the facilities are -- delivery facilities are already connected, stay connected as such. In terms of the movement, we have not yet commenced the sales under this model. We've just opened -- closed the e-auction bidding 2 days back. We will complete all the transition formalities. But the structure of pricing is such that every 6 months, the government will notify the government-notified prices, as it was happening, April to September and then in October to March. On whatever be the notified prices, which are noticed dollar per MMBtu basis, there will be a premium of $1 over and above that price. So there is no fluctuation for that 6 months period. If the government-notified prices fluctuates according to the realization, but at any point in time, there will be a $1 premium over that. That's how the commercial is structured.

The next question is from the line of Abhijeet Bora from Sharekhan.

Yes, sir. I have 2 questions. Firstly, on what is our cost of production for gas in MMBtu terms?

Yes. Cost of production should be around [indiscernible]

Sorry, sir, your voice is not audible to me.

$1.4 per MMBtu to $1.5.

Excluding the levy, right?

Yes, it is including the levy, sir.

Including the levy, okay.

Levy here year is only the royalties. There is no [indiscernible]

Yes. So the increase will be on the gas, right?

Yes. So what is happening is most of the facilities, most of the outflow is not variable. The cost is not [indiscernible] production. It's uptake is more and the production is more -- the production is stagnant getting this [indiscernible]. We can look at an average overall price per annum should be in the order of $1.4 to $1.5 per MMBtu.

Okay. And my second question is that you've guided only that your potential to increase your overall production to 7,000 barrels of oil equivalent per day from [indiscernible]

[Operator Instructions]

Yes, just hold for a minute. Can you hear me now?

Yes. Please, go ahead, sir.

Sir, I just want the time line like when we can achieve our like production guidance, which you gave for 7,000 barrels of oil equivalent per day and that can further go to 14,000?

Yes. See, the 7,000 barrels of oil equivalent per day will be achieved as soon as we bring in the B-80 on to production. From 7,000 to 14,000 would require additional investment in different fields. And as I said in my remarks, we will come with a road map and plan for that.

The next question is from the line of [ Anik Mitra ] from [ Sonata Research ].

I hope I'm audible. Hello?

Yes, please. Yes.

Yes, sir, you are.

I have a question. You mentioned regarding Kharsang oil production that is around 550 BOEPD. Sir, you have -- you were doing some drilling like you have plans for doing some drilling of 18 oil wells over there, right? So it will be -- like the total production will go to 1,700 to 1,800 BOEPD, right, sir?

Correct.

So what is the time line for that?

Yes. So right now, the PSC extension part is only on ad hoc basis pending some resolution of some cost recovery, past cost recovery issues. That is being addressed. Post that, the JV will decide on the time line of that. As you know, Kharsang is not operated by HOEC directly. It is by another operator in which we hold the stake.

Okay, sir. I have another one question. If I'm not wrong, there was some dipping price in Assam, like which impacted full year revenue. Can you please throw some light on that, how the price came down as you have some base price declared by the government. So is the premium got affected or how the premium caught up?

What really -- in Dirok, whatever gas we have been producing we sell it entirely to Oil India and Oil India in turn selected its own customers. And Oil India can buy and sell only at the government-notified prices. Now government notifies the prices every 6 months based on certain international benchmark. So if you look at our presentation in the last slide, we've given the range of prices over a period of time. Just again, so for example, in April -- sorry, in October 2014 or April 2015 for that period, the price was 4-point -- government notified prices was $4.66 per MMBtu. So over a period of time from -- particularly from mid-2016 onwards, it has reduced. And right now, the price that is prevailing from April to September 2021, government-notified price is $1.79 per MMBtu. To address this issue only, we went with this e-auction, which has thrown us a premium price of roughly -- of $1 million over and above this. In October 2021, government will revise once again based on the formula the prices. And typically, gas prices kind of catch up with the oil prices with a lag so we expect to -- even the government-notified prices to increase. In whichever scenario, we will get $1 more premium to that.

The next question is from the line of [ Deepak Goradia from AM Investment ].

Sir, you mentioned that it appears that more or less the sale of the oil will be always based on auction only. Is it that the policy which is going to remain more or less?

The -- yes. The government wants market-determined prices to be determined through a transparent e-auction basis. That is the policy of the government for all -- across India for any player.

And the auction which we will do on [indiscernible]

[ Mr. Goradia ], we are sorry, but your voice was breaking, sir.

[indiscernible]

Sorry, [ Mr. Goradia ], but we cannot hear you.

Hello, hello. Can you hear me? Hello, hello.

Yes. We can. Repeat your question, please.

Sorry, the line of [ Mr. Goradia ] was disconnected. We'll move to the next question which is from the line of Ashwin Reddy from Samatva Investments.

Two questions. Firstly, regarding the CapEx for the next 6 months. So what would be the total cash outflow you foresee in the next 6 to 9 months?

The capital for the next 6 months, we need for B-80 and put together, we need about $20 million, which we had to raise the fund.

So you'll be raising more debt or would you plan to raise equity? What is the broad line roughly?

Yes. To decide on it, whichever the more cost of capital gets lower then.

Okay. Understood, understood. And regarding Dirok, is -- can you potentially take the e-auction date for the impact current to production? Or there is certain production, which you have to supply at the government prices only?

No, we get to enter production.

All right. And regarding PY-3, is there any progress on PY-3 because right now, given where the oil prices are and given that the block did not have any issues in production in the past, is there any traction on PY-3?

Yes. The meetings are being held between the JV parties to agree on a forward plan. Right now, we don't have anything to disclose.

The next question is from the line of [ Rohit Kothi ], an individual investor.

So I just wanted to know like over the last 5 years, you have always spoken of 1 big project. First, it was Dirok, then we had PY-1 then we had B-80. So going forward, I mean you believe -- I believe our bandwidth has expanded and we can focus on 1 or 2 big things at a time. What are we focusing on next to bring onstream? I believe one would be the Dirok expansion. What about -- what are the other things?

Yes. You're right, we would be -- we've built the organization to undertake multiple projects at the same time post B-80. And obviously, B-80 has given enormous experience for us to look at some exciting opportunities in the Western Offshore. So we'll be looking at the areas of -- with a lot of interest. And secondly, our priority is to really get the PY-1 production back onstream by drilling additional wells. So if we really look at the portfolio, 3 material assets as we see are B-80, Dirok and PY-1. PY-1 is of particular interest for us because we hold 100% stake in the block. Our efforts would be rewarded to corporate. We have developed the infrastructures already in place. Of course, technically, it is a challenging block so we would do whatever it takes to derisk it and do that. So these 3 are the clarity in our portfolio. Of course, other than that, we have Cambay and some work is going on -- will go on in future in Kharsang. We'll have the flexibility to really do, but the focus will -- now onwards will be on more on growing net production and enhancing our value over the volume.

Sir, the time line of FY '23 for Dirok, do you have a similar time line for PY-1 when do you expect the work to be completed?

No. As I said, we would really -- we have done the initial planning part, which is the companies have completed. And the parent's process has been initiated, that is ongoing. But we would take the decision, the capital, the day after seeing the [indiscernible] from B-80.

My last question, sir, is -- I mean, you've talked in the opening remarks about asset monetization of PSUs and DSF bid round 3 to be of particular interest for us. And given our expansion programs to grow to 14,000, even more maybe in the future, do you see us requiring equity capital in future?

No. As we have mentioned initially, we are looking at a $20 million fund initial. But once we have the B-80 onstream that we have the flexibility to manage the capital. And if required, we'll look at it at that point in time.

The next question is from the line of [ Ravin Anda ], an individual Investor.

Sir, what is the free cash flow you have generated in this year?

The operating cash flow is about INR 50 crores.

And sir, regarding that of the company, when do you expect to repay the debt, after B-80 is commissioned or later?

You see the B-80, the substantial investments have got into the block, which is in the order of INR 100-plus crores. So under these things put on production, the meaningful cash flow will not come now. This will be in the order of INR 50 crores to INR 75 crores because of the gas rate revision thereon towards. But once the B-80 comes in the picture, then we will be reporting a good number. Then that will take care of us on the organic growth of the rest of the assets.

The next question is from the line of [ Manan Patel ], an individual investor.

My first question is you mentioned that for the oil that we sell through e-auction in Dirok, we'll have to pay some charges to Oil India. So I wanted to understand like what kind of -- like what is the amount of charges would we need to pay?

We expect it to be marginal because even now we are paying marginal transportation fees to them. But under this new arrangement we needed to expand, we haven't yet concluded an arrangement with them. Once we conclude, we'll let you know. But we don't expect it to be a major issue.

Understood. Sir, my second question is, sir, while it's great to know the e-auction demand for the Dirok gas, but we saw the other auctions that were conducted by RIL and Cairn got significant premium to whatever the notified -- government-notified prices are. So why are these payments very much lower than that for Dirok?

Basically, India's the most premium gas market is in Gujarat. If you are selling gas into Gujarat, you can get a very high premium. Whereas our discovery would be restricted to upper Assam area. So where the only private sector player is us other than Oil India and ONGC. And the buyers are all public sector companies predominantly and PSCs. Therefore, this itself is a major breakthrough as far as we are concerned. We've kind of really made a pioneering effort in opening up the market and change the perception that this is not for market players.

So the gas prices from B-80, which you will sell into Gujarat will be much better than a full Dirok, right? Is that understanding right?

Correct. Absolutely.

The next question is from the line of [ Shavet Sharma ], an individual Investor.

It's good to be a part of the journey. Hope you can firm up our dividend policy getting into the next couple of years. Sir, a quick question. Did you have any disruption in April, May given there was a significant lockdown? Can you spend a moment on Kherem development? I don't see anything on the deck. And what is your best estimate of the October MMBtu pricing estimate given that June is almost over and all factors should be known by now?

Yes. First of all, on Kherem, we are still -- the PML, the petroleum mining lease, has not yet been granted by the government. There is still correspondence going on between the Arunachal Pradesh government and the government of India. So that's why we did not give any update the PML is going. Our effective date and all commitment starts only after the PML. Your second question on the gas price -- government-notified gas price in October, not really -- we have not done any calculation. At this point in time, we have done not really done any work on that.

Any disruption, sir, April, May?

Yes. In terms of the uptake in PY-1 got disrupted during this period, we'll share the details with you along with the quantity.

Got it. And what's the dividend policy can be from that sir? Yes, from Dirok. And Dirok, sir, you were saying something?

No, I said Dirok was continuing.

Thank you, sir. All the luck, and look forward to participating in your success.

The next question is from the line of Rikesh Parikh from Barclays.

Sir, can you just share what will be our CapEx plan for FY '22? And also the funding arrangement for this?

You see that '21, '22, we have a plan for putting the B-80 on production, that is in the current financial year, right? So as we need total, whatever the work executed which we had to pay for it all put together, we are expecting to roughly $20 million.

And this will be largely funded or internal will be...

There will some internal accrual. We need to get some funding done, which we are working on it at the moment.

The next question is from the line of [ Pankaj Shanda ], an individual investor.

Two questions. One is what would be our discovered and -- the proved and developed results? I mean last balance sheet showed 26.5. So is there any change in that? And what will be the breakup of the two in terms of proved and probable out of the 26.5 that was reflected last year?

Yes. We'll disclose this as part of the annual report.

And so presently -- and second is presently PY-1 revenues are 0 or we are -- in the current quarter, there is some revenue on PY-1?

No. There is some revenue. We're doing small volume. What I said was there were disruptions in between due to pandemic as well, yes.

So is it because of demand there were disruptions or there were some technical issues?

It's actually both.

Okay. But have you overcome the fracture field issues that you've been facing?

Yes. We've already stated that, that to revive PY-1 production, further investment in drilling wells will be required. So currently, with whatever we drill, we are continuing the operation.

Okay. And the Western part of PY-3 is continuing or how is it progressing with -- on that for PY-3?

No. PY-3, we are not the operator. We are a nonoperator. We participate in the discussion. So we will -- as and when a firm plan is announced, we will share that.

And for B-80, your present estimate is 4,000 barrel equivalent on -- when you start? Or would it be higher than that?

We said 8,000 barrels of oil equivalent, and that will be from the start.

The next question is from the line of Tejas Shah from Unique Stock Group. We will move to the next question, which is from the line of Abhijeet Bora from Sharekhan.

Yes, sir. I have one follow-up question. What was the mix of the oil and gas production at like 7,000 BOEPD?

Yes. So when we -- right now, our oil and gas production mix is -- our production is -- majority is gas, which is majority coming from Dirok. It's about 90% gas and 10% oil. When we bring B-80 on production, it will be predominantly oil. Therefore, the total mix will be approximately 50-50, 50% oil, 50%, gas as long as net entitled reproduction [indiscernible].

And then with the oil prices moving up, should that improve the overall unit profitability because we actually are making currently lower profit. Is that the right assumption to make, sir?

Correct. Because we will get the current earning, which will start market oil -- sorry, the international market price for oil with some discount to the benchmark crude whatever we agree with the buyer.

The next question is from the line of Ashwin Reddy from Samatva Investment.

So actually I have a question on PY-1. So after finishing work on PY-1, so is there any -- can we sell that only to gain on the same price? Or can you again have an e-auction for the gas price as I said on PY-1?

Yes. In PY-1, when we drill the new well, some of them would be outside the existing field area but within our block area. So we are under no obligation to sell that volume to GAIL. But whatever is -- whatever we build within the existing producing area, that will be sold to GAIL under the existing contract, which features a price of $3.67 per MMBtu, that's the fixed price. So once we decide the exact locations, we will be [indiscernible]. But there is a captive customer in terms of GAIL and they have a connected facility to our plant. So it will be to GAIL for that.

But the end user for this gas, I thought that the gas pipelines in Tamil Nadu and some of the industries, is it demand for the gas from the gas pipeline? And what is the demand situation like in user level?

Correct. As we say, the end user level, I think the government, what we recently heard is the government is -- Tamil Nadu's government is kind of open to idea of this government selling the power not only to Tamil Nadu Electricity Board, but to private players as well. So overall, with the IOC's pipeline network coming up, we're seeing an increasing connectivity of network, which was a major issue. As long as you don't have pipe network, we are dealing with a very, very limited area. So we don't see a demand issue as far as the PY-1 thrust, yes.

Thank you. Ladies and gentlemen, as this was the last question for today, I would now like to hand over the conference to the management for closing comments.

Thank you. Thank you for joining in large numbers. With our recent transformational B-80 development experience, as a team, we are confident that HOEC will support from a leading private sector player in North East to a significant offshore oil and gas developer and operator with a strong balance sheet. We remain committed to add value to all the stakeholders by continuing our growth journey at a faster pace. Thank you all.

Thank you. On behalf of Hindustan Oil Exploration Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.