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

Good morning, ladies and gentlemen. Welcome to the Q3 and 9M FY '22 Conference Call of Hindustan Oil Exploration Company Limited. [Operator Instructions] 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, 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 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 third quarter of financial year 2022. 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. P. Elango, Managing Director; and Mr. R. Jeevanandam, Executive Director and Chief Financial Officer. Without much delay, I request Mr. 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 in this Q3 FY '22 earnings call. Jeeva, our CFO and Whole Time Director is with me. Valorem Advisors, our Investor Relations advisors are also on the call. I hope you all have received our updated earnings presentation. We've also uploaded that on our website for your reference. Let me start with the update on B-80. The commissioning team is on board at KGB Offshore Installation now. We need to replace few equipment that will be delivered over the next couple of weeks. Service engineers from original equipment manufacturers will also be joining later this week. Overall, we target to complete all commissioning and testing activities to commence production by end of March 2022. Commissioning sequence required us to commence the D1 oil well first on production and D2 gas well will be followed immediately after that. During December and January, the weather window, we safely installed the Calm buoy and completed the installation of single-point mooring system. Post dry dock at Singapore, our floating storage and offloading vessel Prem Pride was mobilized to locations and it is now connected to the SPM. As of now all offshore facilities, which are weather-dependent have been installed and fully integrated. Consequent to the shutting [indiscernible] pressure of the new wells build being much higher than the wells drilled by ONGC, we had to replace few equipment for safe operating reasons. These had a longer lead time and mobilizing service engineers from abroad also proved to be more challenging in this pandemic environment. Wave 3 infected quite a few of our employees too. We have crossed all the hurdles now and expect the pre-commissioning works to go smoothly. Due to these uncertainties until now we were unable to keep you updated with a realistic schedule. I apologize for that. Overall, executing B-80 project in Western Offshore in this pandemic environment has been a major challenge both personally and professionally. We firmly believe the B-80 resource base will transform HOEC, sustaining its growth on a long-term basis and making all the struggles worthy of its purpose. Response to our B-80 gas e-auction has been very encouraging. All major consumers and aggregators have expressed their interest to participate. Taking advantage of the prevailing market conditions, we opted for a Brent-crude pricing. Bidders are required to quote a premium as a percentage of Brent over and about 12% of Brent. Assuming someone quotes 1% premium and if the Brent price for the relevant month was $60 per barrel, then gas price will be 13% of $60, that is $7.8 per MMBtu. We have kept a flow price of $6 per MMBtu. Auction will be concluded and gas sales contract will be awarded by end of this month. As advised earlier, we will initially store the oil produced from B-80 to carry out assay of settled crude and discover the best market prices to sell the oil from the delivery point at FSO. At Dirok, we pursued a strategy of value over volume to realize a better gas price. As a result of successful e-auction, instead of Oil India being a sole buyer, we now supply gas to 4 other consumers. [indiscernible] gas is now sold at a premium base in Numaligarh Refinery. In addition to this, Brahmaputra Cracker and Polymer Limited BCPL and Northeastern electric power company NEEPCO have started drawing gas recently at premium ways on a fall back basis. Overall, in Q3, premium sales constitutes about 20% of the total gas sales, premium realized is more than $1 per MMBtu. The balanced volume continues to be sold to Oil India at government-notified prices, which are now close to $3 per MMbtu. We continue to have uninterrupted operation at Dirok with Q3 average at 33 million standard cubic feet per day. We had planned the shutdown for maintenance during -- we had planned shutdown for maintenance during December that brought the rate slightly lower. Our direct contracts with various consumers have enabled us we extract the best possible value without the need for additional capital investment. Status quo continues in PY-1, where the only way to increase production is to drill additional wells. The next drilling campaign in PY-1 will be planned after commercial production from B-80. As indicated earlier, final investment decision will be taken after independent technical assessment and derisking. Cambay assets under approved FDP, we will be drilling development wells in Asjol and North Balol. Towards this, we had initiated the environmental clearance process and a public hearing was held in January, much delayed R2 PSC amendment in our Palej block has now received the approval of ONGC Board and awaiting final clearance at MOPNG. Over the next 2 years, drilling campaign at Cambay will be planned for all 3 blocks together to optimize the cost of resources. I now invite Jeeva to share the financial.

Thanks, Elango. We report that the company made a revenue of INR 38.9 crores in the current quarter against INR 37.23 crores in the previous quarter. The consolidated account, it is INR 46.63 crores against INR 45.13 crores in the previous quarter. Increase in revenue is mainly from an increase in sales price of gas and higher realization for condensate due to increase in oil prices. The profit on stand-alone is INR 17.61 crores against INR 17.42 crores in the previous quarter. There is an aberration because other income of INR 6.18 crores (sic) [ 6.19 ] in the previous quarter come back to the normal level of INR 2 crores in the current quarter. The total expenses of stand-alone, including the DDA, was INR 20.58 crores comparing INR 19.83 crores in the previous quarter. Operating costs are not linear. However, the statutory levies, royalty and cess are [indiscernible]. In the consolidated account, it is INR 28 crores comparing INR 27 crores in the previous quarter including the adjustment of stock. Operating cash flow stand-alone is -- stand-alone for the 9 months before the working capital change is INR 58 crores, and the consol account is INR 63 crores. During the quarter, the loan of INR 125 crores of Axis Finance Limited, a nonbanking finance was taken over by Axis Bank directly. Average finance cost is in the order of 8% with the cross-currency swap. We have the support of 2 Indian banks Axis and HDFC to support the growth of the business. The borrowing, the company is levered about 33% on the book value of assets with the market cap, it is about 15% as on date. With the expected cash flow from B-80, we would be able to liquidate the debt at a faster mode than the tenure agreed with the banks. We would like to be debt-free again. With the cash in hand, we have duly installed a single-point mooring system and the entire production system is fully integrated. The FSO was duly moved with the SPM and ready to receive the first oil from KGB. As on date, only 30% of the investment in oil and gas in the revenue mode and the 70% is still in capital work in progress. Investment in B-80 for 60% of our share and 100% was the after installation, that is the KGB and the FSO and the SPM is about INR 763 crores. Mobile offshore processing unit, that is -- we call it is an offshore installation and the floating storage offshore and single-point mooring system have been acquired and operated through our subsidiary. These wholly owned subsidiaries would be on a revenue mode from the date of commencement of production that will improve the group revenue substantially. On commencement of B-80 production, sales revenue from oil and gas [indiscernible] from B-80 ventures for FSO and MOPU was commenced vis-a-vis that better numbers could be reported on the commencement of production from B-80, which will make a new beginning and our focus thereafter would be on the other government assets in the company in Western region as well as in PY-1. Thanks Elango.

Thank you, Jeeva. Anuj, can we open the forum for questions now?

[Operator Instructions] The first question is from the line of Ravi Sundaram from Sundaram Mutual Fund.

Let me clarify, I represent a family investment, and I'm not part of Sundaram Mutual Funds. Okay. So sir, I've been joining your con-call for the last several quarters. I have a few questions. The first question is, as an investor, I was totally in the dark for the last at least 2, 3 months about what is happening with B-80 and mainly because we were expecting a window of almost towards end of November or mid of December for B-80 to commence. And we had no clue to understand how the progress was and any communication from you would have really helped at least to clear there and what is happening here? But anyway, let me come to my question. Sir, what is -- do you see any risks in the current time line of March that we are looking at?

Okay. Thank you, Sundaram. In the last quarterly call, we had explained that we would be mobilizing the offshore spread. And subject to weather, we would hope to complete all the installation during December, January. And at that time, we had anticipated by the commissioning work would be over in about a month's time. So we had basically indicated end of January as the date of -- our target date for commencement, subject to weather conditions in our last call. Now unfortunately, 2 things was -- had happened during the period. One is the offshore work, which is the most critical and weather-related work. Until it is fully completed, we -- there were uncertainties about the timing as such. Once we will complete it then we -- when we come back with the communication, we need to tell the investors and the market about when do we expect to commission the production because that is the most important information people would be interested to know. Unfortunately until now, we had no clarity on that because there are some equipments which needed to be replaced. There were issues on the delivery time related to that. It is very difficult to get the service engineer from abroad to come under this wave 3. And some of us they're also down with COVID. So all that kind of led to a bit of a noncommunication, the noncommunication was not really intentional. I -- we thought it is better we come with a clear communication at the end of quarterly call rather than giving another day which we are unable to meet. That's the context. And to answer your question, right now, all the weather-related risks have been mitigated fully, all weather-related installations have been completed. We are much more certain about completing the remaining pre-commissioning and commissioning activities. So we are more confident now that we should be able to complete everything by end of March and commence the production. That is going to be our endeavor. We don't -- at this stage, we don't see any risk to that.

Understood. Sir, next question is I noticed that we are having an e-auction tender from B-80 for 0.3 MMS, pardon me for metric, I don't pronounce it well. So why only a small quantity there? And why not a bigger volume?

Yes. As you know, we have guided production was 15 million cubic feet per day. Out of that after internal consumption, we expected to sell about 12 million cubic feet per day. The market understand the million cubic meters. So 12 million cubic feet is roughly about 0.3 million cubic meters. So we went in for that. And we've also kept the option to place some volumes on the exchange. If at all there is any excess volume depending on the -- once the production stabilizes. So 0.3 is roughly equal to 12 million cubic feet per day.

Okay. That's almost the full production after excluding the internal consumption, okay?

Correct.

Okay. Sir, my last question, I'll give -- maybe I'll come back in the queue. So if production commences in March 2022, when will the revenues actually hit the P&L? Is there going to be a lag between extracting, storing and then actually selling it?

See, gas as such, the billing cycle goes on 30 days. So suppose we get the gas revenue on the 15th of April or so because that would be on a 30 days production. But oil, we will be storing it for a minimum period of about 2 months with the 2-month volume, then we will make an uptake somewhere around the end of May. And first revenue realization would be in the third quarter -- sorry, third week of June. That's what we're expecting.

Okay. So Q1 is when you're seeing the revenue hitting from B-80 into your P&L, right? Okay. Sir, you have been doing lot of hard work and this has been following for several years. Best wishes.

Okay.

[Operator Instructions] The next question is from the line of Riddhesh Gandhi from Discovery Capital.

Just wanted to sort of, again, reiterate the question, the earlier participant as look. We've had many, many slippages in terms of our deadline with regards to PAT this is not the first one, this is the third or fourth one. Just wanted to understand is there in your view any risk? And what actually has gone wrong and the level of precaution we would have taken to ensure that these delays don't happen? And how are we going to ensure that there isn't any other slippage now because this is -- I mean, the third or fourth time has happened.

Yes, Riddhesh, we embarked on this project with a very ambitious schedule and we made to achieve the schedule. We could have competed during the last season, but for that we had everything else in place. This is something we cannot control. And post that, I think maybe it's difficult in the market to understand. In our business, when we do an offshore project, it is like a snake and ladder gap -- game. You go up the range, once you are bitten by a snake, you're back to square one. You have to mobilize everything else within the limited resources that we have to do that. And we are now -- I don't know, I'm sure you all will have your own take on this. But as professionals, we are very relieved that we have achieved most important milestone in the project, which is weather-related one and completed that without any major safety issues or any major incidents or so. So we are relieved from that point of view.

Are there any other snakes? Is there any risk of some other snakes as we reach closer and closer to 100 on the snakes and ladder board?

Look, in this business, I mean, if somebody is investing in oil and gas, one should be prepared for all kinds of risks. I'm saying as far as the execution come, there are no weather-related risk. Our best estimate is we should be able to complete the remaining activities, which is all confined to changing equipment and testing equipment. And we are -- on that basis, we are giving you an indication that we should be able to commence. But at this stage, I don't see any risk.

Understood. The other question is, if you could also keep up any update on the amount on results which we have there? And any indication on if it is in line, ahead of estimates, underestimate with regards to how much you've got in terms of oil and gas?

No, there is no further update on that. We would focus on getting the production and stabilizing the production and stabilizing the operation. And with the oil and gas prices looking good, overall, which would all look good. So that's...

But I mean I'm -- there will be some amount of estimates with regards to the reserves and some amount of the information out there, which if you could share would help us sort of understand where we are?

After obtaining some production [indiscernible] . Yes. What given has been given. Any update, we will update definitely once we have a...

The next question is from the line of Abhishek Nigam from B&K Securities.

So sir, just a couple of questions. So one, if you can tell us production numbers on entitlement basis after the B-80 starts, so for HOEC as a whole. So on that would be very helpful.

So as far as in B-80, we have a 60% stake now. Both oil -- we expect the oil production to be around 5,000 barrels of oil and gas sales about 12 million cubic feet per day, 60% of that together would be equivalent to -- sorry, total production will be about 7,000 barrels of oil equivalent as far as the B-80 is concerned. So currently, we are doing roughly about similar volume from our other gross assets. So total will -- with the commencement of production of our total gross production will double to about 15,000 barrels of oil equivalent. That's a gross. Our overall share would be about close to -- it will double from more -- than double to about 5,000 barrels of oil equivalent, net.

Okay. So this will be 5,000, okay. So this is BOEPD, barrels of oil equivalent per day right?

Yes, correct.

And FY '24 should more or less be similar? Or can I expect some increase, decrease, something?

FY '24?

We're talking about 24 actually.

So 24, we plan to drill a well there. So with that, we'll be able to -- because as I told you earlier also in the previous call, we wanted to make a revenue stability rather than the production stability. The production volume is linked to the price as such which will be there. Oil price maintained at the same level, we will be continuing to the same production level, though we will drill [indiscernible].

Okay. Got it. So more or less same 5,000-odd in both the years probably assuming prices remain steady. Okay. And second question is, if I look at on a per barrel basis, for HOEC, if you give us some sense of where the depreciation cost and production expenses per barrel and [indiscernible] will be? And that's my last question.

Normally, what we are looking at, whenever there is a price as such the revenue for the government is linked to price. And now that is roughly around, you can take roughly around 30% to 33%. That goes to the government, both the royalty and the government share. Then the balance operating cost is about, say, roughly around $15 per barrel. So assume your oil price is $80 and $30 goes to the government and $20 goes to the operating cost. I assume, maximum including the numbers, $30 will be your net.

Okay. Okay. And the share arrangement, okay, is 30% broadly. Okay. Because I think right now...

Revenue profile as such. If I'm talking about 4,000 barrel on an average, so I'll be -- my top line would be around, say, $90 million, so it's about INR 675 crores. And the government share that is -- it is on the revenue sharing model and the royalty put together would be around, say, roughly INR 230 crores to INR 240 crores. The balance would be INR 440 crores and your operating cost would be INR 140 crores and your net cash would be INR 300 crores and your depletion would be roughly in order of 10%, that is around INR 65 crores. So your P&L would be around INR 235 crores. Now in our case, the best advantages that whatever is operating does, the entire operating cost, out of that about 75% to 80% comes back to the group revenue because the FSO and SPM is owned by us, the floating storage offshore and SPM is owned by us. The one side in the book adjustment at the block level will be charging to the block. And out of that, the entire amount will comes back to the group through its subsidiary as a revenue to us. So that will make its own revenue to the extent of INR 125 crores. So we will be taking a net cash in the order of the INR 400 crores plus. And the P&L impact would be about say INR 100 crores, INR 125 crores. The net -- profit after tax at the consol level would be a minimum of INR 300 crores. This is what our projection there on. At the current price, normally if oil price is $95, we'll reduce $10, that is $85 we'll take asset base. And gas price minimum, we take it as $6 asset base.

The next question is from the line of Varatharajan Sivasankaran from Antique Limited.

Am I audible, sir?

Yes.

And sir, has there been an increase in the debt in the current quarter? Would you able to give a view? And how much of interest has been capitalized?

Debt in this quarter.

Yes, there is no -- in this quarter -- there is no increase in the debt in this quarter. Our total borrowings about -- we have indicated it is INR 375 crores. And that's all the numbers which we borrowed for completing the B-80 as a whole. We have no induction to borrow anymore. The capitalizing the interest was about some INR 20 crores, INR 26 crores.

Okay. And in terms of production, given the fact that right now oil prices are at a high, so are we sticking to the 5,000 barrels a day or will you look to.cutting back a little bit.

We wanted to keep the revenue at a constant number. Accordingly, we will be keeping some oil below the ground. We don't want to bring oil up and pay to the government the maximum revenue share. Because you should understand the revenue share starting from 12%, it goes up to 55%, right? So we wanted to bring it to a level of around 21% to 22%. We go up to a max of 25%. So accordingly, we'll adjust the volume of the production assets. And gas asset, we have a good market there. So we will not be flaring any gas. Associated gas go along with that.

We'll move on to the next question. That is from the line of [ Rohith Potti from Marshmallow Capital ].

Thank you for the detailed commentary in the beginning as always. I hope the COVID-related issues are over at the company and all are well and there is not been any major issue at the employee level. So my first question is on the asset. The rental assets that we are having for B-80, is the rental linked to oil price in any way in the sense that at higher price -- higher oil prices, does it result in a higher rental or is it broadly stable across the production period of the asset?

Yes. See, there are 2 major assets in any other guess the 2 important assets is offshore installation that is a floating production unit and floating storage unit. These both are owned by us. Now normally, what happens if the oil price goes down also we get the same revenue; if oil price goes up also we get the same revenue. This will be roughly in the earning an IRR in the order of around say 30% and accordingly, once the price [indiscernible] will be stable for the 7 years. It will not be linked to the oil price and gas price.

Sure. And sir, the second question is what is the total asset block that will be generating rent. So I remember you mentioning a number of INR 763 crore in the opening remarks as the asset base. So will the entire INR 763 crore asset base be producing the rental revenue? And second, I mean, that number seems higher from -- as compared to the number that you mentioned, I think, 1 or 2 years back in the conference call that we'll be spending around INR 400-odd crore is what I remember the last number. So if you could reconcile these, that would be helpful.

I can tell you that the total investment, which is on the B-80 field assets, you remember that we have a 50% stake -- or 50% stake initially, that we subsequently increased to 60%, right? So the total block cost asset at the moment is for well facilities and everything put together is in order say excluding the capitalizing interest is INR 600 crores. So HOEC share would be in that roughly INR 400 crores was 60% thereon. That is then that INR 400 crores, we continue to earn 60% of the field revenue thereon. Then the facility, like offshore installation that is KGB we spent about INR 155 crores, and the FSO and SPM about INR 200 crores. Total, there is about INR 350 crores. This INR 350 crores would be 100% owned by us, that would be on a 100% revenue mode, 100% revenue accrue to HOEC's group. So in [indiscernible] out of INR 753 crores because INR 400 crores were field cost and the facilities like MOPU and SPM and others owned by us is about INR 353 crores. Total growth in the books we have INR 763 crores, which would be on the revenue mode once the production starts.

Perfect. This is very, very clear and helpful. And sir, last question, so in the previous question, you gave us a breakup of the revenue and cost for the field once it's on full revenue mode. I just wanted to confirm that the numbers that you shared was what will accrue to HOEC. So the field is 60% and the -- I just want to confirm.

60% of the field revenue comes to us, 40% goes to the partner. But the floating production unit, that is MOPU and FSO comes to us 100%. In that, we will be making a net cash about INR 125 crores per annum.

Okay. And the INR 300 crores that you mentioned towards the end is the net profit, and it's not the net cash for the company. The net cash to the company should be higher right?

About INR 423 crores.

The next question is from the line of Sunil Jain from Nirmal Bang.

Sir, my question relates to more of auction pricing, which you are -- you had put up a proposal for B-80. You had given one example at $60. If suppose the gas price -- at least the Brent prices come down to, say, $40, then what could be the price of gas at 1% premium? Or what could be the price at $80 also?

Yes. Sunilji, What we have done is to protect from any downside scenario. We've kept a floor price of $6 per MMBtu. So irrespective of oil price the minimum price that we will get $6, the rest is depending on what the people quote, but people will have to quote over and above 12% of the Brent. 12%, we have kept it as a base price when they decide to quote. And they had to quote a premium whatever they think that they can afford. So we have a protection at the floor level at $6 and then the rest depends on who quotes the highest price. We've also put a condition that we wanted a single customer to take the entire volume because we would be using the ONGC facility to deliver the volume. So this would be -- so that also we have put as a condition. But overall response has been quite good from almost all the major players that have shown interest to participate. So that's -- I hope that clarifies.

Yes. But what is the current price in Surat area or whatever the exit point?

So right now, in Gujarat, you have different ONGC, for example, sales at $2.9 per MMBtu, common notified prices. Private customer, different people are selling if it is under the long-term contract to $5, $6, $7 depending on volume and where the field is located is being sold. And of course, the imported LNG prices are at a much more premium and spot LNG prices are much, much higher as well. So after talking to the market players, the players referred Brent linkage to the pricing and which we have -- that's why we came up with this model out. Straight away, easy linkage to Brent with a floor price to protect any downside scenario.

Okay. So you are confident of this process going through with that $6 plus we can get?

Yes, definitely.

And second question relates to Dirok. Dirok is the gas which we had sell through auction is at around 20%. So what was the average realization for Dirok and how much maximum auction base we can sell in a total percentage?

Yes. So with the premium of about some 20%, we are getting an average price of $3.35 per MMBtu. But this will increase substantially once the volume of the premium goes up. Currently, it is only 18% to 20% and we are expecting it will double in the coming quarters. So we will be able to realize the price which is somewhere closer to $3.7 or $3.8.

Sorry to interrupt Mr. Jain, sir may we request that you return to the question queue. [Operator Instructions] The next question is from the line of Ankit Kumar from Alpha Capital.

Most of my big questions related to B-80 have been answered. So I just wanted to check what is -- what about our life after B-80, what are the fields to be developed? And how do we expect our net production to grow post B-80 completes?

Yes. Ankit, just give us 1 more quarter time. We've all -- the last 2 years, more than 2 years, in fact, all of us have been fully had to put all our efforts and focus on B-80, and we faced multiple challenges, which we kind of overcome them. We just wanted to get B-80 fully stabilized with a good oil prices and much better-than-expected gas prices, just wanted to ensure we stabilize everything as Jeeva pointed out in his opening remarks that we want to get back to a debt-free status and stabilize all our operations and focus on some of the existing assets. As I have said in the past, we have within our existing portfolio, the ability to double our production post B-80 over the next 2- to 3-year time frame. So we wanted to take up, but that will require strengthening the organization as well. We will do all that and come up with a clear business plan after getting the B-80 on production mode.

The next question is from the line of Subrata Sarkar from Mount Intra. Subrata Sarkar, your line in the talk mode, please go ahead. As there's no response from the current participant, we'll move on to the next, that is from the line of Pankaj Tanna from Varun Investments.

I just wondered on Page 6 of your presentation, you mentioned gross production as for Q3 7,684 and net production is 2,364. Could you just share light on what is this?

Yes. Look, gross production of 7,600 barrels of high equivalent is basically what we produced from all our fields together, which includes the share of the JV partners also. Net production reflects what ultimately gets to our top line and bottom line, which is the HOEC entitlement out of these production.

Okay. That's one. And this Dirok plant shutdown is over? And how many days was that shutdown for.

It was about a week.

About a week. Okay. And this 0.33 MMSCMD that you've put up for auction, can we multiply that by 6 to arrive at a daily figure or no?

Yes. Yes. Yes, you can multiple by 6 yes.

Okay. And besides this gas, what is the likely oil outflow that you plan to store and sell every 2 months? What would be oil, is the question I'm asking.

Yes. Yes. No, oil production is 5,000 barrels oil per day, right? And as Jeeva was explaining, depending on the prices, there will be a little bit of variation. But that is a daily production. But we have the capacity to store 6 months of production in the vessel, but we will be selling -- once we do the initial sales and selling the crude oil through salable parcels to the refineries.

Okay. So do you plan to store on...

Sorry to interrupt, Mr. Tanna, may we request that you return to the question queue, there are participants waiting for their turn. We'll move on to the next question. That is from the line of Nirbhay Mahawar from N Square Capital.

Yes. Congratulations for the good progress in B-80 in such challenging circumstances. Just wanted to understand for the oil sales, we'll have to get into some kind of arrangement or agreement with the ONGCs? And how much time would it take?

Yes. Nirbhayji, what -- thank you. What we are planning is, typically, the refineries look for large volumes of sample of what is called settled crude, the crude that we sample that we have -- small volume that we have during -- which was taken during the well testing will not be really sufficient to determine the true and proper value because otherwise, if tend to show more water in the crude and we will unnecessarily get burden with the discount. So our plan is to -- because we have this option of storing the crude, our plan is to initially start the production, allow the crude to settle then crude assay can be prepared in about 20 days or so. We already identified the agencies, which are acceptable to both refineries and they will prepare the crude assay, which we will share it with the refineries and we are thinking of conducting an auction, maybe on a similar mode to what we did with the -- what we are doing for gas by sharing the technical details and crude assay with the investor refineries and then putting the delivery point as at FSO and then encouraging people to participate. That's obvious, our plan. And we should be able to complete that fairly quickly.

Okay. Sir, on Dirok the higher prices, probably because of the shutdown, we are not seeing that kind of revenue ramp up. But how do you see the run rate production going forward? What kind of peak production you can get? And I was expecting a much higher profitability because our realization will virtually double so what kind of -- what is the mismatch here?

Yes. Nirbhayji, no, I think the -- in terms of volume, you are right because of the more than a weak period that we had shutdown, the average volume has come down. In terms of the offtake, the trend we see is, obviously this whole model of premium gas sales is new to the sector. They had participated. There, we have kind of positioned to encourage participation. We kind of positioned Dirok as a peak demand supplier, right? We said, look, you can bid on a firm volume basis as well as on a fallback basis, which is when you need more gas, you tell us, we will be able to deliver, but you also pay a premium. And we put a premium for a base price premium of dollar. So people are bid for both a smaller volume on the firm basis and more volume on the fallback basis. But everybody knows that when they need more where they can go to Dirok. That's how. But we also wanted to ensure that our continuing -- we continue to produce the volume and we don't suffer any reduction in volume due to this change. So we continued our arrangement with Oil India, where we supply the balance volume. So Oil India, we -- all the consumers are predominantly Government of India consumers. They're reliable consumers, but they are all government. So the shifting has taken a little more time because we don't have any of our own facility to distribute individual consumers. We are relying our Oil India facilities to do that. So people also would -- it is like a merit order of power sector. People will first take the oil -- cheap gas available from Oil India, then go to the premium gas or mass. But we've got the facilities, and we are seeing the 20% share to increase further as we move the quarters as such. So our expectation earlier was on a total basis, we should be realizing above $4 per MMBtu. Now we are looking at somewhere between 3.75 -- around $3.75 to $4. And bear in mind, the government-notified prices are also set to raise from 1st April. So overall, one can look at a better realization from Dirok. We've got the -- we are very glad that we have moved from relying on a single buyer in Oil India to almost 4 buyers now we are supplying. And I must add that Dirok field performance has been very consistent, very good. So our preference would be to ensure better realization for all the volumes before you bring in more volume to the market.

So would we be able to...

Sorry to interrupt Mr. Mahawar.

Just a follow-up. Yes.

Yes. Okay. Let him ask.

Yes. In terms of volume, sir, would it be fair to expect 40 mmscfd from Dirok going forward?

See, we are roughly producing about 1.1 BCF of our share from the Assam. And the last quarter because of the field shutdown and the other reasons of the other shutdown coincided by the purchases of our gas, we reduced our volume by 25%. Even after 25% reduction in the volume, we could be able to get the same revenue base as such with the increase in prices. And roughly, if we take it around 36 -- or 35 or 36 mmscfd, which the standard quantity which we are operating at the moment, that will set increase. Our field is having the capacity to produce up to 40 at the moment. So we are doing some work over. And with the work over, we may be coming out with a different production profile depending on the market. If the market is able to absorb more volume then we will be able to push up the more volume. We should be taking it from 35 to 45.

The next question is from the line of Rikesh Parikh from Barclays Securities India Private Limited.

Congratulations on at least stepping up -- bringing the B-80 to the pre-commissioning stage. Sir, my question is relating to the fixed dollar MMBTU, the base price that we have kept for the gas price. Do we see sufficient demand for the full quantity uptake in your view.

Yes, Rikesh, we are quite -- the response has been very, very good. A lot of people, serious players that express the interest to participate and we have taken their feedback and some of them wanted more time for submission, we've extended the bid submission date to by a week or so. So we are very pleased with the response and that we are very sure that we get to the right customer.

Okay. And by when we'll be able to complete this, means in next week or so we'll be able to.

Now by the end of this month because it's a fairly simple process. The process involves -- we've already got the model gas sales contracts as part of the bidding document. And so by end of this month, we will conclude the process.

And in terms of this realization, any revenue we need to share with ONGC, because we will be using ONGC network for bringing it to the [indiscernible].

Yes. We will be sharing a tariff, which is notified by DGH those tariff agreement we are negotiating with ONGC we will be signing that.

What could be [indiscernible] any ballpark number?.

I will let you know because we are negotiating it so we'll let you know.

Secondly, now -- means probably now we are all set, have we able to test any flow meter or something in this pre-commissioning stage by now based on the -- this current status as well?

Yes. Yes. Yes. Whatever equipment that we were able to change, we have already sourced them and they are at the delivery now. So taking all that into account only, we are guiding the market for start by the end of March.

Okay. And my last question, means, on the PY-1, there was nominal production. Are we able to do any further production over there on the PY-1?

PY-1, I think we will be -- once [indiscernible] place and we will be able to produce about 1 million [indiscernible] So we are going to the drawing board again on the block because that is one of the block, which facilitated because we can work on the marginal cost basis. So the marginal cost is going to be smaller because the facilities are there already in place. Our geologists are seriously working on it. Once they are finalizing the firm plan, then we will be drilling the well, having stabilized our financial position there on the cost of the [indiscernible].

Sir, just 1 last question, if I can...

Sorry to interrupt. Sir, may we request that you return to the question queue. The next question is from the line of [ Manan Patel from Airavat Capital ].

Congratulations for going to the precommissioning stage. Sir, first quick question is you got the environment -- sorry, public hearing clearances on the Cambay well, so currently, we are producing around 78-barrel oil equivalent, if I'm not wrong. So what is the potential over the next 2 years, as you said, you will drill more wells. So what will be -- like will it move the needle for HOEC, especially after B-80 comes in?

Manan, that what we really wanted to do was -- these 2 blocks are quite very marginal, very, very small volume. We had a little more -- we expect a little more potential in the Palej block, for which there's been a lot of delay by the government in amending the PSC because this is a first of it's kind type of amendment where we have sorted the surrendered area back. With the support of GSPC, we were able to get the approvals in the government, but the process has taken much more. So the idea was to -- we're expecting now the ONGC Board also approve that. That used to be signed definitely within a month or so. Once that is also done, we thought we will combine all the 3 blocks together and then undertake a program. And obviously, the idea is to -- it's not a needle mover to borrow your word. But certainly, we just wanted to ensure that instead of playing a very, very marginal player, that we can build and do something more also in that region because the opportunities for both organic and inorganic opportunities are available. We will -- our effort will be to see whether we can build something meaningful in Gujarat onshore block where we have a lot of experience.

Understood, sir. Sir, next question is, sir, especially on the PY-1 currently sort of we are in a high price environment for oil and gas both. So I wanted to understand because PY-1 is like fixed sort of realization at 3.65, so why not focus on other fields where we can get much higher realization, which are market linked? And because on the PY-1, we have faced too many issues for many years, so why not focus on other fields where we can get market-linked realization rather than a fixed realization in PY-1?

No, we will take all that into account. But as Jeeva was pointing out, the idea in PY-1, where we really see this -- that is a block that is -- we are able to operate at very, very cost-efficient basis and the investment required is only for drilling the well. Because it has its own set of challenges, but it is only to drill the well. The rest of the infrastructure is already available, people or trade people are available. So we will take all that on before the final investment decision.

The next question is from the line of Rohit Balakrishnan from ithought PMS.

Sir, am I audible?

Yes, Rohit.

My many congratulations and all the best for the last leg of B-80. Sir, I have 2, 3 questions. So one was in terms of -- most of the questions has anyway been answered, but just a couple of follow-ups. So in terms of -- we initially had a plan to increase our production in Dirok from 35, 40 [indiscernible] also and beyond. So just wanted to get your view of that I know Dirok [indiscernible] processes there. So just wanted to get an update from you on that. That was my first question.

Yes. On Dirok, we have an which -- under which we can build additional wells and take their production to from 35 to 55. The field has got the potential. As Jeeva was explaining, what we thought was the -- in the last 4 years of operating, what we -- the operating performance has been very good. The Dirok performance has been very good. Technical team is kind of reassessing the larger potential that we may have in Dirok in terms of individual well productive. There are 2 ways you can increase the production. One is by drilling new wells, which is what we have envisaged for -- under the FDP. The other way is to do some work over in the existing wells to improve the productivity. That study is ongoing. So I refer to -- that is on the one side, which would ensure that we minimize the capital but still be able to increase the productivity from individual wells. We have 6 wells right now, producing 3 of the new wells, the 3 other old wells. That is one part. The second part is as you see, there's still a huge variation in the pricing within the country, at Gujarat, we're really looking at a double-digit price, whereas in the Dirok, we moved the needle a little bit by increasing the price. And I think from 1st of April, the price is going to be much better as well. So our idea was to also ensure that we don't fled the market with too much volume and destroy our price. So the whole idea would be to carefully manage it in a manner that bring the right volume to the market based on an establish to increase uptake. So our first milestone will be from doing an average of about 35 to touch 40 and then maintain a 40 which is doable within the existing and then take it further from there based on further technical studies we are doing. Now having said all that, we are not stopping any of the plans for implementing the FDP. We're proceeding with the forest clearance as well as the -- environmental clearance, we've already completed, forest clearance work is always going on. We also wanted to create that pipeline infrastructure to have more independent access to the customers, which we will do. So again, as I said earlier, is to focus more on value than volume in B-80 -- sorry in Dirok and -- but we do have the flexibility to increase the volume by doing more.

Okay. That's helpful. And sir, just a couple of more questions. So one was on -- so just understand in terms of taxation, so my understanding because we have tax credits, you do previous losses. And we will not have to pay taxes probably INR 700 crores, INR 800 crores of PBT. Is that understanding correct? Or if you can just clarify that? And second question was on this, on PY-1, I have seen that our production sharing contract, we've got an ad hoc extension, but just wanted to get your sense that -- I mean I think that is -- that ad hoc extension is only till April of this year. So what is the plan there can you share? So these are 2 questions.

We have the tax adjustment to the extent of about INR [indiscernible] crores. That will sail through us about 2 financial years, that is from the current -- I mean, 2022, '23 and '23 and '24. But by the time between these 2 years, we will be looking for some inorganic -- some of the other capital expenditure in such a way we'll build the tax pool available to us. So looking at this, we -- instead of paying 30% tax, we will be drilling a number of wells more through exploration and other things. So overall, we will be doing an effective tax management in a way that we'll be able to take some risky projects after 2 years down the line. So 2 years, we don't find any tax outflow going 2 financial years.

Right, sir. Just one -- sorry sir, one small...

Sorry to interrupt, sir.

One -- this is a follow-up actually. So just to be very clear, it's not a per [indiscernible] basis, right? I mean, we can continue to -- I mean...

It is based on the corporate level, we have kind of FX that we can carry it out. And second thing, whatever the field investments we have got to method, either charging 100% or taking a percentage out of the put on the development, which will be going through that mode. So effectively, I'll create some more depreciation available to me for the B-80 assets. Then my existing tax share, both of things can sail through me for 2 years comfortably. By the time of the third year, when we are going for making the tax payment, we will be in a position to put some more aggressive plan for drilling some wells, high-risk exploration wells or something like that. We need to build up the portfolio of the assets of the company because that effectively reduces my 30% of the risk right?

Got it. And sir, if you can answer on PY-1?

Yes. On the PY-1, we have got ad hoc extension up to and we are intending to get the extension. There is a royalty dispute with the government. It has gone to the Dispute Resolution Committee. Now the committee is again to be reconstituted. Based on the outcome of the committee, we will settle the royalty issue with the government and then we'll secure the block for us. We are not willing to lose the block by any means. Whatever the amount which is required, we will not get into a dispute mode. We will settle with the government and secure the block for us.

The next question is from the line of Vibhav Badjatya from Honesty and Integrity Investments.

Just have 2 questions. Firstly, on B-80, for the remaining activities, do we need any regulatory approvals? And have you historically faced any problems in those kind of the regulatory approvals? That's first question. And secondly, I missed your earlier remark, when you said INR 300 crore is the minimum profit that you expect. So what was the assumption on the oil and gas prices in this estimate? These are just 2 questions, if you can answer that.

This is well approval assets. I don't think Elango explain to you, there is no hurdle we face to the B-80 as such. And normally, whatever the current price, we'll take $10 less than that. So today, if you look at the oil price is $95, we take an $85 as the base price for oil. And the gas price, we have taken $6, but we will be better than $6 in the western market. And second thing, the production volume, which we consider was 4,000 barrels, not 5,000 barrels. And this one, gas is about 12 million standard cubic feet per day.

Of the regulatory, there's no other because it is offshore field, we don't deal with any state government. So we have all the approvals required for the central government to proceed. There's no -- they are very supportive.

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

Firstly, on B-80, I wanted to understand, is there any risk of, say, the volumes being lower than what we expected? Or how do you see it in the next -- I mean, once you start, is there any chance of volume being lower or anything else that you can foresee? Or what else -- or anything that can go wrong, which...

Ashwin, this is the way we come out with after drilling the 2 wells and ONCG drilled the 3 wells. Based on the final data, our scientists have come out this can produce this much. This has been later verified by another scientist from U.K. Gaffney Cline Associates. It is a subsurface, right? So we cannot be so certain like a manufacturing as an input-output ratio therein, but we are fairly confident and we are sure that with P90 that we will be able to achieve this volume. That is the P90 is the 90% probability of achieving it, until there is a 10% probability of [indiscernible] 1% there, right...

Got it. And so going to the next level in B-80, what is the amount CapEx you would need in the next 2 years? What kind of a CapEx would you need...

What we are planning to drill 2 more wells immediately. And after that, we will drill 1 more well, total about 3 wells as such. So 3 wells, we are looking at the capital outflow, which is in the order of, say, $60 million to $65 million, including the connecting [indiscernible] and now after the 6 months production, we are planning for a water injection study. And if that study turn out to be very good to us, then we may drill a couple of wells after the 2 years there also as such. Such oil field will get then continuous drilling and continuous development is the basis for us.

All right, sir. And secondly, on PY-3, can you provide any update? Because last time around, we understand the current operating partners had applied -- had wanted to go ahead and you did not do the permission to go ahead. So right now, what is the status on PY-3? What is the status...

I don't know the status. We have been non-considering party.

But can you still go ahead -- even if you don't approve because they have a majority stake? Is that a possibility in PY-3?

No, we always have the possibility therein. There's -- we always do our project at cost and at a price there on because we can't take a limited exposure there on. That is the reason we became a non-considered party. At a real cash, we will be willing to be a considering part at some point in time.

The next question is from the line of Rikesh Parikh from Barclays Securities India Private Limited.

Yes, sorry. Sir, just 1 question I had was that with -- we had planned for increasing the expanding our team size as such. Any progress on that? Or have you identified the new members to include in our team?

Yes. We've taken some more members to manage the B-80 operations. And so our focus is on -- we've got all to operate the B-80 now. We will be enhancing our presence in Mumbai. But overall, for the organization as a whole, we will do that post peak.

The next question is from the line of Ashok Agarwal, an individual investor.

Sir, just I want to know about this mention of new [indiscernible] being imported and sort of integrated in the facility. Was this not an original requirement or at what stage this requirement has been sort of arisen?

The original plan, we had planned that the oil also will be connected through a pipeline with the existing ONGC pipeline to ONGC facility, oil also. But subsequently, if the ONGC's facilities arrival got delayed. And we thought, depending on ONGC and synchronizing the project and ONGC [indiscernible] was still not arrived. Therefore, that is one thing that we needed to. Our idea was initially to -- we will be able to modify that same pump to do the pumping to Prem Pride the FFO. But then that's we finally revealed that we have to change the outlet. We try to avoid changing out the pump, did some studies to that effect, but it did not work. So finally, we have to try to change out. That is one. But more importantly, the shutting pressure during this period, since we drilled the well, we have -- we've been monitoring the well pressure, we have got the system now, which is we can monitor the well pressure. The well pressure has been higher than what is originally we saw in ONGC well, based on which the whole system was initially [indiscernible] Safety reasons, certain shutdown was also needed to be changed, which, once again, after a detailed study that -- which we -- our effort was to avoid changing the equipment and see whether we can at least initially start with the existing equipment. When the safety study is pointed out, now it should be unsafe to do that, we have to go in for new equipment. That took some time to identify that crisis.

So when these new export pumps are installed, do we mean that we will not be pumping through this SBM and that system?

No, no, we will be pumping -- with the new pump, we'll be pumping into the -- through the SBM to the FSO system.

The new pump is needed for pumping to the FSO, not through ONGC pipeline, you've mentioned this now?

No, no. Our initial plan was to connected with the ONGC pipeline. So that not change, we thought that pump also can do this job. So further study reveal that, that cannot be done. So we have to change it, which we are changing.

Okay. So is it that we can think that the delay which has occurred has partly been because of these export pumps and it's not purely weather related?

No, no, this is a very small equipment, right? This is whatever delay that has occurred is purely weather related. But what we did not want to do is parallelly, we were not pursuing various activities. We just wanted to ensure the highest risk activity is mitigated first. I mean that's a strategy -- that's a call we took that we will focus on ensuring that the major risk activities, which are weather-related, which are very, very -- could turn out to be -- which where there is a lot of safety issues associated are addressed properly first, which we have done, okay?

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

Follow up on the PY-3, get accumulated tax losses -- PY-1, sorry, I probably misunderstood it. What is the total accumulated tax losses you have in PY-1 and at corporate level?

See that PY-1 as such, there are 2 ways. When you look at an oil and gas company as all assets put together what is my carryover -- carryforward loss and depreciation there on, that is at the corporate level as a whole. That comes around, so I'll have around some 900 -- INR 860 crores to INR 900 crores. So that will be using as my carryforward loss adjustment for the subsequent period, right? PY-1 per se as such, I've got a substantial cost carry with me. So I don't see any profit [indiscernible].

Okay. But that will be the field-specific advantage...

Yes. That is -- see, it's not actually in India. It is not the field-wise taxation doesn't exist. It is a corporate taxation as a whole.

The next question is from the line of Sushil Agarwal, an investor.

Hello, am I audible?

I guess. Yes, please.

Mr. Sushil Agarwal, your line is unmuted, please go ahead.

Okay. Mr. Elango, pumps and shutdown valves required for B-80, whether they have arrived in Mumbai and at site?

No, they are on way. I had mentioned in my call also, by end of this month, we expect those to arrive and taken to the site. And right now, the remaining work is going on.

Okay. On the follow-up, I think that if we store this oil in the FSO. And then during the monsoon period, whether we'll be able to transfer this oil to the smaller tankers?

[indiscernible] in place and there should not be any problem for offloading in that. That's why we have got -- this vessel [indiscernible] price has been offloading when it was doing the [indiscernible] field also. There should not be any problem there.

Okay. Sir, my second question on PY-3, I know we are passive partners, but because the prices are high, it may help us in a good revenue. I know we are passive partner, but it would help us in this high oil price scenario.

I think we have answered the question very clearly, right?

This oil price asset stable for how long we have to look at [indiscernible]. The field is ready to flow tomorrow, then we are having a different way. If the field is to flow on next year, we have a different plan. If we have flown after 2 years, then we have another plan. So we have to wait and watch what is happening there to get back in.

Okay, sir, my last thing because now the company is expanding, maybe we'll need some more teams so that we can work on 2, 3 projects simultaneously.

Yes, Sushilji, that is our plan post-B-80 we will be increasing.

Okay. So last thing, there's a [indiscernible] updates can be put later?

Later, we will give an update on that. Right now, no, there is no activity.

Ladies and gentlemen, that is last question. I now hand the conference over to Mr. Elango from Hindustan Oil Exploration Company Limited for his closing comments.

Yes. Ladies and gentlemen, you all have been very patient. Trust me when we say this, we also wanted to ensure the B-80 is brought to production much earlier than we had originally thought, but certain challenges held us from really achieving that. Some are in that respect, we could have done differently. But that's it, that's how we can't undo some of the past. But all I can say is we've not spared any offer efforts within our capabilities and limitations, we have done everything possible, and the entire team has been really waking up and sleeping on B-80 for the last 2 years, with a lot of struggles and sacrifices. And I really thank you all for the patience and I know we should have been much more forthcoming in updating on the status of the project. The only reason we didn't do is there was absolutely uncertainties. And there's no point in giving detail status without telling you when the oil and gas will be produced. So we really waited to ensure that we have a strong schedule that is committed by everyone else who is involved in commissioning the plant as such. So as I said in the beginning, it's been a challenging project, but I'm sure when we bring it on production, every stakeholder is looking forward to that. We would also feel]indiscernible] has been worth its efforts. At the macro level, prices of both oil and gas are strong and expected to remain so. So that will greatly support our ability to invest and unlock the potential in our existing portfolio by strengthening the organization further. We will roll out business plan to drive the next stage of growth post commercial production from B-80. Thank you for being so patient and thank you for joining the call today. Thank you so much.

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