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

Ladies and gentlemen, good day, and welcome to the Hindustan Oil Exploration Company Limited Q3 FY '24 Earnings Conference Call. [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, everybody, and a very warm welcome to you all. My name is Anuj Sonpal from Valorem Advisors. We represent the Investor Relations of Hindustan Oil Exploration Company Limited, HOEC. On behalf of the company, I'd like to thank you all for participating in the company's earnings call for the company's third quarter and 9 months ended of financial year 2024. Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Statements are based on management's beliefs as well as assumptions made by and information currently available to management. Audiences are cautioned not to place any undue reliance on these forward-looking statements in making any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review. Let me now introduce you to the management participating with us in today's earnings call and hand it over to them for opening remarks. We firstly have with us Mr. R. Jeevanandam, Managing Director; Mr. N. Sivalai Senthilnathan, Chief Financial Officer; Mr. Krishnan Raghavan, Chief Technical Officer. Without any further delay, I request Mr. Jeeva to start with his opening remarks. Thank you, and over to you, sir.

Thank you, Anuj. Good morning to everyone. Hope everyone has received the updated earnings presentations. It is on our website for your reference. I have with me Mr. Krishnan Raghavan, Chief Technical Officer, heading the operations and subsurface team; and Mr. Senthilnathan, our CFO. We have been inducting Senior Production Engineers, Senior Drilling Managers, Senior Reservoir Engineers, and Technical Advisors to increase the operating and managerial capability of the company. We're pleased to inform you that quarter 2 gas offtake from Dirok has maintained an average of 23.75 million standard cubic feet a day against 22.9 million standard cubic feet per day in the previous quarter. I'll start with the operational update from the Eastern region. Dirok gas sales for our share is 0.59 Bcf and condensate is about 10,841 barrels compared to 0.56 Bcf of gas and 10,350 barrels of condensate in the previous quarter. Though this field can produce about 50 million standard cubic feet per day, we must restrict the production due to lack of demand. This is further compounded by dual pricing of gas produced from the nominated fields of oil and private players. The ceiling price fixed by the Government of India for nominated field is $6.5 per MMBtu. Whereas for private producers and for non-nominated fields the price fixed by the PPAC is $8.93 per MMBtu as of October to December 2023. Therefore, the customers who are mostly public sector undertakings would like to avail the low price gas of $6.5 per MMBtu before availing the gas from private players at a higher price. This makes the Dirok production as a fallback after the sale of production from major producers of OIL and ONGC. This situation would get reversed once the gas line of IGGL, GAIL, and DNPL are connected and commissioned. We believe that once IGGL line lays its own line from Duliajan to Numaligarh which is about 170 to 180 kilometers. The demand constraint would further be eased out and the connectivity within the gas grid in Central India will be fully established. And this will ensure that an increased and stabilized offtake from 2025 onwards to achieve the production to the full potential of the field. To prepare ourselves 3 legacy wells, Dirok-1, -2 and -4 will be worked over and the additional data would be used to revise the reserve estimates of Dirok. Reprocessed seismic data is under review and the material balance is worked out. In-house G&G study will be get validated by third-party reserve auditors and the new reserve numbers would be updated as soon as the study is completed. After these workovers, we plan for drilling 2 additional producers to ramp up the production to 70 million standard cubic feet per day, subject to demand, which will be -- which will meet the increase in demand by connecting the Duliajan hub to national gas grid. GeoEnpro is the operator to Kharsang block and HOEC will have both directly and indirectly, 35% participating interest in the block. After the review of the production data, continuous workover is planned for producing wells to maintain as well as increase the production. Operating Committee has considered for drilling 15 wells to increase the production from Upper Girujan side. One exploration well is planned to know the potential of the deeper formations at the lower Girujan, Tipam and Barail. This block is producing from upper Girujan formation for over 40 years. Tangibles required were such as wellheads, X-mas trees, and tubulars were already procured. On obtaining EC clearance, we should be drilling development wells by first quarter of '24, '25. Substantial upside has been identified and evaluated by GCA both in the lower Girujan, Tipam, and Barail formations. This block should unlock substantial value after the completion of the proposed exploratory well. With the connectivity to national grid, additional resources on discovery can be developed and monetized quickly. We have work program lined up for drilling 15 development wells and one exploration well in Kharsang. We also plan for 2 development wells in Dirok '25, '26. The expected capital outlay for the next 2 financials is about INR 200 crores in this region. Cambay blocks. In Cambay, all the 3 blocks are having marginal production and total contract area is about 38 square kilometers. Well data is under evaluation to know the potential of all 3 blocks to enhance production. Currently, these fields are breaking even with a meagre contribution to the P&L account. In Palej, plan to have artificial lifts in all 3 wells, we are planning for 2 development wells in Asjol and 2 are North Balol to increase the production as soon as we get the environmental clearance. Environmental clearance is expected before March 2024. Now I move to offshore blocks. We are pleased to inform you that B-80 crude was sold at a price of $80.27 per barrel, first outloading of 430,000 barrels of oil was sold to IOC, and the offloading was completed on 30th of January 2024. Price realized is average Brent price for the month of offtake less 0.06%. It means we are getting the Brent price. While continuing production from D2 well, we are constrained to inform that D1 is yet to be activated to put on production. We have removed the possible mechanical obstructions in D1 floor line as well as tubing, and now it is more of blockage in the reservoir. We have given the contact to Baker Hughes to carry out the chemical treatment to remove the blockage. It is expected that the Baker will mobilize the equipment and personnel to offshore on or before 4th week of February '24. D2 well production is little over 800 barrels per day, and the gas is about 3.5 mmscf per day. PY-1 offshore, existing facilities can process upto 55 million cubic feet per day. Currently, the field is producing less than 1 million cubic feet to breakeven. Seismic data of this block was reprocessed and our G&G team has evaluated and released 3 drilling locations. These in-house studies will be reviewed by a third-party expert in London to confirm the proposed well locations. We plan for 3 development wells and if everything goes as per plan, building of first -- building first well will commence in April to June 2025. Consequent to the issue of D1 well and continued lower offtake, we are not able to ramp up the production to the expected level. We have lined up the capital program for about INR 1,000 crores in the next 3 years to drill substantial number of development and exploratory wells to enhance the production as well as to increase the reserve potential of the company. Now I request Mr. Senthil, our CFO to update the financial results of this quarter.

Thanks, Mr. Jeeva. Good morning to all. We report that the stand-alone revenue for this quarter is INR 109.04 crores compared to INR 72.56 crores in the previous quarter. Revenue from offshore B-80 block is INR 48.43 crores, and the previous quarter it was INR 19.03 crores. In case of Dirok, revenue in this quarter is INR 56.7 crores compared to INR 48.68 crores in the previous quarter. The total increase of INR 36.48 crores in sales is mainly due to increase in production in B-80 field. Field operating expenses for this quarter and the stand-alone account is INR 76.23 crores compared to INR 50.46 crores in the previous quarter. This increase is mainly due to increase in operating days of B-80 field. Total expenses, including depreciation, depletion, and stock adjustment is INR 101.84 crores compared to INR 32.09 crores in the previous quarter. The increase is mainly due to increase in operating days of B-80 field. Oil in stock in FSO as on 30th September was 3,29,000 barrels and increased to 4,25,000 barrels as on 31st December '23. Out of which, 60% belongs of HOEC. Stock adjustment and credit for the current quarter is INR 3.4 crores, whereas it was INR 43.52 crores in the previous quarter. This difference is mainly because of the price of crude oil, which was $93.54 per barrel as on 30th September, and it is $77.42 per barrel on 31st December. We liquidated this inventory on January '24 at $80.27 per barrel. Stand-alone EBITDA is INR 16.74 crores compared to INR 49.05 crores and the profit after tax is INR 4.82 crores compared to INR 38.74 crores in the previous quarter. The reduction in profit after tax is mainly due to decrease in crude price of the inventory as stated earlier. In consolidated accounts, the total revenue for this quarter is INR 192.75 crores compared to INR 119.74 crores in the previous quarter. This was due to increase in operating days of FSO and MOPU amounting to about INR 35.55 crores, and B-80 production. Operating expenses, including facilities in the consolidated account for this quarter is INR 89.93 crores compared to INR 63.63 crores in the previous quarter. This increase in cost is due to increase in field operating costs in B-80 filed as days increased from 48 days to 92 days. Total expenses including depreciation, depletion, and amortization and stock adjustment in consol account for this quarter is INR 137.2 crores compared to INR 69.4 crores in the previous quarter. Consolidated profit after tax is INR 46.57 crores against INR 43.17 crores in the previous quarter. EBITDA for the current quarter in the consolidated account is INR 80.14 crores compared to INR 72.58 crores in the previous quarter. As of now, the outstanding loans in the stand-alone books is INR 87.55 crores and in the subsidiary books INR 69 crores. The company has A stable rating for INR 500 crores bank loan from India Ratings. With this current cash position and with the continued production, we'll meet all our obligations, including the proposed work program for the coming 3 years as planned. Thanks, and back to Mr. Jeeva.

Thanks, Senthil. Now we can open the forum for questions.

[Operator Instructions] The first question is from the line of [ Jigesh Gandhi from Discovery Capital ].

Congratulations on the quarter. Just had a question how much is the MTM losses you would have on oil, given that the prices that have like come down slightly from the end of Q2. .

You are asking about what is the price?

No. The MTM losses which you have had, the mark-to-market losses we would have booked this quarter on the oil because of the...

Yes, mark-to-market impact is INR 26 crores.

It was INR 26 crores. Sir, so assuming the prices to stay flattish of this around [indiscernible], whatever it may be. So then as the existing production rate, we should actually assume our run rate of effective -- we have got PBT, the INR 50 crores plus with the is INR 26 crores, right? I mean, that's the way which we should be looking at it?

And that's right because the stand-alone that the impact of INR 26 crores were there. And that's about INR 5 crores would get added in the next quarter. So it would be in the same range. If everything goes as planned.

Got it. Understood. Sir, and the other question was if you could just throw some light on Baker, who we have appointed. Are they a credible international agency with regards to this particular thing? And is there anything you can [indiscernible] with regards to any expectations around how long this process will take a couple of mobilization and any risks involved or are they reasonably that they can sort of resolve this?

The fact remains, Baker Hughes is one of the best internationally reputed oil and gas company. There are only few companies, Schlumberger, Haliburton and Baker Hughes. We have picked one of the best company. They've studied and they've given a report to us. Based on the report now they are mobilizing the chemicals and the equipment to do the operations in the offshore. Now the issue is we should have mobilize all these equipments in place to Mumbai port, then it has to be taken to the offshore. Once it is in offshore, the job should not take more than about a week's time. So in all probabilities, we are expecting they should mobilize all the equipments and everything before the end of this month, and the operations should start by the 1st week of March.

Got it. Sir, the other question was with the price we have been able to get for the oil is an extremely small discount to Brent. So is that the price we should expect going ahead as well? And is that effectively a reflection on the quality of the oil? Or is it some other factor that has led to such a small discount on Brent with regards to oil sale price?

We got the Brent price, the discount will be only 0.06%.

Yes, yes, yes. No, I think the expectation that we had was that the discount might have been slightly higher. So just wanted to understand the reasons and if it's going ahead also, we would expect to get around the Brent price on this.

That's right. Our quality of the crude is good enough that we should be getting a Brent and the minus will be very, very limited. It should be 0.06%.

Got it, sir. And the last question was with regards to the connectivity of the Dirok with the national grid, GAIL, et cetera, actually on track with regards to the pipeline and any expectations around time line? Or is there any delay expected on that?

See, we are not directly involved with this, but we have been on a continuous discussion with persons involved. In that, we are expecting by October, the DNPL line will get upgraded. So that will improve some demand. Then we are expecting that by March, that's what the time, it may be plus/minus. The GAIL connectivity will be with IGGL. And then we will be able to make from Guwahati to Numaligarh, Numaligarh to Duliajan. So there is expected some demand increase will happen by that process. But in Indradhanush, they're laying their own new lines from NRL to Duliajan. That is expected to be completed by March '26. So that means the full connectivity to the national grid would get published. By year -- should be '26-'27, there should not be any demand constraint to us because all of our gas can go to the national grid.

The next question is from the line of Rikesh Parikh from Rockstud Capital LLP.

Congratulations on the first crude off from B-80. Sir let's just start off with B-80, can you just explain what is the real problem right now, means what we have written is that the flushing of the chemical and hot thing has been done. But there is toxoid issues, means there is some further work, which needs to be done. Sir, what is the real problem at well D-1?

So you're aware that the D1 well was producing after the cyclone, we shut the well. During the cyclone, we have been asked to shut down, so we shut the well. After shutting down the well, when you opened it, it was not producing. So we thought that it is initially mechanical obstructions. So the mechanical obstructions one by one, we have cleaned it up to the extent that D1 flow line was cleaned up now, and the tubing also cleaned up, now the Baker study is completed. We are accepting very some reservoir blockage. This reservoir blockage is because of the various issues which has happened now, that has to be addressed by the chemical treatment. Now once the Baker comes and do the operations, we'll get to know the results.

So this reserve blockage is like a general or there is a major concern as such because means after a chemical, there can be some concern because previously, we had a concern around the pressure and all those things. So just slightly more detail, if you can provide on that.

So there is a -- see at the moment, we know there is a blockage in the reservoir, because this has to be addressed by a chemical treatment. Once we get back to the production from this well by the chemical treatment, then we will get to know how -- at what interval we have to pump the chemicals, and we will be knowing the full impact after the Baker completed the operations. It's too premature to say anything at this stage.

And what is the onetime cost for this overall for the getting it back to the operations?

It's about $300,000.

Okay. Second question on the Dirok. Sir, we have completed the forest part of the laying. Sir, I wanted to understand by when we'll be able to connect it to the hub as such to [indiscernible] Duliajan?

See that's -- forest section has been completed. 50% is over. The balance we have to get into the next season, it should be around 2000 -- it should be expected to be completed by -- from our side will be get completed by December 2025. But that is not a major constraint. If the DNPL line is connected, we have got a tie-in line with the Kathalgudi. So that will ramp up -- that will meet -- ramp up the production up to 1 million plus.

So will it be safe to assume that from 3Q, we might be able to increase from our 29 million square [indiscernible] to 20 to 50 production if the DNPL pipeline is ready by October?

So if the BNPL is there, if they are allowing us, we can go up to 1.2 million, that should be around, say, 40 plus.

Okay. That's helpful. And then last question on the PY-1. So now we have got the initial study, and we are expecting to start drilling from April to June. So have we closed on the -- means any well or the rig as such to -- or have you procured the rig?

No, not yet. Because what is happening is we have to go for -- our team has done a good work, and they are very confident about it and they're drilling 3 wells, and they've identified the location also. But we wanted to be abundantly cautious. We are taking third-party expert, the expert from -- on the fracture basement from London, and they will be coming here for studying about 15 days. Then the collaborative study of our team as well as experts will be presented to another third-party reservoir guys in London, RPS Energy. And once we have confirming all the facts and everything data and everything totally being reviewed, we will be releasing the -- revising or maintaining the same locations as the case may be. And after that, we will mobilize the drilling rig.

The next question is from the line of Rishikesh from RoboCapital.

Sir, firstly, regarding the CapEx that you have mentioned for the next 3 years around INR 1,000 crores. If you could list down what CapEx are we doing and what amount is going to be spent for which well? And also, what is our internal revenue target or a kind of aspiration number from the same and expected IRR in next 3 to 4 years?

See, the wells we are planning for the next year, including total is about drilling up 15 wells, out of which one would be an exploration well. And the interventions we are planning for about 6 well interventions and the expected outlay is about INR 160 crores in the next financial year. And '25-'26, we will be embarking on the program for the PY-1 drilling and Dirok also we would be drilling 2 more wells and 2 more deep wells also we are planning on the surface of the first well. That is about INR 540 crores, we plan for it. And '26-'27, B-80 we have -- as planned, we have to drill 3 development wells and connect it, that is about INR 300 crores. This is our plan outlay for INR 1,000 crores. And IRR as such, we will not be doing any project less than 21% post tax.

Okay. And if you could also share any internal revenue targets that you have?

So these are based on our cash flow projections, we'll be meeting within our internal accrual only.

No. Like I wasn't asking about funding. I was asking about any internal revenue target or any aspirational numbers that you have in your mind from the said CapEx?

So we have our existing producing field, Dirok is there and then B-80 is there. And with the 3 workovers of Dirok, and 3 workovers of Palej and immediate drilling of the North Balol and Asjol, we will be able to meet the capital expenditure as such of INR 160 crores next year very comfortably without any issue. And '25-'26 if D-1 comes, and we will be comfortable to meet the INR 540 crores. And these are staggered expenditures, we take the success driven success. Basically, the first well will be only about $10 million. And that drives the rest of the things. So there should not be any problem of us, the problem of getting INR 1,000 crores over a period of 3 years.

Okay. And what is our expected revenue and operating cash flow for next 2 years, FY '25 and FY '26, if you could share, please?

That's what the number I told you, no. I can't give you the exact number as such. And our internal accrual, we do have our cash flow based on the cash flow, we are comfortable with this.

Okay. Also, sir, regarding the B-80, what oil production do we see for FY '25? And what kind of optimum level of production can we do there? And by when do we look to achieve that?

So this would be known to us after the Baker completed their operations in the field. So we are waiting for the Baker report.

The next question is from the line of [ Tejas Shah from Laser Securities Private Limited ].

If you can share, earlier we used to do around 11% to 14% gas production from D-2. Now that has come down I think 5.7%, and I think the oil production has gone up. So is there a problem in the D-2 wells wherein the gas production has come down and the oil production has gone up? And is it going to sustain going forward?

See, this is an expected in the D-2 well, the gas production will come down, oil production will go up. It is beginning as per request.

Okay. So this is going to stay the way it is? Or this is again going to change?

See, we can't say this is a subsurface issue, but we expect that we will maintain at this level.

Okay. And from the D-1, earlier I think we were targeting around 3,000 barrels of oil approximately. Now that we have kept reducing and now it's around the 400, 500 now write up is not there. But you're saying expectation is only around to 800 to 1,000 barrels after it opens up or there is no clue on that?

[ Tejas ], you asked a question about the D-2 well, right? Which I answered as such, 800 plus 3.5 million, right? We've not discussed about the D-1 wells. The D-1 well results will be known after the Baker treatment is completed or Baker operation is completed.

[indiscernible]. Okay. And can we have an update once the process by Baker is done on the stock exchanges? Is it possible?

See, it's a continuing process. If the Baker will come out and they do some operations, if they find something more to be done, we will engage continuously to do that till the well is fully activated. It's not a one...

That process I'm understanding. Once the Baker says okay fine, and done with everything whatever was there, now this is the result that is there. After that, can we update? Basically what I want to say, I don't want to an update on the next results, wherein then I understand okay, what is the problem with D-1. As a shareholder, being a co-owner of the company basically, I want to stay updated on the -- because I think it is a material event for me because how the D-1 production comes accordingly the results will also get affected. So that is my concern. So that is what I'm trying to ask you.

[ Tejas ], we would like to tell you one thing. You are our co-shareholder, co-partner in the business. We fully appreciate that. You have to understand, this is an oil and gas field operations, right? So it is not an end, it is a subsurface. Once the well is continuously flowing through our satisfaction, yes, we will be able to maintain it, then we will certainly inform to you. We cannot come to you and say that sporadically it is producing today. And within a day, we cannot say again it is closed. We can't do that. So we establish ourselves a continuous flow of the D1 well, and then we will certainly inform to you -- inform to the exchange you will get to know it, okay? Thank you, bye.

The next question is line of Aman Chowdhary from Motilal Oswal Financial Services Limited.

So 2 quick questions from my side. First one being -- so with respect to Dirok. So Dirok production has remained stable. When should we see this trend move upwards?

See, Aman, that once the gas could get connected, either in a bigger way means that is 180 kilometers line of IGGL to Numaligarh to Duliajan, that will ensure the full connectivity to the grid. And limited connectivity to the grid could be established with the BNPL line because it is having a patchwork of some 50 kilometers [indiscernible] that is there has to be done. Now once that gets completed, we would get eased out to the extent of at least 1 million standard cubic feet per day, comfortably. So these are linked to various facilities and gas grid connections and all. We cannot predict the exact number. Once the DNPL line gets activated, we are sure that we should be able to ramp up at least about 40 million standard cubic feet a day. From '25, '23 or '24, we will be able to reach up to 40.

Sure. And second question is with respect to Cambay. Any update on enhancing the production to 500 barrels of oil per day?

Yes, we are working on it at the moment. We take -- we have submitted the proposal to the partners. And once that gets approved, and we will be lining up 3 wells on the artificial lift, that our people are confident that should increase the production from field upto 500 barrels.

And just to chip in with respect to B-80, for how many days did one well contribute in the third quarter? And secondly, on the same, the second well, when do we expect operations to begin?

One well was on a continuous operation for the entire 91 days. There is no issue on it. And the second well, that's what we are looking at Baker to commence it. So probably this quarter, we maybe end up with one well only.

Sorry, I did not catch it. When will the second well start operations?

The fourth quarter, we may end up with only 1 well, unless the job on operations will get quicker on it, but that will be only in the mid of March as such. So we can count that one well production will continue from B-80.

Okay. Sure. So nothing from the second well in FY '24 at least?

Yes, that we believe in it and Baker is working on it.

The next question is from the line of Vaibhav Badjatya from Honesty and Integrity Investment.

I hope I'm audible. .

Yes. Very much.

So I think you mentioned about the DNPL pipeline when it's ready. And I think you mentioned sometime around October, it would be ready, if I'm not wrong. So then we will be able to increase our production up to 40 million. So is this 40 number is because of constraint on the demand side or the pipeline capacity or the constraint on the production side?

There is no constraint on the production side. This is constraint on the pipeline as well as the demand side.

Okay. Okay. So basically, I think the pipeline will -- we will not have rights to use the pipeline beyond that number?

Yes, because there is a capacity limitation. PNGRP will also have some issues there on to it, that has to be addressed.

Okay. And if I'm not wrong, this will be ready by October, right? October '24?

That's what we believe in it actually.

Okay. And IGGL pipeline that you spoke about that would be ready by what time?

See that is what the new line Numaligarh to Duliajan, that will be getting fully connected to the national grid by -- IGGL would be expected to be on March '26.

March '26, Okay? Okay. So basically, then you are saying that with the full constraint on demand will be removed and pipeline -- will after commissioning of this pipeline also, we will have the pipeline capacity issue as such because I'm sure there will be other production in Assam's which will have right to use this pipeline. So will we be able to have full production given the pipeline constraint?

See that's why they were looking at around 5 million standard cubic meters per day. Ours is going to be only 2. So the balance then work on to that. There should not be any problem. That is what is being projected because -- this is, at the end of the day, the country needs gas and Oil India is one of the primary producer therein and ONGC is also there. We are making this Eastern grid should get faster. That's their endeavor and we are working on that direction. Oil India is our major partner with us also so they will be able to help us in a sense they will be having 45% of the revenue from this block. So we will be able to ramp up to that level of 2 million. That's our endeavor also.

Okay. And the third pipeline that you mentioned in the presentation about GAIL UrjaGanga. So this is connecting which point to which point if you can explain? And what is the expected completion time line for this?

UrjaGanga is to be commissioned, it is up to Barauni to Guwahati. That should get completed by March according to the plan as such.

March '24?

Yes.

So this -- will this lead to some kind of relaxation on the -- I mean, will it offer us an opportunity to increase our sales or there is nothing to do with our...

What is happening is we are at Duliajan. So from Duliajan, this goes to Numaligarh. From Numaligarh, it goes to Guwahati. From Guwahati, it goes Barauni, that gets connection compete. Now there is a limitation of the DNPL line that cannot take more than 2 million standard cubic meters per day. So out of that, we'll have some share. So that's why, we are -- that line is fully operational, at least we can ramp up to 40 million cubic feet of gas per day. And then the whole connectivity has come, we can ramp it to just double, it is about 70 million.

Got it. Got it. And finally, to understand this whole issue. So finally, the IGGL pipeline is going be a thing which will remove all the constraint on the sales. So initially, it was said that it will be completed by March '25. Now you're saying that it's March '26. So when...

See it's not directly operated by us directly, we have no connection to that. We have been talking to the people of the authority and then we get to have some dates actually on this.

Okay. Okay. Got it. No. But what I was trying to understand is, based on your understanding, is it March '26 is also realistic time line? Or do you think that there are some forest clearances issues or something that is holding up and delaying the pipeline?

I don't think it is by -- I don't believe March '26 is the entire connectivity of the grid is established.

The next question is from the line of Sanjeev Damani from SKD Consultancy.

Am I audible?

Yes, sir.

Sir, actually, I want to understand certain things about our B-80 operations update that I'm watching right now on my screen, your presentation. So it is the first volume that we have sold, I want to confirm from you. From this particular site, the first consignment has been sold of the crude. Is it correct, sir?

Yes. Yes. So what is happening is whatever the crude we produced, it has been sent to floating storage offshore. So there and the storage of oil reached to a size of 400,000 barrels, then we will be inviting the bids from the various refineries, and based on the auction results, then we will be making an offloading. They'll bring their own tankers, then we'll offload. In this case in B-80 field first time we have reached to a parcel size of more than 400,000 barrels, and we offload the first oil to IOC.

Right, sir. So by this time, how much stock we have already built up? Can I know if it is not otherwise?

So, I think as we speak, we'll be having 430,000 barrels has already been sold. Now we'll be having stock about 35,000 barrels.

35,000, that's all. Am I right, sir, 35,000 you said, sir?

Yes, yes. 35,000 barrels in stock, and we are continuously on production about 800 plus barrels.

Yes, yes. So you told us, sir. And regarding the gas also, have we sold some gas from these fields?

The gas we have been continuously selling for the last 1.5 years, but currently, we are selling about 3.5 million mmscf of gas to GSPC.

It goes to GSPC. And the price which is mentioned being realized is 19.98 MMBtu. Am I right, sir?

Yes, that's right. That is the [indiscernible] this price high price as such. If the oil price is more, you get more and [indiscernible].

Got it. But I think -- I mean, compared to other sites, we are getting good realization here. So that is something very good, sir. I mean there is no ban by the government that you can sell at x price or y price, then there's no ceiling , sir, as such for gas prices.

You are right, as such there is a domestic market obligation. Premarketing rights have been given to the private players. So that works well.

So sir, are we also subject to windfall tax on petroleum or no?

No, we are not because we have not reached to the threshold limit of 1 million barrels of oil.

Okay. That's also very fine, sir. So one more thing I just want to confirm that you are storing all these collected oil in the offshore area only. So again, if some cyclone comes, it may get damaged. Can it not be transmitted to the onshore to have safety of our storage?

Sir, this is actually a facility. It is a Aframax tanker, that is called a floating storage offshore. In any emergency, it can disconnect and move to a certain location. So there is no question of any damage will occur.

Okay. So it is like a ship. The storages are on the floating ship, as you rightly said. I could not understand. Now, sir, in other fields where we are trying...

Sorry to interrupt, Sanjeev, can you please rejoin the queue. [Operator Instructions] The next question is from the line of Ashwin Reddy from Samatva. Sorry, the participant got disconnected. The next question is from the line of Ashwin Reddy from Samatva Investments.

The first question is on Northeast block. Regarding the work that has been outlined for Kharsang. So is there any limit or constraint on the offtake in Kharsang, given that a good number of wells has been planned to drilled, is there any constraint on the offtake in the 1, 2 years...?

No, there is no limit to the offtake. No, there is no offtake limit. The facility can handle up to 5,000 barrels, and we will not be able to reach that level even by drilling 15 wells, which will be lesser than 2,000 barrels, there should not be any limitation.

Okay. So in terms of the infrastructure, unlike in gas in Dirok there is a no constraint in Kharsang, right, in terms of what...

I couldn't get the question actually. Can you repeat?

No, I'm saying in terms of -- so unlike in Dirok for gas, there is no constraint on the offtake, for whatever you can drill and you can bring out in Kharsang?

Yes. Because there is one Kumchai line is there once gets connected given Arunachal Pradesh gas production with Oil India also having a line in a manner that gets connected to the national grid. So there should not be any problem of monetizing the gas producing in Arunachal Pradesh.

Okay. And what are the time lines that we expect for Kharsang to scape up in the next say is it like 1 year? Or how do you think about Kharsang in terms of...

So we are planning to doing the development well starting from the first quarter of the next financial year. Then we are embarking on a continuous drilling program. We are not stopping it. After drilling a 6 wells, we have a small pause for a few days to review the data. And then further drilling will continue there on to it at least to complete minimum of 15 wells were on development wells to the Upper Girujan. And meanwhile, we are getting 1 more rig, which can drill to the lower Girujan, formation of lower Girujan and Tipam and Barail formations. So the deeper exploratory well is successful, then we will continue to drill 2 more exploratory wells and all the exploratory wells in onshore can be put on as a development well. So we will start producing from deep exploratory wells also. So this we expected about 2 continuous financial years '24-'25 and '25-'26.

Okay. Got it. And my second question is on Dirok. So for these quarters and from now on, should on the minimum that you'll do it is 23 mmscfd or there is a chance to go back to what you used to do before, 35 was the norm, right? So then again there was offtake issue issues, et cetera. So as we speak, are there any ramp up from the levels of 20, 24, or are we continuing at 23, 24?

Actually I'm ready with the production but the demand is not in my hands because it is basically the [indiscernible] and the many public sector undertaking, BCPL and NRL, and all should be continuously operating since the [indiscernible] continue. This is too difficult for me to predict this is the volume at this stage.

Got it. Okay. And regarding B-80. So regarding the D1 well, is there a chance that we can miss the weather window for this time? Or is that out of scope? Or is that a possibility as well in terms of what has been done?

We are looking into all the interventions without a rig. If any rig interventions [indiscernible], it could be only on the -- after the monsoons. But we will get to know only the Baker completes the job, not before that.

Or at least whether the rig is required or not will be confirmed, say, by March, is that a fair assumption?

So we -- they'll have to carry out the job once they come out the results and what it comes out and how do they feel it and then again they have to go back to the study on it. And some resolutions we expect on this and if everything goes worse only, we have to go for the drilling rig, that is the last option.

The next question is from the line of Darshika Khemka from AV Fincorp.

My question is that could you help us with the breakdown of the revenue by B-80 and Dirok, please? I'm sorry if this question is a repetition.

The revenue from B-80 and Dirok, right?

Yes.

I'll give you the number. See, Dirok number is -- B-80, we have got the total revenue of -- total revenues INR 44 crores the correct...

Could you please repeat that number, I'm sorry?

INR 44 crores. Okay. And the Dirok is about INR 51 crores.

All right. And how about the balance number?

Dirok, the net revenue I've given to you because some adjustments would have been there to the extent of profit oil and everything, the government share.

The next question is from the line of Jayesh Gandhi from Harshad Gandhi Securities Private Limited.

If I heard you, correct, you said that in production from D2 well in B-80 is currently 800 barrels per day. And our inventory is closer to 35,000 barrels. So if I count it for the current quarter, then we should not be able to sell more on 1,10,000 or 1,20,000 barrels in that case. Is my understanding correct?

Your understanding is correct. That is why we are working on the D1 well to put it on production quickly.

Got it. So last quarter, the volume which we have done is 4,30,692 barrels. That means we had a lot of inventory, which was already there. Is my understanding correct?

Yes. This is since beginning whatever the production that was there.

The next question is from the line of [ Manoj Jethwa from KSA Shares and Securities Private Limited ].

Very good set of Q3 numbers. My couple of questions is regarding the D1 well. We have given a contract to Baker Hughes. So you have said -- you have mentioned in the presentation, currently, they are going to start the work, seismic studies and all that, everything. So what is the probability of the success for the problems which are there in the D1 could be sorted out? I mean is there any time frame for that, sir?

See, [ Mr. Manoj ], see if I know the probability of success of an exploratory well, I could have told you that this is the probability of success, which we're working on it. This is the well which was producing before the cyclone and after the cyclone it stopped producing. So it is a surprise to all of us. And now we have looked at all the possible ways and means why it stopped producing. So we looked at now there is a blockage in the reservoir. That is what they are going to address it. I cannot assume any probability or numbers, which you can assume. Whatever the numbers which I can assume, you can also assume it. So we will be waiting for this Baker's effort and let us see after that, what they come out with.

Okay. And my another one question is regarding the oil reserves which we are holding right now. What would be the probable sales value which we can assume it in the Q4, sir?

Oil reserves, I mean you are talking about our products, which is in stock at the moment?

Sir the 35,000 barrels of oil, we are holding right now, sir? Am I right sir?

Yes, you're right.

Yes. So what would be the probable sales value it could fetch once we sell that, sir?

See that would be the expected price in the month of March, right? End of the March that mark-to-market would be the price. If the Brent is $80, it will be taken as $80. If it is $70, $75, it will be taken as $75.

The next question is from the line of [ M.N. Kumar ], an Individual Investor.

Thanks for sharing the presentation with a lot more details than before. We appreciate it. Is it possible to make the clarity with respect to when you said production, is it a gross or net? Or what is the quantum that will get for checking the participator interest in the account, what comes to HOEC, this part becomes a little bit difficult, sir. Can you make any presentation on this aspect a little better, sir?

Okay. Normally, they should indicate that whatever the value we indicated this gross production and you can see the net production, right?

Yes. Some locations, it is driven as a gross, some locations it's production. So it is always confusing, sir.

Yes. I think you are right as such, and we will update ourselves on this for the next quarter.

Sir, the next question that I have on that one is related to Dirok. On the Dirok, after making the pipeline because you will have to still complete this 20 kilometers additional line. How much bigger market we will get, sir? How much more gas that we will be able to sell getting connection to the national grid. That's what I am asking.

So see you're asking me the question after connecting to the national grid, right?

No, sir. Right now, there is a pipeline that we are laying, right? With the current pipeline that we have and the consumers we have, we can actually go up to 30 mmscfd, sir, correct?

It can go up to 1.2 million if DNPL line get connected, 1.2 million cubic meters per day. So we were also initially producing about 40 million -- 1 million cubic meters earlier. And now the price difference has come, that is why the fall, we are more or less like a fallback. Once OIL gas gets sold and the ONGC gets sold at a lower price, then preference comes to our gas.

Okay. So by completing this pipeline, we are not going to be able to sell anything more than what currently we are selling. Is this my understanding right, sir?

No our plan is getting to augment our line to make a 2 million cubic meters. It's more or less like connecting to the nation grid as such.

Sorry to interrupt. Kumar sir, can you please rejoin the queue for your further questions.

This is connected to the same question madam. Sir, if that is the case, why we should start drilling the 2 development wells and increase the capacity to 70 mmscfd?

We are drilling the wells actually by next year, next financial year. I mean '25 -- the drilling will take about, say, 3 to 4 months. And that's why we plan in such a way, if the lines are getting connected, demand picture we should be able to ready to get into the market. That's the reason we are planning the 2 development wells to ramp up to 70 million cubic feet per day.

So that means this pipeline connection completion and the drilling of it, everything has to coincide with the national grid connection. Is this my understanding right there, sir?

Right. Because we are looking at demand pickup to keep [indiscernible] that our capital invested is earning revenue on it. So that's why there is a delay in drilling. If there is a connectivity to the national grid, we would have completed the drilling by this time.

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

Sir, first question is on B-80. Sir, you mentioned the production is around 3.5 MMSCFD and 800 barrels of oil. So is that assumption right that the Q4 revenue from D2 well will be lower compared to D3? And on the same like we have auctioned a lot more gas than we are producing. So what kind of penalty would we have to pay if we don't sort of fulfill our commitment of the auction?

[ Manan ], this is being an issue towards the reservoir then there shouldn't be any penalty on it.

Okay. And so the D2 production right now is lower than the Q3. So the revenues will fall further?

This is somewhere around the range of 4 to 3.5, so we are taking 3.5 as the basis for continuing for this cohort.

Understood. And sir, on the Cambay, so you have mentioned around 300 barrels oil through artificial lift. And so by what time can we expect that to come on production and last question on Umatara. So is that substantial which will move -- substantial production which will move needle for us or that's just a small well type?

So actually, the artificial lift of 3 wells in Palej's planned, with our estimates are there. With artificial lift we should be able to increase to another 300 barrels. That's what has been stated in the report. So we are looking for the partner's approval there. Once it comes on it, we will be trying to get on to the mode because it is -- duration of the work is very short, it's not taking more than 10 days for each well. So we would be able to ramp up faster. And your next question is related to Umatara, right?

Yes.

Umatara is a well drilled by Oil India and we are a partner there in with only 10% -- IOCL, sorry. IOCL is the operator for the block. I am sorry. IOCL is the operator, and we have only 10% stake in the block. They have already mobilized -- they are ready to mobilize the rig and by April, they will be studying the well.

So the question is, sir, is it substantial or it will be small?

Actually, this is a discovered small field itself. There cannot be anything called as a substantial out from there. The results are about 2 million barrels. So once we build the well, we will know the potential much better.

The next question is from the line of [ Vivek Joshi ], an Individual Investor.

Congratulations on a steady set of numbers. I have 2 questions. One is that given the production, if it remains the same, do we expect, sir, similar results or there are certain one-offs like you had last year on expense adjustments, which you do at the end of the year, like something which is not there? That is my first question. And second is in the balance sheet, there's -- in the comprehensive income, there is items not classified as profits for about INR 41 crores for the 9 months. Can you just tell me what does this relate to?

Okay. Senthil, can you look at what is the INR 41 crores. Because Mr. Vivek, the number relates to that based on that, one, we should have continuous production and second thing is about the price. Subject to this, we will be maintaining the same numbers we don't expect any adversity. Okay. This INR 41 crores, what is this INR 41 crores, can you show me the number? [ Mr. Vivek ]?

Yes, it's in the line item 8 on the consolidated, other comprehensive income, the first line item, items that will not be classified as profit or loss. INR 41 crores for the 9 months. [ INR 4,193 million ].

Okay. This is actually -- sorry, that will not happen this year. This is related to the cost recovery limit on the Kharsang Block and that issue got sorted out. And by which only, they have got the extension. But being one time aberration that has been sorted out, that INR 12.21 crores, but we don't expect anything like that to happen in there.

Not the loss. I'm asking the profit number, why is it happening? Like what is the INR 4,193 million that we are showing as profit, but which you are saying is actually not profit. The line item above that, INR 4,193 million.

INR 4,193 million, which is the line number, can you just tell me?

Yes. 8a on the...

Exceptional item 1, right? That is INR 12 million. That is what...

No, no, in the consolidated this thing, item #8, sub item number A. For the quarter, it is INR 1,879 million and for the 9 months, it's INR 4,193 million. Sorry, sorry, sorry. I got it wrong. My bad. I'm sorry. My mistake. Sorry, sorry. I am looking at the...

I couldn't see the numbers.

No, no I am sorry, I got the wrong numbers. My bad.

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

Just wanted to know what would be the net debt number post the oil sale for company?

That consolidated level our net debt number would be as on date about INR 150 crores.

INR 150 crores. And what would be our 9-month CapEx sir this year?

Our CapEx, which we landed is about INR 1,000 crores over a period of 3 years.

So for the first 9 months in FY '24?

FY '24, we don't have much capital outlay at the moment.

So sir, at a company level, would it be fair to assume that our medium-term growth plans have now moved beyond B-80 or D1, I would say, D1 production coming, would it be fair to assume that. I mean our dependence on B-80 has reduced now for medium term, would we have that?

We have a road map for the -- we have a plan for at least 3 years, we have lined up a program in such a way that our net production should move from at least 1 million barrel of oil equivalent to 1.5 million by next year, and it should go to 3 million by '26 actually. That is what we are planning for it.

3 million barrel of oil equivalent annual production.

And that's what we wanted to ramp up and we wanted to -- that is on our base case as such. The minimum actually, when you look at the P-90 case that is the level we are looking at.

This is 3 million gross or net, sir?

Net to us.

Net to us.

Actually it is net production P-90. We have a plan in such a way which is our INR 1,000 crores award program, which we are lining it up, we should be ramped up in such a manner, we should reach at least minimum of 3 million barrel of oil equivalent.

Yes, that would be around 8,000 barrels of net daily production if I'm 7,500 to 8,000 barrels of oil.

We are expecting because that is the P-90 case. If we look at P-50 case, our target is to reach 10,000 barrels of oil equivalent net.

That's great. And how much we are factoring B-80 in this, sir, would you be able to quantify? Or...

I can quantify that. There's no problem on it. We are expecting at least some 3,000 barrels of oil from the B-80 block.

At least 3,000 barrels, sir, net, Okay.

The next question is from the line of Rishikesh from RoboCapital.

Sir we had an FSO and MOPU. Could you share what is the revenue for 9 months and for the quarter for the same. And how do we see steady state revenues from FSO and MOPU going ahead?

See, steady revenue, we cannot say that because what is happening is, it's linked to the many repairs and maintenance. We believe that we are trying to carry out all the repairs. In between there maybe if you change the pipeline and others, sorry that under buoy hose and other things it will take some time. So what we can look at is, it is giving a run rate of about INR 50 crores net revenue in this quarter and the previous quarter, it was just INR 17 crores. And year-to-date, it is about INR 120 crores.

The next follow-up question is from the line of [ Tejas Shah from Laser Securities Private Limited ].

Sir, what is the program for next year's gas contract for B-80. Is there any movement on the same? Or is it automatic renewal or you will go for a new deal sir?

For gas sales? What is your question actually, [ Tejas ]?

For the B-80, we had a gas contract till this March of '24 after that [indiscernible] that is what sir. So is that process started? Or how...?

We will let you know actually because this contract is valid up to 31st March, we will be asking -- we'll be starting the process by 1st week of March -- 1st or 2nd week of March.

Okay. And earlier, we used to have a problem on B-80 for a high-pressure unit, where I think it was not able to take much higher volume of oil. Now when you said in your presentation that everything on the top side has been done. So is this problem solved and now will it be able to take a higher load of 3,000 barrels a day if whenever we reach that output?

Yes, we should be able to do.

The next question is from the line of [ Rajesh Sharma ], an Individual Investor.

My question is, what was the production from D1 before the cyclone?

I think it was about 1,200 barrels per day and 6 million cubic feet of gas.

Okay. So if it comes back, normally, maybe we can expect 1,200 barrels or higher?

Yes, I don't want to predispose something to you at this stage. Let us wait for the Baker result.

The next question is from the line of [ Ravi Nagda ], an individual investor.

Sir, my question on D1 there. Why it has taken so much time that Baker Hughes is conducting in February because monsoon is nearing, if they're conducting the survey in December, then you have enough time to do the repair work?

See [ Mr. Ravi ] that -- it doesn't affect -- monsoon, it doesn't affect this operation. This is going to be on the platform.

Okay. So when do you expect that report? And when do you see D1 well producing oil?

So there -- I told you as such that Baker has completed the study. After the study, they are mobilizing their equipment and the chemicals and personnel. And that is -- we expect that before the end of this month. Once they go to the platform, it will take about another 7, 8 days. You'll get the know the results after that. Whether we need to get further pumping of chemicals and wait for some days or the first instance itself they get a good results. We do not predict today.

Okay. So the problem is wax deposited, okay, sir?

So we have a feeling there is an asphaltene and wax deposition, which needs to be cleaned up.

The next question is from the line of [ Mehul Panjwani from 40 Cents ].

I have one very basic question because I'm new to your company. How will FSO and MOPU contribute to revenue, because we are using it for our oil offtake, right?

This is actually -- can you repeat [ Mr. Mehul ] again your question?

Yes. So I'm just -- I'm trying to understand very basic thing that how do the FSO and the MOPU, which are basically used by us, how do they contribute to revenue?

Yes, right. So MOPU is actually like a process facility, right? When the oil produced from the well comes to the MOPU there that segregated oil, gas and water. The 3 things comes out of the well, which gets segregated. And that has been pumped because there is no storage facilities at MOPU. Then it is sent through an export pipeline to the FSO. FSO is a storage facility where the crude comes there and gets stabilized. Once it reaches to your parcel site, then an offtake is undertaken. This is the process. FSO is a storage unit and MOPU is a processing unit.

Right, sir, but I'm just trying to understand because maybe pardon my ignorance. How do these contribute to revenue because we get revenue only when we sell oil, right?

See what happened B-80 is a block and that is a field, right? Any field you need these facilities, right. These facilities are to be hired from the third party. In all the companies you look at these facilities are hired in the third party, in our case, this is our own facility, which is being charged to the field. That is where the revenue is earned. This through with separate subsidiaries, which can be used for some other companies also. But tomorrow B-80 is not producing or B-80 is to be shut down after 7, 8 years, then it can be used elsewhere.

Right. Right, sir. One last -- I mean 1 follow-up question. So when did we acquire this FSO and MOPU?

It has been 2019 and 2020 I suppose.

Okay. And sir, also, is it a fair assumption that since some of the blocks, we don't have 100% entitlement. We have only with 35, 40 whatever depending on the block, which we are talking about. So we also get 100% revenue for these -- from these 2 FSO and MOPU?

See what happened currently we're participating in the block, somebody would be called as an operator who would be holding certain percentage. Non-operators will be holding certain percentage. It varies. And that is where the field revenue is shared. This is more or less that what you are talking about MOPU and FSO is like a service. It is like an equipment, it is not rental. If you want to keep 100%, that entire revenue of the rental comes to you.

The next question is from the line of Shivam Shah from Smart Sync. The participant is not audible, got disconnected. The next question is from the line of Ashwin Reddy from Samatva Investment.

So my question regarding B-80. If I just give a simple ratio of that to oil so from Q1 of FY '24 to Q3 of FY '24. The proportion of gas is lower versus oil, in the sense that there is more gas intake. Is it any cause for concern in terms of the reservoir itself or what are our expectations can be. The reason I'm asking is because in the past con call, you told that if there is more gas it means that the well can run longer and smooth we well, the proportion of gas is decreasing versus oil is this a cause for concern in terms of the reservoirs?

This is a gas cap well. So initial production of the gas would be more than over the period, the gas will get reduced and oil will come up. So that's why you would have seen the initial oil production from this well was 400 barrels then it went up to now 800 barrels. The gas is about 8 million to 9 million cubic feet of gas it is getting reduced now. This is a typical phenomenon expected from this well.

Okay, got it, that is very good to know. And second question is on the D-1 well. We have seen the presentation. It was outlined as a mechanical issue was what was told as an issue in D-1. This time it is being told as a reservoir issue. Has there been any change in terms of our understanding or -- because our understanding was that it was more to do with the evacuation of mechanical materials than the issue was. But right now, is there a lack of clarity on the reservoir itself or what is the reason? I'm just saying -- so what I want to understand is, has there been a change in our understanding about the issue that’'s all, or is there anything [indiscernible].

Mr. Ashwin please there is a well which was producing well got shut in. Now it's not producing oil there. So the first priority is to find out is there any blockage, right? You start with your flow line and then you go with your tubing and you clean up one by one, then you get to know, then there is a reservoir. So we have initially looked at it is more of a mechanical issue because it is there in abrupt one attempt. Now the mechanical issue is getting resolved because we have put the pumps and chemicals and other things, we have now cleaned it up. Now we have come back to the reservoir issue. I mean, in the sense blockage in the reservoir, which is now being addressed by the Baker. Are we clear on this?

Okay. But to clarify even though it is a mechanical issue [indiscernible]. It is nothing to do with the quality of the mix there.

Ashwin I couldn't get your questions.

I am saying right now it is nothing to do with the well itself, it is more like a mechanical/blockage issue in the reservoir, is that the way to understand it?

It's not a mechanical issue. Mechanical issue is resolved, now it is blockage in the reservoir. That's why we need Baker to come out with circulatory chemicals to clean that or remove that, right? Mechanical obstruction means that is on the flow line or on the tubing, which our people are -- done lot of work on it and they have cleaned it up with the best of their ability. Now the Baker will come, and they will try to address the issue on the blockage in the reservoir.

As there are no further questions, I now hand the conference over to management for closing comments.

Thanks, while we continue to focus on activating the D1 well, and increase the offtake of Dirok, we will embark on drilling wells in Kharsang, Western region and PY-1 to develop these fields to its full potential to reduce the dependence on B-80 and Dirok. We will also increase our talent pool to meet our growth targets. We once again, thank you all for joining us today. Thank you.

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