Oil India Limited (OIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to Q1 FY '23 Earnings Conference Call of Oil India Limited, hosted by Antique Stock Broking. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Varatharajan Sivasankaran from Antique Stock Broking. Thank you, and over to you, sir.

Thank you, Margaret. Good morning, everyone. It's my pleasure to welcome all the participants and the management of Oil India Limited, represented by Sri Harish Madhav, Director Finance; Shri Pankaj Kumar Goswami, Director Operations; Dr. Manas Kumar Sharma, Director E&D; and [indiscernible] call for this call. I would like to request Mr. Harish Madhav to give initial remark, And then we can move on to Q&A. Over to you, Mr. Harish Madhav.

Thank you, Mr. Varatharajan. Thank you for hosting the conference call for first quarter results of Oil India Limited. Thank you, so much. And we welcome all.

Sorry to interrupt you. May I request you to come a little closer to the phone, please.

Okay. Okay. Yes. I just said, thank you, Mr. Varatharajan for hosting this conference call with all investors and analysts. Thank you Antique Broking. And I also welcome and thanking all the analysts and investors who have joined our call for Q1 results. So let me just introduce, well, along with me today, as Mr. Varatharajan said, is Director of Operations, Mr. Pankaj Goswami; Dr. Manas Sharma somehow could not make it because he is little unwell today. So he's not on the call. We have our Executive Director of Finance, Shri Sanjay Choudhuri and other officers also with us. I will request Mr. Sanjay Choudhuri to give a brief on the results for first quarter, and then we can open for the question/answer.

Good morning to our friends from the analyst and the investor community. As I sit, I'd like to thank [indiscernible] for hosting today's earning call of the company. The company's financial results for Q1 FY '23 were published yesterday and briefly give some indications about the performance of the company, both in physical and financial returns. First, to start with the consolidated turnover of the company for Q1 FY '23 is INR 11,566 crores versus INR 6,201 crores for the corresponding quarter of last year. The consolidated profit before tax for Q1 FY '23 is INR 4,333 crores versus INR 1,678 crores for Q1 FY '22. The profit after tax at the group level of the company for Q1 FY '23 is INR 3,230 crores versus INR 1,214 crores for Q1 FY '22. Now coming to the standalone results and dealing with the production front, the crude oil production for Q1 FY '23 is 0.779 million metric tons versus 0.748 million metric tons of production in Q4 of FY '22. The production in Q1 FY is over the same figure, indicating an increase of 4.14% over the corresponding period last year. Natural gas production for Q1 FY '23 is 771 million standard cubic meters versus 734 million standard cubic meters sequentially in Q4 of FY '22, which is an increase of 5.04%. If you compare the production to the corresponding quarter last year, the increase was by 8.44%. On the financial side, the company's profit after tax in Q1 FY '23 has increased by 206.23% to INR 1,555 crores versus INR 507 crores in the first quarter last year. The company's EBITDA in Q1 FY '23 is [ INR 26.861 ] crores versus INR 1,296.92 crores in Q1 of FY '22. The EPS has increased to INR 14.34 per share in the first quarter of FY '23 as compared to the corresponding quarter of last year, where it was INR 4.68 per share. The average fuel price utilization for the first quarter FY '23 has increased by 67.88% to USD 112.73 per barrel versus $67.15 per barrel in the first quarter of last year. The average gas price for first quarter of FY '23 has increased by 4.3 per MMBtu to $6.10 per MMBtu. This is against USD 1.79 per MMBtu in the first quarter of the last year. We'd also like to inform you that as a statement of provision and writeoff against that of INR 270.73 crores in Q1 FY '23 versus INR 6.22 crores during the same period last year. A snapshot of the performance of NRL, profit after tax of NRL for Q1 FY '23 is INR 1,406 crores against INR 678 crores in Q1 of FY '22. And as gross refining margin has improved to $36.66 per barrel in the first quarter of FY '23 from $5.21 per barrel in the first quarter of last year. The EPS of an is INR 19.12 per share in this quarter of FY '23 versus INR 9.22 per share in the first quarter of FY '23. [indiscernible] remarks on the performance. We are now going to take questions that you may have.

[Operator Instructions] The first question is from the line of Probal Sen from ICICI Securities.

Thank you very much for the opportunity, sir. First question was with respect to the new -- the additional duty that has been imposed, that doesn't reflect, obviously, the net realization. Is that sitting in the other expense rate? Or is it sitting in the statutory duties in the P&L?

The additional asset duty is applicable for [indiscernible]. So how will be reflected on these results [indiscernible] these are only a period of June. Subsequently to be part of the duties.

Sorry about that Yes, sorry. Second question was with respect to the...

[indiscernible] taxes.

Duties and taxes. Got it. Got it. So the second question was with respect to NRL. Just wanted to clarify, you mentioned it $36.66 a barrel this quarter. But the Q1 number you mentioned 5.21, is that...

Yes, you got it right. What are things raises for this year, 36% and the other number was for last year versus $5.21 per barrel for the corresponding quarter last year.

Okay. Including the excise duty benefit last year, it was only $5.21, is it?

Both are excluding excise duty benefits. Both these GRMs, which we have quoted are excluding the excise duty benefit. This is the core GRMs.

So $36 is the core GRM that has been reported this quarter.

Yes, yes.

Okay. Okay. Okay. And last question, sir, just some guidance on overall given that production has picked up for us, just some color on FY '23/'24 production guidance and CapEx guidance, if you can give.

CapEx, we have this year total CapEx outlay of about INR 4,300 crores. And the first quarter, it's, I think, about INR 1,200 crores we have already invested. And for production guidance, our director of operations can handle it.

Corporate production this year, we are targeting -- we are expecting that we'll be getting around 3.2 responding to 2.9 last year. So we'll be getting 3.2 this year. So that is the production target as of now. And as of now, in the present production as the increase in the production compared to the last quarter. We're expecting that we'll be able to achieve that.

Sorry, sir, this 3.2%, you talked about oil transit?

Crude oil production, yes. .

And what about gas, sir?

Also in gas also, we are expecting similar number, around 3.2 this year.

This is for FY '23, right?

Yes, yes.

[Operator Instructions] The next question is from the line of Nitin Tiwari from Yes Securities.

So my question is, production on. So in the analyst meet, you had guided for incremental 1 million tonne of production in about next 2 or 3 years. So where are we like with respect to that guidance right now? And are we still holding on to that guidance? And if you can also help us understand how that production would come. So that would be my first question. My second question would be around the result numbers. So if you look at our crude oil results, they've been -- like they've fallen over the last decade or so. So where do we see making reserves in about the next 5 or 10 years and mention if we suppose the reserve base doesn't grow. So then what does the time line that we are looking at, like [indiscernible] we would have monetized most of the monetizable results that we have. So that would be my full questions.

Your first question, you are mentioning about our target of 4.0 in '24/'25. So accordingly, we have the plan to grow like this year 3.2, next year 3.6 and next year 4.1. So that is the target as of now. So as I said earlier, we are in line with the production target. We are expecting 3.2 this year and subsequently in the next coming years, we'll be increasing production. And your second part of the question that we'll work on this production where it come from. Basically, we are targeting our own operating areas as of now. So this is where we have identified 5 [ chocked ] areas within our still existing field. And with that, we are expecting -- we are accelerating our drilling activities on those areas, and we are expecting that we'll be getting more production from this. That is the target. Regarding reserves, as of now, if you can say that the result -- the replacement ratio is always 1+ for Oil India Limited. That means we're always growing the company. And at the same time, we have already acquired 25 numbers of OALP blocks where we are yet to see any areas resulting now the various activities, exploration activities are going on. Then we have identified 2 locations in those areas we'll be drilling in the next year. And with that drilling, we'll be able to establish new results. That is what we are looking for. That is the growth plan for the company.

Fair, sir. Just I just wanted to clarify on that only. So as you mentioned that our reservoir replacement ratio is more than 1. So does that include natural gas asset. I'm talking about combined reserve, or since you're talking about 2 reserves because when I look at crude reserves, they've certainly come down over last 10 decades -- sorry, last decade so that certainly doesn't look like more than 1 reserve replacement.

It's a combined 1. [indiscernible] numbers for you he's just quoted is a combined result have come down, but then there is a convergence of 3P to 2P to 1P, which is regularly happening. You have to look at results versus production. I think we have been consistently maintaining our [indiscernible] 10 years production equivalent reserves. For crude oil and natural gas, more than 20 years. And that is the status as of right now. And as Pankaj just mentioned that after the new exploration that we are doing in our [ nomination ] areas as well as the new OALP blocks that we have acquired, we expect to add more of the reserves subject to of course discovery. And with that reserve versus production balance, that will continue to be maintained as a good block.

Sir, lastly, if I may ask, so in terms of natural gas, what is the peak production that we can get in case in terms of natural gas keeping in perspective the kind of demand that exists in [indiscernible] the amount of gas we will be able to take out of the Northeastern [indiscernible]. So what is location [indiscernible] could look at?

As of our target is 5 billion. That is what we are expecting now. But we have built up our infrastructure so that we can handle up to 7 billion. So that will be subject to production from the new reserves. So we have built up our capacity like that, but the production target -- gas production target, as you talk about, that is the high we came with now.

So what is the time frame for this first 5 billion?

'24/'25.

The next question is from the line of Sabri Hazarika from Emkay Global.

I have 3 questions. The first 1 is relating to the windfall tax. So can you give us some sense on what exactly is the formula with the [indiscernible]?

The windfall tax, basically, what we have seen from the [indiscernible] law is that nobody -- they're using it for a fortnight, and after fortnight review, the amount of [ relief ] is going to be decided. So starting up with [indiscernible] now. So what we expect is that every fortnight the [indiscernible] will be declared, and accordingly, we'll be paying the taxes on that. However, we have observed one thing is that even after the windfall tax, the company has a net utilization in the crude oil of $25 per barrel, which is actually much higher than anytime in the past, if you keep aside the utilization that we had last year.

Right. No, but I wanted to know that they added looking -- I mean, it seems like they have got some net realization for the companies in mind, right? Is that the way they're looking into it? I wanted to know the -- I mean, the formula, if there's a formula which you are aware of, of course, like it is [indiscernible].

[indiscernible] any formula. This is just numbers which have been declared, and there's no formula which we are aware of. How this has been calculated that, of course, we don't?

Okay. Sir, secondly, I mean, part of this question itself, what is the -- I mean, would you be like netting this windfall tax off from the crude oil revenue and then be calculating royalty and stuff, or would it be like a direct impact on the statutory levels?

[indiscernible] yes, but about royalty, we're not so sure. We will examine the matter, and we have not been able to conclude as far as royalty is concerned, but this will be [indiscernible].

So you are saying that we have to take the naturalization then reduce the $25, $30 impact, and then calculate like 20% tax on that. Is that right, way?

Right.

Our royalty, as of now, we don't think we'll be able to adjust this and make this adjustment, but still we are examining it. And if the people like says, we are able to give, we will tell you, too.

Okay. So being a state subject, I think it will be more tricky to still implement, yes. Secondly, sir, considering your production growth, especially on gas as well as oil, so I mean, save Baghjan, the growth has been quite remarkable, and it is -- I think we are above even pre-Baghjan period volumes also. So till now, which are the fields which have contributed to this growth?

Gas production is mostly completed from the Baghjan field. So this is one field which is producing gas more. Then secondly, for oil, we have identified 2 majorities. One is Balimara. That is near Namrup. And 1 is [indiscernible]. These are the 2 things which are giving constantly more and more oil. So we are expecting these 2 fields will be giving more oil.

The last 1 year, these are the ones which are basically contributing to the growth which has come already for the company, right?

You are right. You are right.

Okay. And third question is that your expenditure, I mean, with respect to the provision as well as certain foundry expenses which has also gone up, I mean, compared to what it used to be in the past. I mean, of course, it has been a volatile thing, but specifically asking about the provision, there was a INR 400 crore provision. So what was this one all about? And can we expect more such provisions coming up? Or is this the end of it?

Actually, we will see the finance for the last 3 years [indiscernible] for that matter. So that provisions don't have a linear -- are not linear throughout the year. And with the events [indiscernible] erosions will happen. It so happened incidentally that last year, the first quarter, we held much of provisions, whereas this year, we have a higher provision in the first quarter. And last year, at the third quarter, we had higher provisions. So basically, if you see, look at the company's numbers, provision on an annual basis works around INR 650 crores, INR 700 crores average weight on a year on an annual basis. Okay. So now in the first quarter, yes, we had in excess of INR 400 crores provision. That was because we had a writeoff of a well amounted to around INR 270 crores. And another INR 144 crores will take a provision for the NELP whether any PL had expired, and provision is expected. However, this has been taken as a matter of abundant precaution because we are really expecting the extension to come through in the next few months.

Okay. So there can be [indiscernible] reversal as well on this side.

It is quite, quite possible, yes.

And INR 270 crores was on which well because we cannot?

This includes one well up on Bangladesh also, but it...

It [indiscernible]

And then two does [indiscernible].

Two wells in Northeast, one well in Bangladesh, right? Okay. Sir, just one last add up and one last question. Actually, it's related to your notes to account. So I mean, the Supreme Court form committee on that Baghjan be last. So they have given this INR 1,200 crore figure. You have stated that mostly it has been covered. So is there any more, I mean, liability pending, or we are like fully sorted in terms of Baghjan.

See, if you talk about liability in the financial, the liability can only be taken in the financial, whether it can [indiscernible] established. Now this figure has moved down all the time. We started off with a 2,000 crore figure [indiscernible] 2,000 crore. Then it came down to 1,200. Now it probably will come down to 950 or so. We really don't know which way this is going. And these are just numbers which are put up by individual. The court has not yet been cognizant of these numbers or given any order based on these numbers. So these are just numbers which are floating around [indiscernible].

Okay. The court has not given any orders?

No, no. None whatsoever.

Not even heard, just a submission of a report, which has not even been heard in the open court so far.

Next question is from the line of Somaiah V. from Spark Capital.

So question just to [indiscernible]. So you had given the GRMs excluding executive benefit? Or could you help us with the executive benefit this quarter and last quarter?

I don't have the GRM -- sorry, it's earlier also these questions have been asked, but GRMs total excise duty numbers are not there. But my one suggestion is this that all competitive performance of the refinery is core GRM, which matters. This is some additional benefit with the refinery is a claim all the Northeast facilities are having. So if you're going to compare the [indiscernible] family's performance with other refineries, I think the core GRM that we are declaring, that is the right number to compare. And excise duty benefits each refinery, each company has certain concessions, duties, some wealth concessions. All these things are there, which is individual to each specific business or part of the business, depending on the sector or the location where it is established. So I don't think that is too much important. But it's still based on the excise duty numbers of petrol and diesel. I think annually, the refi has in the total been about INR 2,000, INR 2,400 crores annually. On excise duty part, based on the current excise duty.

Got it. Sir, just one clarification there. So from Q4 to Q1, because there was this excise duty revision cut in month of May, so on a quarterly basis between the 2 quarters, so the excise duty benefit directionally, has it reduced to that extent or...

Naturally, excise duty has reduced from Q4 to Q1. The resultant effect has been factored into the financial results of [indiscernible].

Got it. So second thing on NRL. Can you provide an update on the expansion plans, the timing and from -- I mean, the funding perspective, the equity contribution from standalone and the timing of the cash flows?

The excise duty is going on as per scheduled. It's fully online and expected to get completed by project end of 2025. And the Numaligarh Refinery company has start up a funding of about INR 19,000 crores from the conversion of banks. And currently, the refineries which has good cash flows over pass-through period. So it is utilizing the internal cash flows plus some drawdown from the funding arrangements which has been tied up on the bank. So equity contribution right now in current financial year is not expected. Maybe next financial year after the internal forces which are being generated into Numaligarh Refinery, they are adopted after that only some equity contribution will come. But I think we have indicated earlier also as per the funding plan approved for this expansion project out of a current INR 28,000 crores investment, about INR 3,000 crores will go on the all [ ELBS ] 20% expedition.

Got it, sir. Sir, can you just help us out with the net debt number and NRL and also consolidate net debt.

Could you just repeat please?

The net debt at end of the quarter at NRL and also on a consol basis.

We have done around INR 1,350 crores as of now, at least the total funding tied up. So that is the only debt which the company has. And on consolidated basis, we -- our total debt, I will just tell you, it must be around [ INR 14,000 crores ] [indiscernible] 3,500 [indiscernible] so about INR 15,000 crores [indiscernible] on consolidated debt. In the mid-term, we can tell you the final number [indiscernible].

So this INR 15,000 crores is a gross number?

Consolidated debt for the company, Oil India, including 70% share of annualized debt.

The next question is from the line of Gazal Gupta from JM Financial. .

I just have one question related to the subsidy. So just wanted to understand that any idea that what will happen to the $40 subsidy. Will it go to the OMC, et cetera.

We are not able to understand. Can you repeat please?

Hello.

Can you repeat the question. We could not understand.

I wanted to understand the subsidy of $40. What is going to happen this year? Is it going to go to the OMCs? Any clarity on that?

What is this? There's no subsidy of $40.

The -- will go to the consolidated fund as it goes in excise duty.

There's no subsidy. This is the special excise duty, which has been enabled by the government. So as any other taxation, this will go through the normal CP of the government of India.

The next question is from the line Kanak Kumar Bucha from Bucha and Sons.