Oil India Limited (OIL) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Oil India Limited Q1 FY '24 Results Call hosted by Emkay Global Financial Service. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sabri Hazarika from Emkay Global Financial Services. Thank you, and over to you, sir.

Yes. Thank you, Yusuf. On behalf of Emkay Global Financial Services, I welcome you all to the post Q1 FY '24 Earnings Conference Call of Oil India Limited. The company is represented by Shri Harish Madhav, Director-Finance; Shri Pankaj Kumar Goswami, Director, Operations; and Dr. Manas Kumar Sharma, Director, Exploration & Development. So today's session would be a brief on the results by the management, followed by the question-and-answer round. So without any further delay, now I welcome Mr. Harish Madhav for the opening comments. Over to you, sir.

Good morning, Sabri and thank you very much for arranging this call. Good morning to all the participants as well from my side as well as my colleagues present here, I'm expecting that our operations [indiscernible] little later part of this call because he is busy with some interviews. We will call if required. And my colleague, Mr. Maharana, he is the CGM Finance, he is available and other colleagues are also present here. So the results we have already communicated to all people yesterday as well as posted on our website. We have posted a growth of about 3.5% in our profit after tax for the financial year for the first quarter compared to last year first quarter. And sequentially also, there is a little drop, but then the last year Q4 numbers were such different and we accounted for some dividend, et cetera, and other income in Q4 last year, about INR 400-odd crores, which is down to about INR 300 crores this quarter. On the physical sites, crude oil production, we have continued with growth of about 5% on a quarter-to-quarter basis last year. We continued with the production growth of crude oil this quarter also, it has continued. Natural gas production suffered a little bit because of the offtake issues on part of various consumers, mainly in the Numaligarh refinery, we didn't operate almost for the full quarter for -- first initially for maintenance shutdown and then because of the fire accident. BBSPL also went into shutdown. BCPL also went into shutdown, these were all schedule maintenance shutdown which coincidentally happened at the same point of time. So that has affected the natural gas production. And currently, the production of this BCPL, BBSPL also last week, they have resumed their operations. So plant is coming back to the production levels or normalized levels. Numaligarh refinery has already normalized. So going forward, we expect the natural gas to come back to the growth profile that we projected. Further details, I will request my colleague, Mr. Maharana, to give a brief on the company's detailed performance, and then we can open up for the question and answer. Maharana?

Thank you. Good morning, dear friends. At the outset, I would like to thank Messrs Emkay Global Financial Services Limited for organizing today's analyst call. I am Sachidananda Maharana, Chief General Manager, Finance. I'm happy to announce that the Company has been granted prestigious Maharatna status right [indiscernible] letter dated 4th August 2023. The Company has also received nil comment from C&AG on the financial statements for the year FY '22-'23. The company's financial results of Q1 FY '24 were published on 8th August 2023. I will briefly share information on the performance of the company. in both physical and financial terms. Coming to the stand-alone results, beginning with the production numbers. Crude oil production for Q1 FY '24 is 0.820 MMT vis-a-vis 0.779 MMT for Q1 FY '23, thereby increased by 5.26%. Natural gas production for Q1 FY '24 is 745 MMSCM vis-a-vis 771 MMSCM for Q1 FY '23, decreased by 3.37%. On the financial side, the Company has reported 3.72% increase in profit after tax during Q1 FY '24 at INR 1,613 crores from INR 1,556 crores in Q1 FY '23. The turnover has decreased by 22.12% during Q1 FY '24 compared to Q1 FY '23, which is mainly due to lower crude oil price of USD 76.85 per barrel in Q1 FY '24 versus USD 112.73 per barrel in Q1 FY '23. Average natural gas price for Q1 FY '24 increased to $6.5 per mmbtu vis-a-vis $6.10 per mmbtu during Q1 FY '23. The EBITDA margin for the period ended 30th June '23, has increased to 53.49% as compared to 44.76% in the previous comparative period, an increase of 19.5%. The earnings per share for the period ended 30 June '23, has increased marginally to INR 14.88 per share as compared to INR 14.34 per share in the previous comparative period. Coming to financial performance of our material subsidiary, Numaligarh Refineries Limited. Numaligarh Refineries Limited has incurred a loss of INR 77.56 crores during Q1 FY '24 vis-a-vis INR 1,407 crores during Q1 FY '23, which was mainly due to refinery shutdown for almost 75 days during Q1 FY '24. The EPS for Q1 FY '24 is for NRL, it is a negative 0.52 [ INR 30 ] per share vis-a-vis INR 19.12 per share for the Q1 FY '23. Coming to the consolidated results due to the above stated shutdown of NRL, there has been some negative impact on the consolidated performance of the Company. Consolidated turnover of oil for the first quarter ended 30 June 2023, has decreased to INR 6,408 crores, vis-a-vis INR 11,563 crores for the first quarter ended 30 June '22, which was mainly due to the shutdown of Numaligarh Refineries Limited by almost 75 days during Q1 '24, and reduction in the price of crude oil in the first quarter '24 compared to first quarter '23. The consolidated profit before tax for the first quarter ended 30 June '23 is INR 1,843 crores, vis-a-vis INR 4,333 crores for the first quarter ended 30th June '22, a decrease of 57.46%. The consolidated profit after tax for the first quarter ended 30th June '23 is INR 1,399 crores vis-a-vis INR 3,230 crores for the first quarter ended 30th June 2024, a decrease of 56.68%. With this, my opening remarks on the performance is over, and we are now open to the Q&A. Thank you.

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

I have a couple of questions. One was if we can get a sense of oil sales as a percentage of production this quarter seems to have declined a bit compared to previous quarters. If I look at the last couple of quarters, that average has been closer to about 96% to 98%. This quarter, it's reduced to about 91%. So just wanted to understand the reason for the same if any?

Yes, basically, the sales during this quarter is slightly down because mainly because of the NRL shutdown [indiscernible] 75 days which we had already told. Although that was offset by more [indiscernible] offtake by IOC refineries in Guwahati and Morigaon. But that's why sales is down, but the closing stock has gone up to that extent, which we expect to normalize in the next quarters to come because NRL has now come into full operation.

Okay. And sir, the reason for the slightly lower gas production performance? Any specific reason? Or is it just a one-off? How should we read into it?

As [ DSR] has already told, the gas offtake was slightly lower this quarter, mainly on account of shutdown of NRL, BBSPL and also BCPL. These are all scheduled shutdowns, which coincidentally happened at the same time. So with the starting of operations that is also expected to be normalized.

So no change to our annual guidance, sir? If I can just ask what guidance you had given earlier in terms of our overall production growth that we expect from both oil and gas of somewhere around 2% to 3% for this year. That is still maintained, right as of now?

We maintain that, and most likely, we'll be surpassing that the guidance, which we have already given [indiscernible] the first quarter production has grown more than 5%. Natural gas is the first only because of the reasons which [ we just ] mentioned. So hopefully, natural gas also going forward we'll be [indiscernible] up. And 4% to 5% growth is not at all questionable, we will certainly be achieving that.

That's great to know. Sir, 1 last question, if I may. What's the status of the NRL refinery now? I'm sorry if I missed it in your opening remarks. Is it back to full operation? Or what's the status right now?

It is back to full operation, 100% capacity utilization, it is running normally.

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

Sir, if you could just give us some clarity on the pipeline business because the revenue has been fluctuating over there. So just what is happening over there?

Pipeline basically, if you see the whole -- there are 2 things. Basically, we have 2 pipelines. One is the product pipeline, which carries Numaligarh Refineries finish products from Numaligarh to Siliguri. Now when the refinery was not in operation, by default the pipeline also didn't function, all the throughput was very minimal. So that revenue has got affected. And also this -- that is the main reason. And the crude also as -- the previous question, crude sales is also led by 4%, 5% compared to the earlier period. So crude transportation also to that extent is affected. So that is the main reason. And hopefully, these 2 things with the refinery running normally both crude and product transportation is back to normal levels as of now, and the revenue shift will also normalize in the current quarter.

Fair enough, sir. And my second question is when the Kirit Parikh committee came out, there was this provision that of 20% higher gas price for production from new wells, but nobody was really sure if IOR/EOR production is included in that or not. So is there some more clarity now on that aspect?

No, there's no clarity as there. Though the guidelines was supposed to be issued by [indiscernible] within 3 months. but we are expecting that it's still not issue.

Okay. Okay. Sir, last question is on Indradhanush Gas Grid, if you can give us some updates? That will be very useful.

On the Northeast gas grid?

Yes, yes.

That gas grid is operational. Basically, the project is under execution at the normal flow, maybe we will hold the question for some -- a little later when the Director-Operations comes -- joins the conference. But let me tell you, the project is moving as per the schedule. And I think the first leg of this project will get commissioned by end of December current year.

The next question is from the line of Kirtan Mehta from BOB Capital Markets.

First question was about the specific reduction in the other expenditure that we have seen in the quarter, like insurance. One component is exploration cost, which has come down. But apart from that, there are reduction in the insurance and other element as well from INR 360 crores to INR 128 crores. Could you also explain the -- as well as the cost of support services is also lower. So could you give us a bit more color about it?

Actually, the primary reason for this reduction in other expenditure is attributable to the lower provision of the [indiscernible] well, which is roughly about INR 200 crores. And other provisions we take have also reduced substantially by roughly around -- about INR 160 crores, and there is an impact of INR 229 crores reduction in the foreign exchange loss, which is [indiscernible] actually contributed to the substantial reduction in other expenses.

What you are referring to insurance, et cetera, is basically not a reduction in the insurance cost. It's a reduction in the foreign exchange loss component, which is clubbed into this.

Right. Understood. The second question was about the GST on royalty. When I think we met during the last analyst meet, the ONGC has taken a provision for it, and we were planning to sort of analyze this issue. So have we firmed up our view that whether we'll be providing for GST on royalty?

Yes, we are still examining it. And during the current year, certainly some view will be taken. But as of now, we have not taken a view. And I understand our matter which is pending before the Guwahati High Court is also likely to get scheduled for hearing shortly. So we are just waiting for that event also to happen. So we'll wait for some more time. Let's wait for this Guwahati High Court's hearing on merit, we'll get some indication. After that, whatever profitable for us, is required, we will take it. But certainly, during the current financial year, we are expected to take some decisions on decisions on this.

Right, sir. That's quite helpful. One last question on the capital expenditure plan for the year and actual capital expenditure during Q1, both for stand-alone as well as NRL?

[indiscernible] by the court, our target CapEx is around INR 4,900 crores. And in the first quarter [ INR 4,900 ] and in first quarter, Q1, already about INR 1,300 crores is the actual CapEx. Our target for the full year is INR 4,900 crores. Actual CapEx is about INR 1,300 crores in Q1.

Is this only for standalone or it's for the consolidated operations, sir?

This is the standalone. And NRL -- both numbers are the stand-alone and NRL's targeted CapEx or planned CapEx is INR 8,800 crores. And till first quarter, it is about INR 1,600 crores.

[Operator Instructions] The next question is from the line of Varatharajan Sivasankaran from Antique Stock Limited.

Sir, with regard to the restart of Numaligarh refinery, was there a significant cost involved and how it has been [indiscernible]?

Can you repeat the question. We missed it somehow.

Yes. So Numaligarh restart, was there a significant cost involved and how it has been traded so?

For this restart of this NRL refinery, they have considered close to INR 7 crores in the financial statements as exceptional cost during this Q1.

And you gave a CapEx of INR 8,000-odd crores for the current year. The overall CapEx number target remains the same? And how about the petrochem part of it? Is there any escalation?

Your voice is somewhat not very clear. Can you once again repeat?

The overall CapEx for Numaligarh remains the same? Or has there been any escalation and specifically on the petrochem part? Has there been any change?

No, no. It remains the same INR 28,000 crores, whatever project was, that remains the same as of now. There's no escalation.

Mr. Sivasankaran, has that answered your question?

Yes. Thank you.

The next question is from the line of Mr. Hardik from ICICI Securities.

So I just want to check on the provision on the write-off we have during the year on the comparative basis year-on-year?

What do you want? What does it mean?

Explanatory write-off, which we provide, earlier we used to give a separate number in the analyst release. Can you just share the comparable number for this quarter?

Total provisions and write-offs for drivers is about INR 70 crores in current year Q1, it was INR 400 crores -- INR 390 crores last year first quarter.

The next question is from the line of Hemang Khanna from Nomura.

I hope I'm audible.

Yes, you are. Please go ahead.

Sir, I just wanted to check with you. I'm sorry if you already discussed this earlier. The other expenses, when we look at the breakup, which you mentioned in the highlights, there's been a very strong decline in other expenses, both on a Q-o-Q and Y-o-Y basis. If you could please just reiterate what were the key drivers for the lower other expenses this quarter?

Actually, this reduction in other expenses is basically on account of lower provision of the write-off for well which is roughly about INR 200 crores. And other provisions have also reduced by roughly around INR 160 crores. And there is a substantial reduction on account of foreign exchange loss. This is roughly about...

I actually saw the breakup. Within the breakup itself, if you look at other expenditure on a Y-o-Y basis, other is about INR 206 crores in 1Q last year, which is now at about INR 68 crores. If you could just help understanding what has changed over there? Is there anything specific which has led to this? Because I think in the previous quarter also, that is about INR 350 crores.

Are you interested in any particular item or what? I couldn't understand.

If you look at your other expenditure breakup which you provided in the financial highlights, the last line over there, the other expenditure is at INR 68 crores in -- out of the total. I just wanted to understand how has that moved on a Y-o-Y basis? Because previous year, that was about INR 205 crores. So what is -- largely my question to ask is, is this run rate sustainable? And is this the kind of run rate that we should be building in for other expenses going forward?

I think we will respond to this query a little later.

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

I have a few questions. Firstly, can we get the cash cost for both oil and gas exploration business?

Exploration?

Cash cost for oil production and the gas production excluding the depreciation.

It is about $8, $8.5 per [indiscernible], excluding levies.

Excluding?

Levies. Royalty, [indiscernible], et cetera. [indiscernible] are separate.

Okay. And for gas?

Gas is around $2 per mmbtu.

Okay. And what is the OpEx per barrel in a normalized scenario for NRL?

OpEx NRL I think that number is readily not available. Only the GRM is reported. We'll have to come back to you later.

Okay. And gross debt on both stand-alone and consolidated level end of Q1?

On stand-alone [indiscernible], we have $1,355 million.

It is about INR 11,000 crores. INR 11,000 crores, INR 12,000 crores on the stand-alone and consolidated debt is about, let's say, about INR 18,000 crores.

Okay. And the difference largely pertains to NRL, the difference between consol and...

No. There is another $500 million loan for Russian investment through our [indiscernible] subsidiary. So $1,355 million is the stand-alone dollar, $500 million through Singapore and plus another [indiscernible].

[Operator Instructions] The next question is from the line of Vipul Kumar Shah from Sumangal Investments.

So for expansion of NRL from 3 million to 9 million tonnes, when is it likely to be completed?

This is expected completion in '25 -- by end of '25.

So '26 March, we should assume?

No, end of the year, by '26 March, refinery should be on stream.

And what should be the peak debt of NRL when they complete?

About INR 18,000 crores.

And all the debt will remain on the books of NRL or some debt will also be on Oil India's balance sheet also?

Nothing on Oil India balance sheet. Everything on NRL balance sheet only.

And sir, regarding Oil India's CapEx you said for this year INR 4,900 crores, right?

Yes.

So what will be the exploratory -- what will be the expense towards exploratory wells and what will be towards development wells? Can you give that figure? Hello.

About 20% is the development drilling and about 40% of the expenditure is on the exploration, that is drilling plus service.

40% in exploration and 20% in development, right?

Yes. And the development we talk about, it's only the well drilling costs. My surface facilities, projects, all those are another 15% [indiscernible].

The next question is from the line of Kirtan Mehta from BOB Capital Markets.

Is there any update on the lift off of force majeure at Mozambique project?

Currently, as informed by the operator, they are going to restart the project by end of this year, maybe around October, November.

Right. And is there any update on the sort of revision in the project cost? Has the process started to estimate the cost escalations?

Yes. The team is working out at it. So the final numbers will be available in another 2 months' time or so.

[Operator Instructions]

There was 1 question about the movement in the costs, some other expenditure from last year first quarter, INR 200 crores. Of course, the current year about INR 58 crores. The main reason is basically last year first quarter, we had made a provision of about INR 140 crores. The minimum work program liabilities in the Mizoram well -- Mizoram NELP project, and no such provision has been made in the current quarter. So that is the main reason of the cost. We can continue with the rest of the questions. Another 10 minutes possibly.

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

Actually, I wanted to ask you regarding Baghjan. You have made a provision of like around INR 200 crores, right? Based on that, committee, Supreme Court appointed committee, but right now, it's still not here. I mean what exactly is the issue that why we are not able to like come with the cost or what exactly is happening in this Baghjan additional liability?

Baghjan, Sabri, the issue is that NGT has constituted another committee, which is supposed to review and estimate what is to be done as far as the restoration is concerned, right? And pending that only they had indicated to you INR 200 crores, you deposit in a separate account. So that we have informed the committee that the money is available. Instead of depositing, let it be with the company. And at any point, we will make it available, which has been so far agreed by the committee. Now what expenditures depending on what restoration work is required to be done, if at all, something is needed, when it will happen in current year instead over 2 years, 3 years, what timeframe. Although since the committee has just decide and give us this recommendations. Only then we will know what is the actual work of [indiscernible] required.

Right, sir. So I mean that committee will come and you have made -- I mean, INR 200 crores of provision that you have made. But if we...

There's absolutely no provision. It was just an interim order, which says keep or meeting such expenditures the company should deposit INR 200 crores, keeps secured toward separate account. No provision has been made, no separate money deposits have been done. This is [indiscernible] actual cost as and when incurred as per the recommendations, that will be decided by the committee that will be booked in the [indiscernible].

Okay, sir. Got it. Second question is on NRL. When exactly did it come back on operations? And when did it hit the full utilization in, say, July in Q2?

It came back to operation, I think in the last week of June towards -- between 20, 25th of June, sometime, it came back to operation. And then I think within a week, it was back to the normal operations. Because all of the units, 1 by 1 unit, we start with the CDU and then supplementary units. So currently the refinery is running absolutely normal.

Okay. So for Q2 also, we will -- we can assume optimal -- I mean full utilization of the refinery right?

Refinery will be fully utilized. Yes, 100% utilized. In fact, we may be trying to recover something more than 100% because to recoup the throughput loss in the first quarter. That will be the effort on the part of Mozambique.

Right, sir. And secondly, another question is regarding your other income. So you had -- you said some dividend scheme. It came from NRL in Q1?

No, no, no. It came from our Singapore subsidiary through which we hold the Russian investments [indiscernible]. So that dividend was declared by the Singapore subsidiary itself.

So are you -- I mean, is there some breakthrough in bringing the Russian dividend to India or it's like pending from last year only?

This is out of the funds, which are already there in Singapore. Russia has been inched up only after February or March '22, the dividend. But before that whatever dividends were received, they have already been [indiscernible] Singapore and out of that only [indiscernible].

Okay. Got it, sir. And sir, last question regarding your NRL rights issues, I think you have allotted your share of fund. What about the other parties?

[indiscernible] also, we understand the capital approval has been taken. We are expecting the actual investment to happen shortly. And [ EIL ] also, I think they are in the process of offering some ministry approval, which is going on. So I think with a month or so, [ EIL ] also should be able to invest.

Right, sir. We have got like 2 more questions after which we'll end the call. I think the last 2 questions. And so in 5, 7 minutes, we will be done. Operator, please go ahead with the last 2 questions.

Next question is from the line of Probal Sen ICICI Securities.

I just had 1 more question about India [indiscernible] projects. Sir, if you think this address our memory in terms of what is the additional or incremental gas demand that you see opening up once the [indiscernible] tax rate, this will be operational. Any rough sense you can get? Because if I remember, you have put in place an ambitious plan to reach 4 MP of oil and 5 BCM of gas production annually over the next couple of years. So how important is this India [indiscernible] to achieving that plan? And how much demand can be absorbed once this grid is operational? Just any sense you can give, sir?

You are talking about the Northeast gas grid?

Yes, sir, the Northeast gas grid.

See, actual demand estimate, how much will be going through that will not be -- we are not able to say as of now. But one thing is very clear because the gas grid will be collected to Guwahati and all northeast -- this state. And there is a facility of both forward as well as the reverse movement of natural gas. So it required that can also be processed in mainline. So accordingly whatever production we are able to do for connecting to IDBL and post commissioning of IBPL, most likely 100% production will get utilized.

Understood. So unlike before now your production won't be constrained because of our lack of offtake opportunity is the point?

Absolutely. Yes.

Understood. And sir, the 5 BCM time line, are we still holding on to somewhere around FY '25-'26 to reach that target?

Yes. All those production targets we are holding on to that.

We have our last question from the line of Mr. Yogesh Patil from Dolat Capital.

I have a few questions related to oil production and gas production. Can you please provide how much is JV production in oil and how much it is in the case of gas, in terms of quantity, what was it during the quarter?

Those numbers -- JV production is very, very miniscule [ negligible ]. As far as JV production, as you see increase for crude oil out of total 0.82 million tonnes. JV production is only 0.002. And in case of natural gas also -- natural gas out of 745 MMSCM of gas. This production is only 12. So 12 out of 745 and 0.002 out of 0.82. So that's what I said is the negligible contribution to [indiscernible] almost we can say 100% is already at stand alone.

Ladies and gentlemen, as there are no further questions from the participants, I now hand the conference over to the management for the closing comments.

Thank you all the participants once again, for your interest in Oil India, your interest in our staff and in the operations of the company, asking so many questions. We are open to any further questions through e-mail or anything on telephone. You have the contact numbers of our people almost all of you must be having. So anytime, please feel free in case any further queries you have, any clarifications, we are absolutely open for sharing information. And thank you so much once again for participating in this conference call. And thank you, Sabri for arranging -- Sabri and Emkay for arranging this conference call. Thank you so much, once again.

Thank you.

Thank you very much, sir. On behalf of Emkay Global Financial Services, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.