Detailed Narrative
Kharsang Block Drilling and Production Update
The company is actively progressing its drilling campaign in the Kharsang Block, with the seventh of nine initial development wells currently in progress. Five wells have already been brought into production, contributing to a current production level of 900 barrels per day, a significant increase from the initial 350 barrels per day. Environmental clearance for drilling 40 development wells and three exploration wells has been secured, and after the initial phase, the company plans to drill an additional nine wells and one deep well. However, well-control issues were encountered in the gas zone of the sixth well, which are expected to be resolved within a few days.
Dirok Field Performance and Northeast Gas Grid Connectivity
Dirok field's gas sales for Q2 FY26 were 14 MMSCFD, a decrease from 20 MMSCFD in the previous quarter, resulting in a sales volume of 0.34 BCF compared to 0.49 BCF. Condensate production also declined to 5,858 barrels from 8,893 barrels. Despite this, the realized gas price increased to US$7.8 per MMBTU from US$7.56 per MMBTU. The field has a capacity of 50 MMSCFD, but production has been constrained by limited demand. The company anticipates the Northeast Gas Grid to be operational within FY26, with significant offtake improvement expected before Q4 FY26, and plans to drill three more development wells in Dirok to augment capacity.
Offshore Blocks (B-80, B-15, PY-1) Operations
Production from the B-80 block was temporarily impacted by monsoon-related disruptions, leading to a decrease in oil production to 31,468 barrels and gas production to 0.23 BCF compared to the previous quarter. The average gas price realized was 10.62 per MMBTU. The company plans a workover for the D1 well in Q4 FY26 and subsequent drilling of three development wells to stabilize and increase B-80 production. For B-15, development activities are expected to commence after the plan is finalized, aiming for production within two years. In PY-1, a drilling program including two in-fill wells, one appraisal well, and one exploration well is slated to begin in financial year 2027.
Cambay Blocks and Overall Drilling Strategy
In the Cambay Blocks, two wells were successfully drilled in North Balol, with one flowing oil and the other undergoing further testing or sidetracking. This will result in four producing wells in North Balol. The company also plans to drill two additional wells in Asjol and, upon extension of the Ring-Fenced PSC and Palej block, will install SRPs in existing wells and drill new ones in Palej. Overall, the company is committed to drilling a total of 18 shallow and three deep wells onshore, and 10 offshore wells across its assets, targeting an overall production level of at least 6,000 barrels of oil equivalent by FY27.
Capital Expenditure and Funding
The company anticipates a capital outlay of ₹250 crores and more for the Northeast region over the next two financial years, aiming to complete drilling and commercialize discovered resources within two years. To fund these initiatives, Hindustan Oil Exploration has secured ₹250 crores in debt capital, which will be exclusively used for capital expenditure. Management stated they do not intend to borrow more than this amount, and India Ratings has reaffirmed an 'IND A' rating for a ₹500 crores bank loan, indicating sufficient liquidity for obligations.
HPCL Crude Sales Dispute
The company sold approximately 417,000 barrels of crude oil from B-80 to HPCL, generating ₹258.78 crores in revenue. However, HPCL subsequently raised a claim regarding chloride contamination, leading to a pending payment of approximately ₹259 crores. Management asserts that under the Crude Offtake Sales Agreement (COSA), they do not guarantee crude quality and are not liable for consequential damages, as title and risk transferred offshore. Discussions are ongoing to amicably resolve the matter, with management emphasizing no legal liability.
Q2 FY26 Financial Performance Overview
For Q2 FY26, standalone revenue significantly increased to ₹321.51 crores from ₹83.48 crores in the previous quarter, primarily driven by crude oil sales from the B-80 field. Standalone EBITDA also saw a slight increase to ₹28.81 crores from ₹27.24 crores. However, consolidated EBITDA declined to ₹25.15 crores from ₹35.02 crores in the prior quarter, mainly attributed to lower offtake in Dirok and monsoon-related production issues in B-80. Consolidated PAT stood at ₹2.83 crores, down from ₹11.35 crores in the previous quarter (excluding an exceptional item📎).