Hindustan Oil Exploration Company Limited — Q3 FY25 earnings call

Call held 5 Feb 2025

Management summary

Hindustan Oil Exploration Company Limited reported strong financial performance in Q3 FY25, with significant QoQ growth in consolidated revenue, PBT, and EBITDA, driven by increased production from B-80 and improved offtake in Dirok. The company maintains a zero net debt position and is progressing with its capital expenditure plans, including commencing drilling in Kharsang. However, demand constraints continue to limit Dirok's full production potential, and the timeline for critical gas grid infrastructure remains uncertain.

Highlights

  • Consolidated revenue for Q3 FY25 was ₹156 crores, a 56% increase from ₹100 crores in Q2 FY25.

  • Consolidated Profit Before Tax (PBT) for Q3 FY25 was ₹52.47 crores, a significant 291% increase from ₹13.41 crores in Q2 FY25.

  • Consolidated EBITDA for Q3 FY25 stood at ₹77.69 crores, up 112.9% from ₹36.47 crores in Q2 FY25.

  • The company maintains a net debt of zero and has secured an 'A rating with positive outlook' for a ₹500 crores loan.

  • B-80 oil production increased by 51.8% QoQ to 88,073 barrels, and gas production rose by 65.5% QoQ to 0.6292 bcf.

  • Dirok gas sales increased to 17.64 MMSCFD from 15 MMSCFD QoQ, with company share volume up 18.9% to 0.44 bcf.

  • Kharsang development well drilling is planned to commence before March 31, 2025, with an aim to reach 1000-1200 barrels/day in the next financial year.

Concerns

  • Dirok gas production is restricted due to lack of demand, preventing the field from reaching its full potential.

  • The timeline for the North-Eastern Gas Grid connectivity, crucial for easing demand constraints, is difficult to predict and not entirely within the company's control.

  • Capital expenditure for the current financial year was 'not up to the mark' due to delays in regulatory and environmental clearances, though these are now in place.

  • Quarterly results exhibit volatility influenced by external factors such as weather, price, and demand.

Key financials

  1. Consolidated Revenue ₹156 Cr +56%QoQ
  2. Consolidated PBT ₹52.47 Cr +291%QoQ
  3. Consolidated PAT ₹43.32 Cr +300.7%QoQ
  4. Consolidated EBITDA ₹77.69 Cr +112.9%QoQ
  5. B-80 Oil Production 88,073 barrels +51.8%QoQ
  6. Dirok Gas Sales 17.64 MMSCFD +17.6%QoQ

What they filed

Q1 FY27: revenue up 45.2%, net profit down 85.8% against the same quarter last year.

₹ Cr · quarterly
Line itemQ2 FY25Q3 FY25Q4 FY25Q1 FY26Q2 FY26Q3 FY26Q4 FY26Q1 FY27
Revenue95 147 43 79 315 +232%75 −49%-206 −575%114 +45%
EBITDA32 74 5 32 23 −28%27 −63%27 +457%6 −83%
Net profit11 43 51 44 3 −74%8 −81%8 −85%6 −86%
How to read this

₹ crore, as filed. The percentage beside a figure is the change against the same quarter a year earlier — never the quarter before, which would make every seasonal business look like it collapses and booms each year.

Capital allocation

high confidence
  • Capex ₹300 Cr entirely through internal accruals without debt
    • North-East region capital outlay for next two financial years ₹250 Cr
    • Offshore CAPEX (part of total ₹1000 crore plan) ₹650 Cr
    • Onshore CAPEX (part of total ₹1000 crore plan) ₹350 Cr
    • Kharsang 9 development wells (company share) $8 Mn
    See actually, if you could look at actually, this year we are not able to spend some money. We could have done some wells in the Kharsang and some wells in the North Balol, but that didn't happen actually, but we did a work over that has taken about some 20 crores. And total, our CAPEX plan the current year is not up to the mark. And this all linked to the regulatory clearances, and environmental clearance and others. Now we are having all those clearances in place. Our capital spend and drilling will get a momentum from 25-26 onwards. Then after that, whatever the EBITDA we generate most of the money we'll be spending on growth of the company by drilling the wells. (Page 11) / Yes, will not be taking any debt for this. (Page 21)
  • Debt Net ₹0 Cr
    As on 4th February 2025, the term loan outstanding is about Rs. 91.25 crores, and the net debt is zero. We have “A rating with positive outlook" for Rs. 500 crores loan by India ratings. (Page 8)
  • M&A Block B-15 in Mumbai offshore Acquisition · Pending regulatory

    Discovered small field with substantial potential, shallow water depth (40m), and opportunity to use innovative technology for faster development.

    Will embark on development upon award; production expected within 24 months of approval.

    We are awaiting the award of DSF Special Bid Round 2024, wherein we bid for Block B-15 in Mumbai offshore, a discovered small field with an area of about 332.4 square kilometers. Being the sole bidder, and on award of the block by Government of India, we will embark on the development of this field. Water depth of this field is about 40 meters. (Page 6) / Sir, the rationale behind is, our G&G team has evaluated the block, and we have got 342 square kilometer area in the discovered one. We believe substantial potential exists in the field. That is our basis for bidding on it. And second thing, it is a shallow depth, it is a 40 meters water depth, and we can bring some innovative technology in such a manner we can build the wells faster and put it on production. (Page 9)
  • Liquidity Liquidity disclosed With the current cash position and continued production, the company expects to meet all its obligations, including the planned capital program for the coming three years.
    With the current cash position and with the continued production we will meet all our obligations, including the planned capital program for the coming three years. (Page 8)

Guidance & targets

Capacity

  • North-Eastern Gas Grid Operational Capacity · 2025-26 · Medium confidence 2025-26
    It is difficult to predict the timeline, but we believe that it should be operational in 2025-26.

    — R. Jeevanandam

Capex

  • North-East Capital Outlay Capex · next two financial years · High confidence ₹250 crores
    Our capital outlay for the North-East region for the next two financial years continues to be Rs. 250 crores.

    — R. Jeevanandam

  • PY-1 First Well Drilling Commencement Capex · FY26 · Medium confidence 25-26
    drilling of the first well will commence in 25-26.

    — R. Jeevanandam

  • FY26 CAPEX Capex · FY26 · Medium confidence ₹300-350 crores
    Is it better to say that the next year spend about 300, 350 crores or that ballpark, like 300 crores a year, provided all the production assets stay as we all know?

    — R. Jeevanandam

Revenue

  • FY26 Revenue Revenue · FY26 · Medium confidence ₹1000 crores
    We will be reaching the revenue of 1000 crores.

    — R. Jeevanandam

Profitability

  • EBITDA Margin Profitability · FY26 · Medium confidence 50%
    Yes, could you see our EBITDA margin is somewhere around 50% if you knock out all our other cost.

    — R. Jeevanandam

  • EBITDA Amount Profitability · FY26 · Medium confidence ₹250 crores
    then we can get the margins of 250 crore, it should be an easy target for us to spend per annum.

    — R. Jeevanandam

Production

  • Kharsang Production Production · next financial year · Medium confidence 1000-1200 barrels/day
    then we will surpass 1000 barrels - 1200 barrels. And even if we get into the lower estimate we look at, we will be reaching at least 1000 barrels in the next financial year.

    — R. Jeevanandam

  • Dirok Gas Volume Production · first quarter of next year · Low confidence 30-35 MMSCFD
    It should go at least 30, 35 million.

    — R. Jeevanandam

  • B-15 Field Production Commencement Production · after approval · High confidence within 24 months
    Okay, once we get an approval our endeavor is, we have to put the field on production within 24 months.

    — R. Jeevanandam

Infrastructure

  • DNPL Line Connection Infrastructure · FY25 · Medium confidence March 31, 2025
    And the DNPL line is getting repaired and so the DNPL line connection is also expected by end of 31st March, which is what is the plan at the moment by the respective authorities who are handling this issue.

    — R. Jeevanandam

What to watch in Q4 FY25

Kharsang Development Well Drilling Commencement

by March 15, 2025
Current Civil works in progress, rig mobilized
Target Drilling commenced

Why it matters

Timely commencement of drilling is crucial for achieving the targeted production ramp-up in FY26.

Our first well will start, we expect it to start by 15th of March, plus minus one week.

Risks & concerns

  • Dirok Gas Demand Constraint

    medium

    Dirok field production is restricted due to lack of demand, preventing full potential realization.

    Management acknowledged

  • North-Eastern Gas Grid Timeline Uncertainty

    medium

    The operational timeline for the gas grid, vital for easing demand constraints, is difficult to predict and not fully within company control.

    Management acknowledged

  • Volatility in Quarterly Results

    medium

    Quarterly results are subject to external factors like weather, price, and demand, leading to fluctuations.

    Management acknowledged

  • CAPEX Delays

    low

    Current year CAPEX was below target due to regulatory and environmental clearance delays, now resolved.

    Management acknowledged

Q&A highlights

7 direct
B-80 Oil Inventory and Sales Strategy Direct
B-80 our current stock is 3,17,000 barrels and we plan to do the offtake before 31st March of this year. We don't get either the oil price or the exchange rate. So we would be looking for a better price to carry out the offtake before 31st March of this year.

Clarified the company's strategy for managing and monetizing its significant B-80 oil inventory, indicating a focus on price realization.

Asked by Riddesh Gandhi

Rationale for B-15 Bid Direct
Sir, the rationale behind is, our G&G team has evaluated the block, and we have got 342 square kilometer area in the discovered one. We believe substantial potential exists in the field. That is our basis for bidding on it. And second thing, it is a shallow depth, it is a 40 meters water depth, and we can bring some innovative technology in such a manner we can build the wells faster and put it on production.

Provided insight into the company's strategic decision-making for new block acquisitions, highlighting internal evaluation capabilities and competitive advantages.

Asked by Riddesh Gandhi

FY26 Revenue and EBITDA Projections Direct
We will be reaching the revenue of 1000 crores. If you look at our consolidated revenue, it is in the order of about 500 crores, right now it is up to nine months, so we will be somewhere around 800 crores. And with the full potential of the Dirok field and the continuous production of the B-80 and we are getting some more wells drilled in Kharsang, we will be able to reach to this revenue level by the next financial year that's our wishful projection.

Management provided specific, albeit 'wishful,' financial targets for the next fiscal year, offering a clear outlook for growth.

Asked by Rishikesh

North-East Gas Grid Connectivity Timeline Partial
And the DNPL line is getting repaired and so the DNPL line connection is also expected by end of 31st March, which is what is the plan at the moment by the respective authorities who are handling this issue.

Addressed the critical infrastructure timeline for Dirok gas offtake, clarifying the expected completion of a key pipeline segment, though noting it's not fully in their control.

Asked by Ajit Sanjay

CAPEX Plan and Funding for FY26 Direct
See actually, if you could look at actually, this year we are not able to spend some money... Our capital spend and drilling will get a momentum from 25-26 onwards. Then after that, whatever the EBITDA we generate most of the money we'll be spending on growth of the company by drilling the wells.

Clarified the company's CAPEX strategy, indicating a ramp-up in FY26 and a commitment to fund growth through internal accruals without additional debt.

Asked by Amit

Kharsang Production Timeline and Volume Direct
Our first well will start, we expect it to start by 15th of March, plus minus one week... if we expect reasonably about 100 barrels each well, then we will surpass 1000 barrels - 1200 barrels. And even if we get into the lower estimate we look at, we will be reaching at least 1000 barrels in the next financial year.

Provided specific timelines and production targets for the Kharsang block, detailing the expected contribution to overall volumes in the next fiscal year.

Asked by Nirbhay

APM vs PPAC Gas Pricing Mechanism Direct
See PPAC price is linked to the crude price, imported crude basket of India that is about 10% of the price... But in case of a nominated blocks, which is with only Oil India and ONGC their ceiling price is fixed at $6.5... So for us, you can look at what is the market, what is driven by the market that's the price.

Explained the complex gas pricing regimes, differentiating between market-driven prices for private players and regulated prices for nominated blocks, which is crucial for understanding revenue realization.

Asked by Manpreet Arora

B-15 Development Timeline Direct
Okay, once we get an approval our endeavor is, we have to put the field on production within 24 months.

Provided a clear timeline for bringing the potential B-15 block into production once regulatory approval is received, indicating future growth drivers.

Asked by Dhruv Ravani

3 min read 6 chapters

Detailed narrative

Q3 FY25 Financial Performance Overview

Hindustan Oil Exploration Company Limited reported robust financial results for Q3 FY25. Consolidated revenue increased by 56% quarter-on-quarter to ₹156 crores, up from ₹100 crores in the previous quarter. Profit Before Tax (PBT) saw a substantial rise of 291% QoQ, reaching ₹52.47 crores compared to ₹13.41 crores. Consolidated EBITDA also grew significantly by 112.9% QoQ to ₹77.69 crores, demonstrating improved operational efficiency. The company's net debt remains at zero, reinforcing its strong financial position.

North-Eastern Region Operations and Outlook

In the North-Eastern region, Dirok gas sales increased to 17.64 MMSCFD in Q3 FY25, up from 15 MMSCFD in the prior quarter, with the company's share of sales volume reaching 0.44 bcf. However, production remains constrained by demand, preventing the field from reaching its full potential. The company anticipates the North-Eastern Gas Grid to be operational by 2025-26, which is expected to alleviate demand issues. For Kharsang, drilling of the first development well is slated to commence by March 15, 2025, with a target of achieving 1000-1200 barrels/day in the next financial year.

Offshore Blocks (B-80, PY-1, B-15) Updates

Offshore, B-80 production saw a significant increase, with oil production rising by 51.8% QoQ to 88,073 barrels and gas production by 65.5% QoQ to 0.6292 bcf. The company holds 317,000 barrels of B-80 oil inventory, planned for offload before March 31, 2025, targeting favorable prices. For PY-1, Petro Vietnam is evaluating the block's potential, with drilling of the first well expected in FY26. HOEC is also awaiting the award of Block B-15 in Mumbai offshore, for which it was the sole bidder, with plans to bring it into production within 24 months of approval.

Capital Expenditure Plans and Funding

The company's capital expenditure for the current year was impacted by regulatory delays, but momentum is expected to pick up from FY26. HOEC projects a CAPEX of ₹300-350 crores for FY26. The overall capital outlay for the North-East region for the next two financial years is ₹250 crores. The total ₹1000 crore CAPEX plan is broadly allocated with ₹650 crores for offshore and ₹350 crores for onshore projects, all of which will be funded entirely through internal accruals without incurring new debt.

Gas Pricing and Market Dynamics

Gas prices realized varied across blocks; Dirok gas was sold at US $8.25 per mmbtu, while B-80 gas fetched US $10.78 per mmbtu. The company noted that B-80 gas prices in the Western region are moving akin to imported LNG prices, reflecting market demand. In contrast, Dirok's lower price and demand constraints highlight the impact of the price difference between PPAC and nominated blocks, with the full potential of the field dependent on easing demand through improved grid connectivity.

Cambay Blocks and Future Exploration

In the Cambay blocks, environmental clearances and Pollution Control Board consent have been secured for North Balol and Asjol. The company has secured a rig for workover of two wells and is ready for drilling two new wells in North Balol, pending JV partner approvals. An exploration well is also being pursued in Kharsang. The company anticipates final clearance for Ring-Fenced PSC and extension of Palaj blocks, which could add substantial value to the Cambay assets.

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