Hindustan Oil Exploration Company Limited

Hindustan Oil Exploration Company Limited has secured environmental clearance for drilling 40 development wells and 3 exploration wells in the Kharsang Block, Arunachal Pradesh. The company has commenced the first phase of drilling 9 development wells, with the first well completed and producing approximately 200 barrels of oil per day. The second well is currently being drilled, and the company plans to drill a deep well in North Dirok in Q4 FY26 to assess the full potential of the block. The capital outlay for the North-East region for the next two financial years is projected to be INR 250 crores.

Dirok gas sales in Q4 FY25 were 15.57 million standard cubic feet per day (mmscfd), a decrease from 17.79 mmscfd in the previous quarter. For the full year FY25, average production and sales were 17.76 mmscfd, down from 19.96 mmscfd in FY24. This reduction is primarily due to a lack of demand, despite the field's capacity to produce over 50 mmscfd. The company expects demand constraints to ease once the North-Eastern Gas Grid becomes operational, anticipated in FY26-27, and plans to augment capacity to meet the potential increase in demand.

Production from the B-80 block in Q4 FY25 was 60,544 barrels of oil and 0.44 Bcf of gas, a decline from 88,703 barrels of oil and 0.69 Bcf of gas in the previous quarter. This drop was attributed to a valve malfunction that necessitated a temporary shutdown. The company has now acquired the remaining 40% interest from AEPL, giving it 100% ownership of the block. To ensure asset sustenance, the charge model has been shifted from a day rate to a rate per barrel of production, aiming to make all three assets sustainable for a longer period.

The PY-1 offshore field is undergoing re-evaluation, with Petro Vietnam completing its G&G review, and their suggestions are expected by June 2025. A significant development is the new term sheet with GAIL for a PPAC price of approximately US$6.75 per mmbtu on Gross Calorific Value, replacing the previous USD 3.66 per mmbtu. The company plans to drill 3 wells in PY-1, with the first well expected to commence drilling in the current financial year, targeting 5-6 million cubic feet per day per well.

Hindustan Oil Exploration Company Limited maintains a 21% effective participating interest in the PY-3 block, adjacent to PY-1. Despite ONGC's recent notification regarding production from PY-3, HOEC's name was not included, leading to a legal dispute. The company has issued a legal notice to pursue its interest, which includes investments of approximately INR 385 crores, asserting its right to the asset and its contributions to drilling all wells.

For Q4 FY25, standalone revenue increased to INR 142.61 crores from INR 77.64 crores in Q3 FY25, primarily due to the 100% participating interest in B-80. However, consolidated EBITDA for FY25 decreased to INR 249 crores from INR 326 crores in FY24, mainly due to low Dirok offtake, gas price, and lower B-80 production. The company's net debt is currently zero, and it aims to keep future debt levels below 10% of its market capitalization, targeting around INR 200-250 crores for capital programs. India Ratings has reaffirmed its 'IND A' rating and revised its outlook to 'Positive' for the INR 500 crores bank loan.

The company is currently holding approximately 390,000 barrels of oil in stock, with a total storage capacity ranging from 850,000 to 900,000 barrels. Management has opted not to sell this inventory at current low crude oil prices, hoping for a better price realization, specifically targeting above USD 70-75 per barrel. The minimum oil price required for offshore operations to remain viable is stated as USD 55 per barrel, while for onshore operations, it is USD 40 per barrel.