Hindustan Oil Exploration Company Limited — Q4 FY25 earnings call

Call held 29 May 2025

Management summary

Hindustan Oil Exploration Company Limited reported a mixed Q4 FY25, marked by significant progress in drilling and asset acquisition, particularly in Kharsang and B-80. However, production from Dirok and B-80 faced headwinds due to demand constraints and operational issues, respectively, leading to a decline in consolidated EBITDA for FY25. The company is actively pursuing drilling campaigns and legal avenues to unlock asset value, while managing oil inventory for better price realization.

Highlights

  • Environmental clearance for 40 development wells and 3 exploration wells in Kharsang Block in Arunachal Pradesh obtained on February 28, 2025.

  • First well in Kharsang drilled, tested, completed, and hooked up for production, yielding about 200 barrels of oil per day.

  • Acquired the remaining 40% interest in the B-80 block, now holding 100% interest.

  • New term sheet with GAIL for PY-1 gas at a PPAC price of about US$6.75 per mmbtu, significantly higher than the previous USD 3.66 per mmbtu.

  • Net debt is zero, and India Ratings reaffirmed 'IND A' rating with a revised outlook from 'Stable' to 'Positive' for the INR 500 crores bank loan.

Concerns

  • Dirok gas sales restricted to 15.57 mmscfd in Q4 FY25 due to lack of demand and delayed North-Eastern Gas Grid connectivity.

  • B-80 production declined in Q4 FY25 to 60,544 barrels of oil and 0.44 Bcf of gas due to a valve malfunction.

  • Consolidated EBITDA for FY25 decreased to INR 249 crores from INR 326 crores in FY24.

  • PY-3 interest (21% participating) is under legal dispute with ONGC regarding exclusive operations.

  • 390,000 barrels of oil inventory held in stock due to low oil prices, impacting revenue realization.

Key financials

2 periods

Headline

  • Standalone Revenue
    ₹142.61 Cr
    QoQ +83.7%
  • Standalone EBITDA
    ₹148.32 Cr
    QoQ +794%
  • Standalone PAT
    ₹147.47 Cr
    YoY +73.5%
  • Consolidated Revenue
    ₹59.58 Cr
    QoQ -61.8%
  • Consolidated EBITDA
    ₹61.86 Cr
    QoQ -20.4%
  • Consolidated PAT
    ₹51.16 Cr
    QoQ +18.1%

Q4

  • Dirok Gas Sales
    15.57 mmscfd
    QoQ -12.6%
  • B-80 Oil Production
    60,544 barrels
    QoQ -31.8%
  • B-80 Gas Production
    0.44 Bcf
    QoQ -36.2%

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 ₹250 Cr
    • North-East region development ₹250 Cr
    Our capital outlay for the North-East region for the next 2 financial years continues to be INR 250 crores.
  • Debt Gross ₹81.67 Cr
    As on today, the term loan outstanding is about INR 81.67 crores. India Ratings has reaffirmed the rating IND A and revised the outlook from 'Stable' to 'Positive' for INR 500 crores bank loan.
  • M&A AEPL's 40% interest in B-80 block Acquisition · Closed · Consideration ₹[object Object] (cash)

    To hold 100% interest in the block and ensure sustenance of assets.

    100% revenue and cost accounted in books, awaiting formal government approval for capitalization and fair value recognition.

    In B-80, we have taken over the 40% interest of AEPL, and thereby we hold 100% interest in the block. ... So, all put together, it should be somewhere around INR 310 crores or INR 315 crores, in the range of INR 315 crores to INR 320 crores.
  • Liquidity Liquidity disclosed Currently holding 390,000 barrels of oil in stock, with a storage capacity of 850,000 to 900,000 barrels.
    We have about 390,000 barrels of oil in stock and are expecting a better price to realize before we sell that. ... It can go up to, say, 850,000 to 900,000 barrels.

Guidance & targets

Production Volume

  • Dirok Gas Production Production Volume · this year · Medium confidence 35-40 mmscfd
    See, if the line is getting connected and there is no issue on account of the demand, we can go up to 35 to 40 comfortably and also, we will be immediately starting the drilling of the North Dirok well and other development wells also to augment ourselves when the entire grid connectivity is linked to the National Grid.

    — R. Jeevanandam

  • B-80 Production Production Volume · next 2-3 years · Medium confidence 11,000 BOEPD
    Now regarding this B-80 and B-15, basically, I mean, we have talked that we want to take it to, let's say, 11,000 BOEPD from Bombay High over the next 2, 3 years. Do you still think that that is possible or what is the situation on that? ... See, we have to drill the wells. We have to complete the workover. That will give the correct numbers for the B-80.

    — R. Jeevanandam

  • PY-1 Production per well Production Volume · Medium confidence 5-6 million cubic feet per day
    Once it gets drilled and if it is the drilling is successful, each well, we are targeting at least minimum of 5 million to 6 million cubic feet per day.

    — R. Jeevanandam

Project Timeline

  • B-15 Production Commencement Project Timeline · within 30 months · Medium confidence within 30 months
    So, see we don't want to commit something. It will be taking about a minimum of 2 to 2.5 years, 30 months' time. ... So, but we endeavour to get it on production within 30 months.

    — R. Jeevanandam

Oil Price Realization

  • Crude Oil Selling Price Oil Price Realization · Medium confidence USD 70-75 per barrel
    If it is a better price, we realize more than $70, $75, we'll be able to sell it.

    — R. Jeevanandam

Operational Cost

  • Minimum Oil Price for Survival (Offshore) Operational Cost · High confidence USD 55 per barrel
    Minimum price for us to survive all the 3 things, we are looking at, at least $55. Up to $55, we can keep going on it and onshore is much lesser than that.

    — R. Jeevanandam

  • Minimum Oil Price for Survival (Onshore) Operational Cost · High confidence USD 40 per barrel
    Minimum price for us to survive all the 3 things, we are looking at, at least $55. Up to $55, we can keep going on it and onshore is much lesser than that. Onshore is we can survive even at $40.

    — R. Jeevanandam

Debt

  • Debt to Market Cap Ratio Debt · High confidence <10%
    See, we never wanted to have a debt more than 10% of our market cap. That's the level we wanted to have it. So, we will be looking somewhere around INR 200-250 crores if we are not able to generate internally because all our programs as such, it is on a deferred payment.

    — R. Jeevanandam

What to watch in Q1 FY26

DNPL Pipeline Connectivity & Dirok Volume Uptake

Q3 FY26
Current Expected volume uptake from Q3 FY26, common carrier issue pending
Target Actual volume uptake and resolution of common carrier status

Why it matters

Crucial for increasing Dirok gas sales, which are currently demand-constrained.

We are expecting the DNPL line to be get connected and because you see, every time I commit something, I may be wrong, I will be either way incorrect. So we expect that it should be at least.. the volume uptake should take place from the third quarter.

Risks & concerns

  • Dirok Gas Demand & Connectivity

    high

    Lack of demand and delay in North-Eastern Gas Grid connectivity restricts Dirok production, despite higher potential.

    Management acknowledged

  • Crude Oil Price Volatility

    high

    Low crude oil prices prevent the company from selling its 390,000 barrels of oil inventory, impacting immediate revenue realization, though management is holding for better prices.

    Management acknowledged

  • B-80 Operational Issues

    medium

    Production decline in Q4 FY25 due to a valve malfunction and potential future weather impacts (monsoon) affecting offshore operations.

    Management acknowledged

  • PY-3 Legal Dispute

    medium

    The company's 21% participating interest in PY-3 is under legal dispute with ONGC regarding exclusive operations, potentially delaying value realization.

    Management acknowledged

  • DNPL Common Carrier Status

    medium

    Delay in DNPL becoming a common carrier impacts gas evacuation from Dirok, despite expectations for Q3 FY26 volume uptake.

    Management acknowledged

Q&A highlights

6 direct
DNPL pipeline connectivity and Dirok gas sales Partial
We are expecting the DNPL line to be get connected and because you see, every time I commit something, I may be wrong, I will be either way incorrect. So we expect that it should be at least.. the volume uptake should take place from the third quarter.

Analyst sought clarity on the timeline for increased gas sales from Dirok, which is currently constrained by demand and pipeline connectivity.

Asked by Dhruv Rawani

Reason for B-80 production decline in Q4 Direct
See, actually that, some valve was not functioning, so we have to shut it for a few days and very few days and when we got to open it up, small, small issues will come up and unfortunately, that has happened in the last quarter. So that's why the production is declining.

Analyst questioned the specific operational issue leading to the significant production drop in B-80.

Asked by Dhruv Rawani

Consolidation of 40% B-80 interest in financial numbers Direct
No, it's a done deal and 00% revenue is accounted in our books. 100% cost is taken over because we have taken over the income and expenditure there on to it and we are waiting for the formal approval from the Government. Once it will get capitalized and the fair value also would get recognized at that point in time.

Analyst sought clarification on the accounting treatment and timeline for the recently acquired 40% interest in B-80.

Asked by Dhruv Rawani

Status of PY-3 interest and legal dispute Direct
I don't know about the press releases by ONGC, but the fundamental fact is we are holding 21% of the investment and all the investments below the ground belongs to us forward to the value of up to 21%. If any above the value which comes out of it and they are taking it right now there is a legal notice have been issued, and we will continue to pursue our participating interest in the block. We are not going to let it go just like that.

Analyst questioned the company's status in PY-3 after ONGC's notification, revealing an ongoing legal dispute over HOEC's 21% interest.

Asked by Dhruv Rawani

Oil inventory storage limit and sales strategy Direct
It can go up to, say, 850,000 to 900,000 barrels. ... So, we are hoping for a better price, and we are not in a pricking need to get it liquidated at a lower price. So that is the reason we are waiting for. Hopefully, something will happen. If it is a better price, we realize more than $70, $75, we'll be able to sell it.

Analyst inquired about the company's capacity to hold unsold oil inventory and its strategy for selling it amidst low prices.

Asked by Dhruv Rawani

Impact of rig rates on drilling expansion plans Direct
So the rig rates of offshore are coming down, but onshore, there are not much reduction. But that's what, that's the window we wanted to use it for drilling our wells, offshore wells, and already, we have a contract for 9 well drilling in Kharsang. The same rig will continue for 9 more wells for drilling 18 wells.

Analyst asked if declining rig rates would lead to an increase in the company's drilling expansion plans, providing insight into their capital deployment strategy.

Asked by Ruchita Maheshwari

PY-3 production status and Hardeep Singh Puri's tweet Partial
I don't know about the volume, which I have no privy to it. But the fact remains, we are holding 21% effective participating interest in the whole field, which includes the 4 wells drilled and completed. ... So, then that should be the fact actually. I have no other information other than that.

Analyst referenced a public statement about PY-3 production, highlighting the discrepancy with HOEC's legal dispute and lack of direct information on volumes.

Asked by Viraj

Change in B-80 contract from day rate to per barrel production Direct
Yes. What is the rationale is, see, what happened, it is basically it gets it's having no impact to HOEC is concerned because once move from consolidated to the stand-alone. That's all is the difference. The reason for that is because without MOPU, B-80 cannot survive. Without FSO, MOPU cannot survive. So, it is actually a concept of mutually assured survival. ... This makes all the 3 assets are sustainable for a longer period and when the B-80 production gets more after the workover, after drilling additional wells, then the value of these assets will get it effective.

Analyst questioned the rationale behind changing the B-80 contract, revealing management's strategy to ensure asset sustenance and align costs with production.

Asked by Manan Patel

3 min read 7 chapters

Detailed narrative

North-Eastern Region Drilling Campaign & Kharsang Development

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 & Demand Constraints

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.

B-80 Operational Challenges & 100% Acquisition

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.

PY-1 Re-evaluation and New Gas Price Regime

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.

PY-3 Legal Dispute and Asset Valuation

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.

Financial Performance and Debt Management

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.

Oil Inventory Strategy and Price Realization

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.

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