Hindustan Oil Exploration Company Ltd
NSE:HINDOILEXP
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Hindustan Oil Exploration Company Ltd
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[Audio Gap]
And a very warm welcome to you all. My name is Sumit from Valorem Advisors. We represent the Investor Relations of Hindustan Oil Exploration Company Limited. On behalf of the company, I would like to thank you all for participating in the earnings call for the company's first quarter of financial year 2024.
Before we begin, let me mention a short cautionary statement. Some of the statements made in today's earnings call may be forward-looking in nature. Such forward-looking statements are subject to risks and uncertainties, which could cause actual results to differ from those anticipated. Statements are based on management's beliefs as well as assumptions made by and information currently available to the management. Audiences are cautioned not to place any undue reliance on these forward-looking statements or make any investment decisions. The purpose of today's earnings call is purely to educate and bring awareness about the company's fundamental business and financial quarter under review.
Let me now introduce you to the management participating with us today in the earnings call and hand it over to them for opening remarks. We have with us Mr. P. Elango, Managing Director; and Mr. R. Jeevanandam, Executive Director and Chief Financial Officer.
Without any further delay, I request Mr. Elango to start with his opening remarks. Thank you, and over to you, sir.
Thank you, Sumit. Good morning, all. Thanks for joining. I hope everyone has received the updated earnings presentation. We've also, as usual, uploaded it on our website for your reference.
During the Board meeting held on 14th August, Board was pleased to appoint Mr. Jeevanandam as the Managing Director of HOEC effective 1st October as I retire from the services of HOEC on 30th September.
Jeeva and I have been close friends and industry colleagues for nearly 4 decades, starting our career in ONGC. As you all know, Jeeva and I joined HOEC in 2015. We've worked together in every step to script this turnaround journey of HOEC during the last 8 years. Jeeva has been very actively involved in the business operations of the company. And I can assure you that it will be a seamless transition. Jeeva will now lead HOEC, providing required continuity as well as change to drive the next phase of its growth. On behalf of all of you and on my own behalf, I convey our best wishes.
I would give a brief introductory update on Q1 and would let Jeeva give the business, operational and financial update in detail.
Q1 FY '24 results have been adversely impacted solely on account of the lowest ever gas offtake in Dirok. Offtake by consumers was down by 66% compared to Q1 against average gross sales volume of 30 million standard cubic feet per day during Q4. Gross sales was only 10 million standard cubic feet per day during Q1. Unusually, during Q1, most of the major customer plans went on simultaneous shutdowns, some planned and some unplanned. As you're aware, the field has the capacity to produce up to 45 million standard cubic feet per day without any additional wells. To mitigate the risk of reduced production due to consumer shutdowns, the way forward would be to connect to the North-East Gas Grid, phase 1 of which is expected to be completed in Q4 FY '24 by the GAIL-led consortium.
For the next phase of development at Dirok, pipeline construction work in the difficult forest segment has commenced. It has progressed significantly with about 70% of the work in the critical forest segment already completed. This 18-inch pipeline will transport Dirok gas to Duliajan marketing hub independently without relying on Oil India pipeline network. This will enable connecting the North-East Gas Grid in future, significantly enhancing the market size for Dirok gas. B-80 production was normal during Q1. Production from the field was resumed on 16th August after shutting for maintenance activities since 2nd July. Produced oil from B-80 is being stored in FSO to meet the tradable parcel size of 400,000 barrels required by the refining market. On all other producing assets, normal operations are continuing.
I now request Jeeva to outline plans and provide the operational and financial updates.
Thanks, Elango. Let me begin with the Eastern region. As stated by Elango, Dirok field average gas production was 10.24 MMSCFD per day and 187 barrels of condensate compared to 29.93 million standard cubic feet per day and 577 barrels of oil, virtually about -- we could realize only 1/3 of what was in the last quarter. Many of the consumer plans were shut-in compounded by differential price for nominated oil fields reduced the demand substantially for the Dirok gas. We expect some improvement in the current quarter. The existing 6 wells with some workover can cater to the demand up to 45 million cubic feet per day without much additional capital. As the field is on a continuous production for more than 5 years, we need to reevaluate the block potential.
Accordingly, reprocessing of the seismic data is in progress and on completion of the reprocessing. [indiscernible] will be updated, and results will be reevaluated. We expect that would be a significant increase in the results of the block. We believe there would be increase in demand in 2024-2025 onwards when the gas from North-East could flow to the national grid. We would be in a better position to meet the demand as well as monetize the potential of the block.
We have acquired the balance 50% share capital of Geoenpro which is operator to the block Kharsang. Thereby Geoenpro becomes a wholly-owned subsidiary of HOEC. This block is producing from lower [ region ] formation for over 40 years and currently producing about 350 barrels. Substantial upside has been identified, which has also seen in the GCA report of 2017, both in the existing and in the deeper formations. We plan to drill new wells to enhance the production, authorize a deeper formation by drilling a well to the depth of about 3,000 meters by obtaining consent from JV partners. This would unlock substantial value on the block, wherein HOEC would be having 35% participating interest. [ PAC addendum ] for 10 years and the mining lease have already been extended.
Block 19, an exploration block called the Greater Dirok, where seismic reprocesses is being carried out for drilling exploration wells. This block, which is located between Dirok and Kharsang, is 100% owned by HOEC. We will release the location after the interpretation of the reprocessed seismic data. So in case of -- this is about blocks in the Eastern region. Two small blocks we are having, one is Umatara where 10% participating interest, and another one block, Kherem. We are not very keen on the Kherem block, and that -- we will be looking for the opportunities of what do we do with these blocks.
In case of offshore blocks. In B-80, we restarted the production after the maintenance work on 16 August 2023. After the recent cyclone, the flow is found to be partially choked in the oil export line and remediation work was carried out and production recommenced. However, full production is not possible due to partial cleaning of the export line. Further studies are being carried out to flush the line fully clean. Till then production will be conducted, continued with 1 well for over 1,000 barrels per day, and the [ gas rate ] is to be checked now. This remedial work will be carried out as soon as we get a fair weather window. Issues on the top 6 facilities and the consents are addressed by one by one.
PY-1 offshore block producing under 1 million cubic feet a day to breakeven, while seismic processing studies are in progress for fine-tuning the new well location. After the reprocessing interpretation, we plan to get third-party specialist opinion before drilling. If everything goes as per plan, drilling will commence in the second quarter of 2024 and '25.
Cambay blocks. We are awaiting environmental clearance to drill 2 wells, each in Asjol and North Balol in single campaign. Possibility of increasing the number of wells will be decided after drilling the above wells for quick monetization. Associated Natural Gas, which was flat, is now being sold to make 0 flaring.
This is the operational update for this quarter, and I will share the financial highlights. We report that the stand-alone revenue for this quarter is INR 108.69 crores, comparing INR 158.78 crores in the previous quarter. Revenue earned from offshore B-80 block is INR 83.44 crores, in the previous quarter, it is INR 86.57 crores. In the case of Dirok, it is INR 21.17 crores, comparing INR 67.74 crores. Out of the total reduction of INR 50 crores, major reduction is from Dirok by about INR 46.57 crores. This is mainly due to reduction in offtake by major customers, consequently shutdown of their plants due to dual pricing of gas by Government of India, 1 for nominated block and 1 for private companies. That is a price of gas sold by Oil India Limited, it's $6.5 per MMBtu. And private companies, it is USD 7.92 per MMBtu for quarter average. This, in effect, prioritized the gas sales by oil for its production, and therefore, our production becomes a fall back.
In effect, our revenue realization is 1/3 of the previous total in Dirok. We expect better offtake in the second quarter as well as the major customers' plan started operating one by one. This trend could be reversed on completion of 256 kilometers of IGGL line and around 401 kilometer of Urja Ganga project, which comes to the national grid. These lines are expected to be completed by the last quarter of this financial year. This will open a new market for the gas production from the Eastern region, effective next financial year.
The consolidated account of the company made a total revenue of INR 187.14 crores in the current quarter, compared to INR 193.39 crores in the previous quarter. There was an increase in revenue from subsidiary companies by INR 43.88 crores in the current quarter and the reduction from the revenue on the sales from the operating blocks, INR 50 crores. This in effect reduced the consolidated revenue only by about INR 6.25 crores. Operating expenses for this quarter in the stand-alone account, including stock adjustment, is INR 79.12 crores, comparing INR 43.72 crores in the previous quarter. This aberration is mainly due to, in case of operating expenses, the current quarter is INR 73.07 crores, comparing INR 39.88 crores in the previous quarter.
As explained in the last quarter, the revenue recognized in the previous 3 quarters of '22, '23 of MOPU and FSO is adjusted downward in the revenue of fourth quarter of '22, '23 by INR 28.92 crores on a commercial settlement. Corresponding effect on this has reduced the cost of B-80 in the last quarter of INR 28.92 crores. This was a major cost or increase in the cost in the current quarter. Oil in stock in FSO has not been sold, and the stock as on 30th of June 2023 is 292,000 barrels. As on 31st March '23, it is 187,000 barrels. Stock adjustment and credit for the current quarter is INR 27.7 crores, whereas INR 36.7 crores in the previous quarter. This difference is caused by the price variation of stock by about INR 3.71 crores. That is the previous, the price taken was INR 78.54, in the current quarter, that is taken at INR 70.93 per barrel of oil. And the quantity variation is about INR 5.27 crores. The above was a major cause for increase in cost comparing to the previous quarter.
The stand-alone accounts profit for the current quarter is INR 21.34 crores, comparing INR 107.03 crores in the previous quarter. The main reason for reduction in profit on account of increase in costs, including staff adjustment, is INR 35.4 crores, and the revenue reduction from Dirok alone is INR 26.57 crores. There is an increase in cost and the reduction in review that makes the substantial difference in the stand-alone profit for the company. Consolidated profit after tax is INR 66 crores against INR 106 crores in the previous quarter. The EBITDA for the current quarter in the consolidated account is INR 96.86 crores, compared to INR 139.84 crores in the previous quarter. This reduction is mainly due to poor offtakes by consumers and thereby reduction in the sales revenue by INR 46.57 crores. The operating expenses on the consolidated account is INR 106.68 crores, comparing INR 69.35 crores. Main reason for the increase is explained in the stand-alone accounts.
The company has made a shutdown for the preventive maintenance of facility at B-80 as well as the replacement of floating hose in B-80 field from 3rd July to 16th August 2023. Production has recommenced on 16th August 2023. This will have impact in the second quarter of this year.
HOEC, through its subsidiary, was holding 30% participating interest in the block Kharsang, which is operated by Geoenpro Petroleum Limited as an associate of HOEC. We are pleased to inform that HOEC subsidiary has acquired the balance 50% shares of Geoenpro Petroleum Limited at a cost of INR 50 crores. Consequent to the above, Geoenpro hitherto becomes an associate company, hitherto to before an associate company has now become the subsidiary of HOEC. This in effect increases the participating interest in Kharsang oil field to 35%, both directly and indirectly, with the right as an operator to the block. This will create synergy in the Northeastern region of the company. This block potential as evaluated by GCA U.K. as on 30th September -- as on September 2017 is up 7.3 million barrels of reserves and 24.4 million barrels of contingent and prospective resources. In addition, the contingent and prospective resources of gas are estimated as 438 BCF per 100%. As the company has now secured extension for 10 years, substantial value in the block could be unlocked.
As on date, the outstanding loan from banks in the stand-alone books are INR 137 crores and in the subsidiary books INR 86 crores. Company has obtained a rating of -- A rating for INR 500 crores bank loan from India Ratings. With the current cash position and with the continued production, we will meet all our obligations. We would be in a position to raise capital as and when required to create value, both organic and inorganic asset acquisition.
Most of the operating assets -- operating costs are not linear and are fixed, which needs churning of assets to get better net realizable value, which we are in progress at the moment. We are in the process of developing the producing and exploration assets to its potential. Seismic reprocess is being carried out in PY-1, Dirok, Block 19, and Raw 3D-seismic data is being reevaluated in block B-80. On completion of the seismic reprocessing, interpretation and third-party review, we will embark on PY-1 redevelopment in the East Coast of India, wherein the return of marginal capital is much higher as substantial investments are being made. Further, it would unlock value to the -- value of the assets, which was already impaired in the books of accounts. We are also in the process of -- we are also in the processing review of geological model of Dirok, and the preliminary assessment indicates upside potential in the block, drilling in the Northeast block will be carried out for further appraisal to enhance the production in a manner to get to the market as soon as the demand picks up by connecting to the national grid.
And this for the operational business update. I'll ask Elango to take from here.
Thank you, Jeeva. We can open the forum for questions now.
[Operator Instructions] The first question is from the line of Riddhesh Gandhi from Discovery Capital.
Sir, we've had a number of starts and stops on the B-80 over the last 1.5 years or 2. Just wanted to understand that again, this one, which we had, which was reasonably very long and what was indicated was, in case the hose had to be changed, it was only a few days of work, et cetera. Just want to understand the reason behind this and whether there is sort of a structural issue with regards to some of the development. If we can -- if this is something we should continue to expect into the future? Or are we comfortable actually now that it has stabilized?
Thanks, Riddhesh. See you should -- this is the first monsoon we have encountered during production and that too with the cyclone. So we have changed the floating hose that has initially we thought we can do it within about 7, 8 days, then we are not able to. The weather was very rough, we couldn't do that. So this has got to be more or less like a continuous process, and we need the facilities also to be upgraded or to be repaired and replaced. This is on a continuous process as the facility was initially designed, it's not tailored met to the wells. So some of the changes we are continuously making on it. Every effort is being made to make the top state facilities to meeting to our well requirements.
And we never expected there would be a blockage in the export line, that we flush it and it is yet to be cleaned fully. And we are talking to different experts to clean up the flow line to get the full potential of the oil flow from the export line. And this is more or less like a continuous process. It needs some more time to get into a stabilized mode on producing during the monsoon as well as fair weather period. So it needs some time to get back to absolute normalcy in the plant actually.
Okay. And any expectation on how long it's expected to take and how much a lower offtake until then we will have? And how we should be thinking about potential risks to this, actually, are ultimately stabilizing?
See, what has happened we need some -- the pressure differential of both the wells are much higher. So that has to be addressed. We are in the process of getting some additional facilities to be installed. Now to avoid the blocking of the export line, we are now installing some hot water facilities there under the plant itself. In the overall, at least, it will take about another 6 to 8, 9 months to get the plan to be operated in a stabilized mode. So until the -- and that too during the monsoon, there will be a small shutdown, small changes will take place, and we cannot exactly -- whichever the way I say, I'll be incorrect.
Got it, sir, and the other thing is we have also increased our [ P2 ] reserves that we have disclosed in the investor presentation. Just wanted to understand, is this based on study, which we have actually conducted? Any thoughts around that?
The B-80, this is the reserves, which we already disclosed. There is no increase in the reserves. Now what are we going to do is, we are going to reevaluate the seismic data. And that will be, again, updated based on the one-year production data by GCA. That's what we are in the process at the moment.
Understood. Sir, and the other question is around Kharsang, we've now taken over as operator. Just wanted to understand what our plans are around that and the overall potential of Kharsang and also PY-1.
Yes. Kharsang, we have taken over now as operator to the block because we'll be having -- owning the Geoenpro, becomes our wholly-owned subsidiary. That would be the operator to the block. The block is having substantial for potential. Yes, you could have seen this lower -- upper [ region ] alone is producing for the last 40 years. And partial evaluation has been done with the Russian laws for the lower [indiscernible]. So these 2, our geologists are very bullish about it. And now what we will be planning, we will talk to the partners and drill one, they'll operate the well or exploration well, whichever the name you call it, to a deeper depth, at least 3,000 meters to find out the potential of the lower formations. That is the lower [indiscernible] subtrust and [indiscernible] if possible. If the 3 formations turn out to be a good result, as indicated by the GCA, we will be unlocking substantial value from the block.
That's what you would have seen in the investor presentation. I've indicated the reserves as well as the resources potential of the block there. So we're holding 35%, Oil India 40%, another of our friends are holding 25%. We could make a good synergy on developing this block here with full potential. Once the gas resources are discovered, it is just 60 kilometers from Dirok. So we should be connected to the national grid. So we can unlock the value of the gas, which is not being new, which is [indiscernible] it is just getting back into the reservoir at the moment. And the gas potential of the block [indiscernible].
On PY-1, we are -- we have invested a lot of money, you know about that. So we will be -- the seismic reprocessing is in place that we expected by end of September. Then the interpretation will take place, then we are engaging a third-party specialist in London, and they will also review the data before we start the drilling of the first well.
Got it, sir, and any timelines on both of these?
See, Kharsang, it is basically reevaluation that will take at least 6 months to us. And then convincing the partner and get on towards Kharsang would be 1 year. And the similar time line is expected for the PY-1.
Understood, sir. Sir, and the last question, which I had was around -- I know we were storing the oil and it needed to reach some amount or capacity for us to do an initial sale. Has that happened? And then effectively, has that in turn helped us reduce our leverage? Or is that actually still to happen?
It is about 300,000 barrels, we are holding on it. Now the tanker size is about 400,000, 450,000 barrels. So the refineries are asking us to take the parcel size to 400 to get a better price. So we -- within a couple of -- so I assume around 40 to 50 days, we should be able to get to a reasonable size of parcel size, then we will be asking the refinery to take that the MJunction is ready for getting the price from them. So once that is done, and we are also comfortable to get up from the monsoon to offtake. So essentially, sometime in November, we will be doing the first parcel.
Our next question is from the line of Anushree from Alpha Invesco.
Hello?
Yes, ma'am. You can go ahead.
Yes. So my question is regarding Dirok. So what is the current status of the Dirok customers, those who have taken the shutdown in their plant?
See, I think around 50% of them have come back and except [ NEEPCO ].
Okay. And sir,...
I'll tell you that -- NRL has come back on -- after [ 73 ] day shutdown they have come back. And the BCPL will also will come back. And BVFCL has not yet come back. And it means, actually what happens, all these customers, we have got all the contracts signed with them, it's a fall back, takes up 0.1 million.
Now we are going for new e-bidding as such. In that, we are putting actually 50 -- whoever is quoting the quantity as such and the price, 50% should be on the fixed basis. I mean, take-or-pay basis, and the balance should be on the fall back in a manner that our revenue stream is not getting affected. We are in the process of taking partners' approval and going to the e-bidding again. You have to understand there is a price. One guy is -- Oil India is selling at $6.5, and our price is more than $7.5. The first priority goes for the Oil India production, right?
So the -- unless overall demand is picked up, we will not be able to operate our gas. So that is situation right now. So we will be embarking on the e-bidding with the floor price and the premium on the ceiling price in a manner that our gas is getting sold in the market.
Okay. And so sir, what do you expect would be the normalized offtake of gas from Dirok hence forward? Since that -- is that a premium to national refinery?
We will be expecting somewhere around 20 million to 25 million standard cubic feet per day till the national grid gets connected. Once that comes on it, there will not be any demand restrictions. We will ramp up the production. And by drilling 3 more wells, we can go up to 70 million cubic feet of gas per day.
Okay. And on the [ BLC ]. So the average volume of oil was around 1,158 barrels per day. So in -- what would be the normalized oil production that we expect going into the next few quarters? So quarter 2, we know that there was a shutdown. But after that, what would be the normalized flow?
See the normalized flow, we expect -- because what happened when you -- top side issues are fully resolved. And then these 2 wells are able to get connected. We should be crossing -- we should be starting the threshold in a way that our revenue model, as such, we were looking at around the [ $300,000 ] per day. That is the revenue mark we are looking, at both oil and gas. So accordingly, our production would be ramped up.
Okay. Okay. And so earlier, we had mentioned that 250,000 would be the parcel size for oil. So the final part that you mentioned, so why did they increase it to 4 lakhs barrels...
Yes. I got your point, what is happening is, whatever the differential tariff that comes, that affects about $3 to $4 per barrel the price to us because the tanker, which is having about high capacity tanker, we used it for only for 50% of the volume therein. The price -- the charter rates and the coming and going and all the rates as such, if the refinery wants to pick up from the outside [ plant ] of our facility, then they will be quoting a lesser price, which we expect about $3 to $4 per barrel. So we thought that $3 to $4 is a bigger sum. So why don't we wait for 1 or 2 months and get to the full offtake of 400,000 barrels.
Okay. And sir, just one last question. So in this quarter, we have mentioned that the gas volume from B-80 was around 12 MMSCFD. Whereas in last quarter, we had mentioned that quarter 4 average production was around 16. So can you explain why there's a difference in quarter 4 gas numbers?
See, that's -- there is an averaging error, instead of 365 days, the actual number of days were taken. So when you look at as such 194 days was the field on operation. So that was taken as an average production per day. But whereas when we looked at the overall number of 365 days, when we give it as a company as a whole, we took it as divided by 365 days and corrected it.
Okay. So the correct numbers are then 12 MMSCFD.
Yes, that's right. Previous quarter number was correct. If you take it, divide by 194 days.
[Operator Instructions] Our next question is from the line of Ashwin Reddy from Samtva Investments.
My first question is on Dirok. So could you let us know right now, what is the offtake like? Is it like 15 units, 20 units? Or what is the average we can expect for this quarter?
In July and August, we are witnessing somewhere around 18 to 20 MMSCFD a day.
Okay. Okay. But the primary fall is only the shortfall? Or is there like a new supplies come in who we're competing with or what is the scenario there? Is there...
There is no demand for offtake because the shutdown of the plants, then once a major -- these are the 5, 6 plants which are consuming the gas there. And if that is shut in, actually by one by one, then what happens, the quantity goes only to the tea gardens. So that is the reason the Oil India produces associated gas. They cannot [ flare ] it, then they will be pumping into their lines. So their -- and the price is also lowered for them. And then first it goes -- as the first tranche, it goes from Oil India production, then only it comes to us.
Okay. Got it. And the next thing is on B-80, sir. So on B-80, in the opening comments, you mentioned that this could take 6 to 8 months to stabilize and all. So how do we understand the investor because we has -- B-80 has seen a lot of ups and downs. I understand it's a very complex operation. It is offshore. I mean things can go and some things, we're not in control. I understand that. So for our understanding, should we say, for example, just budget, on the operational basis, 200 days or 250 days a year? Is that a better way to see it? Because will we keep having these issues? Or how do we think about these? And is there a permanent solution? Or will it always be -- where you'll have to work through the solutions and that, I think, what [indiscernible]
Yes, I think this -- until another 7 to 8 months, see, what is happening is this plant was operational for about -- continuous operations for about only 6 to 7 months. So after 7 months, we got met with this cyclone. After cyclone, we are changing the hoses, which was an old hose, which is getting replaced. Now we have to get the export site to be clean up, that will be get over by the month of November -- October and November. And during this season, we will make ourselves fully prepared for the next monsoon when it comes on it. So on an average, it is safely to take about 300, 330 days production. That should be a reasonable assumption for us from the next financial year onwards.
But until we get this, say, for the next -- for this quarter and next quarter and subsequently, so what should we think about the volume output in terms of oil and gas from B-80 for the next 2, 3 quarters? And what's the...
See everything -- see, I think it is too much of presupposes I can't make it at this stage because we are doing our endeavor because what happens is if there is a small constraint there, then you have got one well is to be closed and the other one should be open, right? So our current level of production, what we have it in this -- the last quarter of this year, we were trying to get it on the third and fourth quarter. That's our endeavor as such. In the process, we got a setback. There is a cyclone, there is a [ clocking ] on the line. And now some topside issues are coming. So we have to address one by one.
To step -- to get back to the stabilized production as an oil field, from that field, it takes about at least minimum 6 to 9 months as such. So then, we will be knowing better about the field as well as the facilities. And by that time, we'll be experience of at least 2 monsoons. So we'll be better prepared for the monsoon. And you look at as such this as an oil field for a longer period. At least you should give a minimum period of 2 years to get to know the full potential of the block and then to get a regular and uninterpreted production from the field.
So that's what we are looking at. So at least 6 to 9 months, it will have aberrations and corrections, and it will go on as happened in the last 2 quarters of that year, and we will get back to some better understanding before the next monsoon.
So what would be the amount of money needed? So what is the CapEx required to get the field again back in order for the next 7 to 8 months?
The CapEx is not much higher. It is about only about INR 6 crores to INR 10 crores. That would be the level. But what is happening is as an issue comes up, that is where problem comes. When you sort out one issue, small problems and other issues, we have [indiscernible] and we are mobilizing the additional resources of people also, in a manner that we'll have both the technically competent people are operating on it and at the same time, the facility is upgraded to meet our -- the requirement of our oil -- our wells.
Got it. Got it. And my last question, sir, is on the surprise -- on the surprise announcement of Mr. Elango's retirement. So some context on that would be helpful to us because this is not expected, at least a lot of markets are not expecting it. So some context, and also would he remain as a consultant to the company? Or how should we think about this going ahead?
I think Elango can explain better.
Ashwin, what I would request is -- I'm sure a few others will have a similar question. I would address all of them. I'll note down the question. I'll address them together at the end so that the discussion on the business continues.
Our next question is from the line of Rikesh Parikh from Rockstud Capital.
Just wanted to understand. In the beginning, we talked about Kherem block. We are going to -- means we are going to discontinue. So any cost or onetime write-off, we are going to take on that?
No, nothing because it's a very, very small expenditure, which has already been charged off.
And in case of disclosure of B-80, any financial impact on us from the GSPC, from the committed offtake will be incurred on us?
It's an annual adjustment. I don't think it will have an impact much.
Okay. And last, on the Dirok. My understanding is that the national grid is expected by December as such. So by then, is there any -- sir, any update on that, when we are expecting this national grid to come up and we can see the normalized offtake once it is integrated?
See, we -- as per the plan and everything, what we received from the information is the 2 lines are getting -- supposed to be get connected by February and March 2024.
Okay. And when is our connectivity of the [ additional ] line, what is going to be completed?
This is actually a 2-season work. Now only a portion of the line is the -- portion of the line in the mountain area has been completed. Now the balance, what we are looking at, there is an Oil India line. We will tie it to that line until our balance line gets connected, in a manner that the demand picks up, we will be ready to supply the gas.
Okay. No, I want to understand that if you can -- once you connect to the national grid -- so by then, we'll be ready with that directly to national grid?
That's right because so what happened, demand is the constraint, not our ability to supply.
Our next question is from the line of Manan Patel from [ Airavat ] Capital.
Sir, first set of questions on B-80. So is it right to understand that once we solve these problems in, let's say, 6 to 9 months. Is there a possibility of recovering all the -- like substantial loss of production that has been happened -- that has happened during these 3 quarters? So that is one.
Secondly, from what I understand, the equipment. So just to reconfirm, the well is okay, but the equipment has a problem. So if you could outline what all equipments have problem and what all we need to do to resolve that? And lastly, on B-80, when we talked last time, we wanted to have a 2 lakh barrel buffer. And then on top of it, 2.5 lakh, we were planning to create. So now, do we understand that we will have a 2 lakh barrel buffer and then on top of that, 4 lakh barrel basket would be traded? So these are the questions on B-80.
B-80 any -- see, any oil field actually, the loss of production is a loss of the time, I'd say. It is below the ground value as such that can come as and when we get ready to produce from topside. So it's only the time difference of the value that is an impact on this. And the second thing is about your equipment failures. Yes, we have an equipment issues, which is our GDU, and every 1 year, the last year, we have got [ HP ] separate, repair is over, then we have now kind of doing something, which is the GDU, then we have something to do with the compressors, we are working on it. See, every equipment, we are bringing it in such a manner through server requirements. So that is the reason as such.
Now we cannot specifically say this equipment is to be changed, that agreement is to be changed. So overall, all the facility equipment is [ prioritized ] to the requirement of our wells as such. That is why it takes more time on it. And it is -- we are not expecting the export flow line would get blocked, and that we are getting cleaned up. So these are some of the issues, which is anything like any oil field will have [ teething ] trouble for about a couple of years, that we are in that phase. Once that is over, we'll be in a better place.
And the third one, the initial parcel size, which is in the East Coast and West Coast was considered to be about 200, 250 barrels. Now we are all -- all the refineries are going through the auction, is a mode for quoting the price for it. And they were looking at a parcel size of around 400,000 barrels. This we get to know when we got -- when we went to the MJunction for auctioning the [ crude as such ].
Now no individual -- we cannot enter into a contract, which was 1% for the offtake as such. We have to go through the MJunction for getting a price there. So when we are looking at the price impact, it is better to sell at the parcel size of 400,000 barrels. So that's what we will be doing on it in the future.
Okay. So -- but we still have a buffer so we need a production of 6 lakh to have a 2 lakh barrel buffer and then sell 4 lakh. Is that right understanding?
So what is happening is, that is the buffer, as such, we thought of a continuous offtake of 2,000 barrels to 200,000 barrels on a continuous basis. Now we will not be doing that as such because whatever is the unpumpable quantity, but for the balance we'll pump it out.
Okay. Got it. Sir, second set of questions on Kharsang.. So you have mentioned the prospective reserves, which seem to be almost even better than B-80. So by what time do we get to understand like [ 2P ] part of the reserves? And when are you planning to drill appraisal wells, and what kind of [ equipments ] will be required for that?
To unload the value of that appraisal as such, we need to drill one deeper well. The deeper well is about, say, $15 million, it would cost, as such. And in that, our share will be about $5 million. So $4 million to $5 million, that's an exposure of about INR 40 crores. But we need a consent from the Oil India and our friendly partner as such. So we will talk to them, and our geologists and their geologists will review the whole thing as such. And based on that, we will start drilling on it. It will take, at least -- as I told you, it will take about a year as such, 1 year project now.
Got it. And lastly, sir, I wanted to understand Mr. Elango's retirement. So he said he would evaluate. And sir, we have faced this issue of communication. So if disrupted product [indiscernible], it would have been better if we could have disclosed that to the exchanges. It was a very material event. Even for Dirok, 3 potential clients stopping production, that would also have been a material event. So it would be great if -- we have faced this in the past. It would be very prudent for you to disclose all these things in a timely manner so that market doesn't move the trust on HOEC. We have been very good in disclosing everything. But a lot of times it happens, it comes very late to the market. Right now we have again started production and then we are disclosing that the B-80 was shut in for almost 1.5 months. So is the market -- you can look -- market doesn't look it in a favorable manner. So it would be great if the disclosures are timely.
Our next question is from the line of Vishal Prasad from [ VP ] Capital.
Sir, in the last call, we have mentioned that the offshore tanker capacity is 9 lakh barrels. Today, we have mentioned that it is 450 lakhs barrels. So...
No. Not mentioned it is 450 barrels.
So total capacity is 9 lakhs, and we will be able to store 9 lakh, is it?
Yes, yes, that's right.
See what has been mentioned is the parcel size of the -- when we deliver to the buyer, the right parcel size would be 400,000 barrels. The capacity remains 900,000.
Okay. Okay. And the second question, in the past, we have mentioned that for B-80, once we have enough oil in the tanker, we will be sending the oil to the prospects for testing. So how is the quality of the oil and with respect to Brent, would we be selling at some discount? Or will it be in line with the prevailing oil price?
So crude assay would be given to the refinery. Based on that, they will quote a price. Once they quote a price, we'll be crude -- quality of the crude is better than that. So we'll be knowing once [indiscernible].
So right now, we are not sure about the quality of the oil?
No, the quality of the oil is better than Brent. That's what I'm saying.
Okay. It is better. And sir, last question, I mean, starting 2020, the first monsoon in 2020, and this is the fourth monsoon. First 2 years, it was COVID, but we keep on facing different set of problems every year. And for one reason or other, we tend to push the final production by 8 or 9 months every year. So I am somebody who doesn't understand the challenges we face in an offshore field. So could you help me understand, is it the problem with the vendors that we have? Or we don't have the right skillset within our company? Or this is very common in Bombay high that everybody over there faces the same set of challenges?
So you are right that, whatever you 3 mentioned, it gets compounded in this manner. That's a fact of the matter. So the equipment supplied by the contractor was not to the [ mark ]. And second thing, this well behavior -- the wells which we are getting, what the oil, quality of oil, we are getting, the pressure we are getting, this facility is not in accordance with that requirement. Third one, we are being suffered by the 2 cyclones also. These 3 things has compounded the problems.
So going forward, just assume that cyclones are not happening. Are we -- I mean within our own discussions, are we confident that probably next 1 year or 18 months, there will come a day when we are not facing significant challenges, and we are able to produce 330 to 340 days without any hindrance.
See we are working on it, we are resourcing, we are mobilizing the right technical people now, and we will be able to come off the problem on it because it is almost -- it is not a thing we cannot resolve with or anything. So it meets the resources, and we are in the process of getting the right technical team. And the team is, as we are speaking, we are engaging different contractors, and we are specialized in this own operations. And then we will be getting our own team warm up to the requirements and get the new people also on board, and that would be on the resource side. And the rest of the things, we are tightening the contractors in such a manner to rectify their own equipments, and have enough [ space ] on the field. So -- and we pray God, if the weather is good, we should be able to come back to normalcy.
Sir, last question. I mean both of you have worked in this industry for 4 decades. And you must have seen these challenges, which are happening now. So when we hire people in our company, is there something which we are not doing right, and because of which, we are not able to evaluate the problems, which may happen in the future? And every time we say that -- I mean, we could not foresee this problem. And do we need to have more people who have the right skill sets?
By hindsight, it may be right, but any hindsight analysis will throw some of these things not taken cared properly. But at that point in time, we said, we are doing the right thing, but it turned out to be incorrect, so we are correcting it now.
Our next question is from the line of Chitresh Lunawat from [ Gartner ].
Hello, am I audible?
Yes, sir. Please go ahead.
So my question was from the management. Is the B-80 shutdown material event for the company or not? Because it was not disclosed to the market, and we came to know only from the PowerPoint presentation.
See it's -- at any point in time, it was expected to be completed within about 6 to 7 days. That was the duration of the job...
[indiscernible] investors, we have already -- I mean, even last to last quarter also when it was shutdown, I'm not sure why management is not disclosing it in the thing. See, whatever action you take and how much time it takes is a different thing. We can send a notification again saying that it has started. But to a shareholder, it's like putting in the dark, right? So I mean, you are not informing the shareholders on the things, what is happening in the company. So there are so many companies which have so much better standards of informing shareholders, if there's a factory shutdown or something. And...
So one thing I would like to submit in oil and gas operations, well shut-in for today and opening within 2 days, it's a regular routine. And this cannot be on a continuous basis to go to the market and inform as such. That's why once in a quarter, we will give you the update on that, right? So now tomorrow, if I say that, yes, I'm shutting down this well for today, then there is an impact. And then within 2 days, I'll be saying I'm reopening this well. So I've been in a continuous process of sending the messages, which will give you a wrong signal. So that's why once in a quarter, we will update you on all oil and gas operations, which are happening on it. If we are going for value degradation, suppose the wells are not flowing, the wells are not possible to open, that is a permanent damage to those value to the company, then we will come back to the market and inform immediately.
Sir, the line over the current participant has dropped. May I request the management, we move to the next question, please.
Our next question is from the line of [indiscernible] from OroWealth.
Yes. I think most of the questions from my side have been answered, but still, I would -- there's a small request to observe a 20-second silence to moan the demise of adequate and timely regulatory disclosures to the stakeholders.
Okay. That we will do it.
Our next question is from the line of Nikhil Somani from SC LOWY.
My question was around B-80. I wanted to understand what is the future CapEx plan for the Field Development Plan for B-80? In the sense, when are we expecting CapEx for drilling new wells potentially to ramp up the production? That was my first question.
B-80, we wanted to have an uninterrupted plant 2 years continuous production. So after that, we will start drilling the third, fourth and fifth. 3 wells together. That would be expected around '26, '27.
Okay. And what would be the CapEx -- budgeted CapEx for that?
Would be about another $40 million, $45 million.
And this would be our share or 100% share?
It's 100% actually.
Got it. Okay. And I looked at the 2P reserves number for B-80. If I'm reading the numbers right, so 25 million barrels of oil and close to [ 65 billion ] cubic feet of gas. Am I understanding it right, that the total revenue potential from the field, could be close to $2.5 billion at, say, presently at $70 and gas at $10 per mmbtu?
Yes. If you take the -- that is the value potential of the block in the top line. Then you have to have the government share, then you have got your operating expenses. Then you have got your warranty. So after that -- that is the value potential of the block as such per se, you are right. That's the reserve numbers we have got and got it certified by GCA.
Got it. And on the operating costs, I understand last quarter, you mentioned we were running with operating cost of around $140,000 a day. Is that the right number to assume going forward as well? Or was $140,000 a day relatively high on account of these one-offs that we have seen in the last 12 months?
That is actually on a stand-alone. That should be the right number. But on a consol, we get a revenue credit for our own 2 facilities we are getting operative. That is about $90,000.
Our next question is from the line of Ajith from Nirzar Securities.
Sir, am I audible, sir?
Yes, sir.
Sir, my first question is just a clarification. You just -- you, in your opening remarks told about the operating expenses, and the reason behind. I did not understand that. And could you please elaborate that thing? And resultant decrease in our EBITDA margin? And sir, what is our current production in the B-80 field, and is there any revision in the results? That's it.
So there is a -- I go with the last question. There is no revision in the results at this moment. And that your first question, I've explained to you in the -- what has happened in the previous 3 quarters of the last year. There is a revenue on account of the MOPU and FSO has been booked there in [ the fourth quarter ] right? When we get -- the parties I've explained, the duration which they were not operational, you should take them out from the revenue as such. So we have reduced the revenue of the MOPU and FSO in the fourth quarter. That you could have seen that, and that is reflected in the notes to the accounts also. That is in the consol accounts, you could have seen that.
Correspondingly, whenever there is a revenue reduction of the MOPU and FSO, that gets reduced in the operating expenses of the B-80 field, right? So that was an aberration on the last quarter adjustment. That current level asset is for the right number asset. So that's why when you look at assets in this quarter, there is an increase in the operating cost because of that adjustment happened in the last quarter of the last year. So the reason that cost, which we are projecting right now would be the cost for 90 days operation of the B-80 field.
Okay. And sir, current production in B-80, sir?
So we are producing as -- we have opened the well yesterday, and we are producing about 1,000 barrels of oil and the gas rate, I'm yet to get and...
Sir, is this the normalized cost you explained just now about the operating expenses?
Yes. That's right. That is for the stand-alone accounts, $140,000 per day is a normalized cost.
Our next question is from the line of Jagvir Singh from Shade Capital.
My question is related to the share of expenses from producing oil and gas blocks. So on the same revenue, even revenue is 3%, 4% down compared to last quarter. Our call -- this item has increased from INR 42 crores to INR 75 crores. What is the reason for it, sir?
The stand-alone accounts you are talking about?
No, consol account.
Yes, consol accounts, as I explained to you, in the last quarter of the last year, there is about INR 28.90 crores. You could have seen the notes they are in. The 3 quarters previous revenue has been reduced in that. So when I reduce the revenue of the -- sorry, MOPU and FSO, the corresponding reduction in the cost they are in. So that is what happened in the last quarter adjustment. So we can get back to the normalized cost in the current quarter. That is the reason. There is no fast increase per se, as such. We have continued to operate on $140,000 per day especially for the total cost basis.
Okay. So going forward, we -- suppose we do the revenue of INR 190 crores total revenue. So this item will be around INR 75 crores.
See, what has happened was that if you look at a consol accounts, the difference is only on account of the revenue reduction from the Dirok. That there -- only one side, there is a revenue reduction, another side, there is a reflect to the cost -- come back to the normal cost into the first quarter.
Okay. And sir, Q2 for some time, B-80 is closed. So any idea in the Q3, what kind of revenue at consol level, we can do this?
I don't want to project any revenue projections at this stage. So it would be incorrect in either way.
But can we do the revenue like in Q1 or Q4 type revenue?
So I mean, we hope to do better in the third and fourth quarter. But putting some numbers there in because I have to look at so many variables, what would be the price, what would be the volume, there is no disturbance, nothing. So many factors are there in. It is not good to project the numbers there in. That's what I think.
Our next question is from the line of Rikesh Parikh from Rockstud Capital.
Sir, with regard to B-80, I would like to understand, are we back to that production level 3 to 3.5 lakhs per day?
Not yet.
Not yet? Okay. When can we except, it is after that slurry, the pipeline, it means we are able to clogging, we'll be able to do it or it will take time?
What is happening is we have reconnected the production. Now when we will be doing the under buoy hose report after the monsoon, that time, we would like to flesh the line in a manner that comes back to its original position of can take up to 200 -- to 300 barrels, 250 barrels per hour. Right now, it is about 50 to 60 barrels.
So what is happening is that all systems are get connected. Once we are going to do the repair work in the month of October and November, that time, we will flush the line fully.
Okay. And lastly for PY-1. So have we any -- fond of any drilling special or something because we were planning somewhere in January for drilling?
I told you on PY-1, we are in the seismic reprocessing. Then they have to be completed without interpretation. Then the third party review, once all is being done, when the location is ready, then we will start mobilizing the rig and other facilities, because this is -- we will be drilling a well and then we will not be completing it. And it could be successful. Then we will drill another 2 wells then complete all the 3 wells together. That's what our plan.
Our next question is from the line of Rohit Potti from Marshmallow Capital.
So my first question is on, so what new fee do you expect to be on revenue mode next? Is it going to be Kharsang or is it going to be PY-1? How do you think about that?
And on related note, do we think we need external capital to raise that either loans or equity? Because there was mention of equity by Jeeva, sir, in his opening remarks. Do we expect, as such to issue equity for any of these capital raising plans that we have? And on balance sheet, again, the question is, how do we see these balance sheet evolving over the next year with the CapEx plans, but at the same time cash flow is coming in from Dirok and B-80?
See, what is happening is, there are two ways of looking at the things. Now the reprocessing of the data is in place for all the 3 blocks. You look at one side PY-1 is getting reprocessed. And then we are looking at Kharsang also we are reevaluating.
Based on this, all the things, how the data comes out to be able to -- best of our understanding, we should have a better data there.
Then we look at -- then you have a monsoon there in the East Coast, and there is a rainy season in the Assam regions. Accordingly, we will plan in such a manner that, that to go over the first well.
So we look at the capital expenditure, which should be in the order of PY-1, about, say, INR 70 crores initial capital. So that should be from our internal accruals. Then you look at all this in the range of less than INR 100 crores. So we will be able to manage internally. And if you are finding it extremely difficult, then we will be borrowing it.
Understood. So this was helpful, sir. Most all of the questions have been answered. I just want to reiterate the question on Elango, sir, leaving. I mean, it's been 8 years, it was [ especially listening ] to remarks on this con calls all this time.
This departure is a little -- seems a little sudden and the fact that -- I mean, it seems like he will not be on the Board going forward. So it will be great if you can get clarity on if he's retiring from the oil and gas field for good? Or will he be available as a nonexecutive member of the Board or as a consultant? And what led to the departure, is something that some of us are very curious to know. So it would be great if some clarity can be provided on this.
Congratulations to you, Jeeva, sir on the appointment of the MD.
Our next question is from the line of Chetan Phalke from Alpha Invesco.
Sir, since my question is on B-80. So since we are continuously facing some of the issues on this lot. So is there any thought process to get a strategic investor or some other export investors who can help us in managing the block in a better way? I mean, is there any thought process to get an outside investor and part with some of our stake? I just wanted to know that.
And second thing. Sir, is there any issue with the contractor expo? I mean, is there any thought process to change our contractor getting a new contractor going forward as well? So I would like to know on these things.
So considering the value on the block, we don't wanted to bring any more investors in the block. That is the first question.
Second thing, the contactor remains to be contractor. We have been in discussion with them. And we also understands the consigns, and we also understand the problem of what he's facing on it. We will try to make an amicable -- we did an amicable settlement with them. Now they are also embarking on a process of rectifying most of the things. And we have no intention of changing the contractor immediately.
Third one, we are resourcing ourselves. We are getting some technical experts and process guys, and marine people would be on board, which are the company they are on to strengthen our own operating and maintenance team of this facilities. So that's what I can say at this stage.
Our next question is from the line of Manan Patel from Airavat Capital.
Congratulations, Jeeva, sir, for the MD appointment. I just wanted to ask, have we started the process of looking for a AFO, or do we already have someone in the team who can take up the mantle?
We have given appointment order to one gentlemen, once he accepted the order and he will be joining as such.
Our next question is from the line of Vishal Prasad from VP Capital.
Sir, one follow-up on B-80. So given your experience of the last 40 years. So once things setted down in Bombay High, do other companies who operate there keep on facing such issues? Or finally, we can expect that a day will come when we will have smooth operations there?
So we expect a day to get a smooth operation there in, because everybody who is having a floating structure is having the problem there in during the monsoon period.
This is not only for us, even the field of Panna-Mukta, they had some trouble. And whoever is -- because we are the only floating structure there and which is having a SBM and another one is Panna-Mukta. So both of us will have some trouble during the monsoon period.
But how do we manage ourself, that's a bit of an experience to us. So we will be better prepared in the next time. So the learning will make us better. That's what we believe.
Okay. And sir, you will be starting from 1st of October as the MD and CEO. So what would be your priorities going forward?
Our priority going forward is, the one side, the top side facilities, whatever the small, small things, which we they can do it, which they are working on it, that they will be doing on it.
From our side, the under-buoy hose, the marine system per se, that is an FSO, SBM and the export line, these 3 areas, we wanted to strengthen in a manner that export flow line, why this clock, so that has to be studied. Then to award the clocking there and what should we do.
And to the under-buoy hose, if there is any issues thereon, which we will replace it with the new hose. Now we are getting a 10-meter hose as such, not a one single hose. And then we are doing Aquaflex is doing some study on it, how the mooring system or how -- has to moore it in such a way, it will weather win, even in the worst cyclone.
These all things we are planning to carry out from October, November, December, before and ready for the next monsoon. We would like to have a necessary spares such as hoses and chasing and what are the parts on record to get on to immediate replacement. This is being studied now.
We are engaging an experts, who are specialized in this field to do this job. See, in a manner that we will be prepared for the next monsoon. And by another 2, 3 months, we will get used to the situation and to manage better. That's what I can say at this stage.
It seems, when we are trying to learn from our mistakes. So do you think we have the requisite skillset within the company now, given the experiences we've had in the last 2, 3 years?
We are in the process of getting the record experience. We have some experience within the last couple of months, we have got some people on board. They are doing the repair works. And we will be recruiting the people and required consultants thereon who had a relevant experience and expertise there on to it to manage it.
Our next question is from the line of Tejas Shah from [ Laser ] Securities.
From the B-80, gas I missed out, right now, how much we are producing on from the B-80 gas?
No, I told you, I didn't know the rate at the moment. And once wells are completely put on production, I'll get to know the rate and I will let you know, we should be.
So what I can request this time, at least inform the market when the gas starts and work flow level is starting because there's a lot of disparity. I can say, or anguish in the way things have gone, maybe not in your hand, but actually in terms of the communication on the disappointed, that as an investor, we have. Today, I sold off all of my stocks in the -- my account by -- in loss, because absolutely there is no, as a shareholder, I lost the faith. Nothing more I can tell you.
Tejas, I wanted to tell you that because what is happening, this is an oil and gas field operations. Some repair will happen, some shutdown will happen. And during the monsoon, there would be an inevitable shutdowns will happen. So these things we cannot go on and up daily in the morning and evening, is such a regular reports. So that we are giving an update once a month, once in 3 months.
And if you have a major impairment to the assets per se, then we will immediately come to you and explain in the market. So we cannot say just a difference of the cash flow that would impact the company substantially. It cannot be the basis for reporting on a daily basis.
It is your perspective, but as investor, I have shared my perspective. Anyway, now, can we understand how are we going to work on the working capital, because B-80 is major flow that is going to get clogged.
Plus your Dirok, it is not that great for next -- another 4 months or 5 months. So how are you going to work on the working capital and the loan, which has to be repaid? And also work on the capital requirement to repair or order leasing or embark on a new project. And also, if you can share or show some light on the Dirok. I think the same presentation here, okay, we can take it to 70. And then did you -- and by next 6 months or with a new well, how much time that will take? If you can throw some light on that.
There to explain the Dirok, the offtake is getting better in the second quarter, right? So we have to manage within the revenue we are getting at the moment. So we have no -- we are not finding any working capital issues coming up immediately. Our investment decision is going to be about 8 to 9 months down the line. So by the time, we should be stabilizing ourselves to get a better cash flow from the existing assets which are producing.
And if the work comes, we will be taking some short-term loan and repay it, if we have already committed to the capital. Now you have to understand this all the capital, which we are talking about now, it's a discretionary capital. It is not a mandatory capital. So whatever the capital we are infusing into the company to create a value there. Right? So we are not finding any working capital issues, and you should be aware that we are having about 300,000 barrels of oil. Once we sell the oil stock, then we have got enough revenue to meet our -- all our obligations.
Our next question is from the line of [indiscernible] Louis, who is an investor.
Yes. So Mr. Elango, I just want to say that the timing of the announcement of retirement, right? Is something which is a little bothersome for investors like us because as you said, B-80 is like the flagship discovery for Hindustan Oil Exploration Company. And there are certain challenges, which we are already discovering. It would have been great that there are some able hands to manage the company out of a sticky situation at the present, where things gets stabilized and then the Dirok thing, the connection becomes connected to the national grid, and then you've got the PY-1.
Besides Jeevan, sir. Is there any able leadership which can manage the situation and bring it into a stabilized situation? And hopefully, Mr. Elango , if you can continue with the consultant role? Because the expertise would be highly required by the company, and it will be like a reassurance for the investors for holding on to the promise of having very stable outlook in terms of revenue.
The second question was with regards to the windfall tax. Is there any impact of that which has been coming up? And the last question is regards to the [ Paytm ], which is now changed from 6 months to 1 month. Is that something which is going to be impacting in a large way over the revenue in terms of the gas prices into oil prices?
So first, last 2 questions, I'll answer it. First question, Elango will answer.
Windfall tax there is no impact. There was nothing to do with this company at the moment. And on the gas price is having a dual pricing, but now it has -- it last its impact now at the moment, because every company is going through the auction process. In the auction process, it is a plus or minus. So we will be discovering the price and the price would be the basis for it. It is more or less like a benchmark pricing, nothing else.
So now, Elango, you can explain.
Okay. Let me take it just step back and look at my career briefly. Look, I have spent close to 40 years in oil and gas. And then I left, came in 2014. I really never imagine that I will get an opportunity to play a leading role, to turn around a 40-year old company like HOEC. And this turnaround would not have been possible without Jeeva. We did everything together.
So in 8 years, HOEC operated production has grew from 500 barrels of oil equivalent to 10,000 barrels of oil equivalent, which is support of less than 100 employee team.
And to me, really, that gives me an immense sense of satisfaction. If you really look at where the business is today, the quarter is a bit dynamic. As I said, Dirok was totally unexpected offtake issue. It's a fantastic field, and the fact that the field is going to be connected to a market at Guwahati by end of the financial year, and we have the ability to just increase the production to 45 million cubic feet, and the price is really moved up to a very decent number.
Some of you will recollect that Dirok was operating at $1.6 per mmbtu. From there, today we are talking about $7, $8. So Dirok is absolutely in a fantastic position. And whatever offtake issue is a very, very temporary issue. And Jeeva outlined to you very clearly that Kharsang, and increasing our stake in Kharsang is a huge statement on the belief we have about the feet, and we bring this lot of energy, the synergy.
And with the gas grids, even a gas potential in Kharsang could be developed. So Northeast as a whole, is going to really, really grow, and the company is well positioned to execute the projects there.
B-80, obviously, is a -- has been a focus of multiple questions. I just want to take a step back and look at it as, when we ventured into this field, it is a field which ONGC left as not possible to develop economically. It is not -- ONGC did not find it economically viable to develop this field. That's why this field came into an auction mode. And when we chose and bid, obviously, one of the important -- to make a field economically viable in a price environment, which cannot be very predictable. The only thing that we can control is cost.
So we went in for a bit of an innovative model, focusing on a low-cost model. Now we took certain calls, which in hindsight that maybe not right. And as we brought this field into operation, one thing to remember is, whatever was the initial resources estimated at the time of field development, subsequent technical work done by the team as well as the wells drilled has increased the resource base significantly.
Therefore you have a field which has initial issues, which are being addressed, particularly during monsoon. It's very difficult to predict the intensity of the weather. So when something goes wrong, it is easily fixable. But if the weather is not permitting us to go access and fix it, then one can't take a risk beyond the point of time.
So I don't really see -- if you look at the previous quarter in which we had a -- the quarter before that, we had the full quarter. First time, both the wells are producing very well. And we saw what that could do to the organization as well.
So once again, in B-80, there are still remaining challenges, but I believe the team that is managing it. We all work as a single team, put all decisions together. There is no gap -- there will be no gap. And as Jeeva outlined there is an effort to adding more people, in the last few months, we have those people. We'll continue to add and bring, strengthen the operating part of that team as well.
So there's no doubt in my mind. With values very much in place, it is about just addressing some of the operating efficiency support. There's a very interesting quote that says in life, "you never fail, you either win or you will learn." So I am at a point where I've had a good share of both in HOEC. And I thought, after 40 years is the right moment to say bottom up on barrels and spend quality time on other personal priorities of my life. There's nothing more or nothing less to it.
As I told you, not only Jeeva, the entire board very, very friendly, very, very respectful. In fact, Jeeva and me, we're actively involved in inviting each of the board members to join us in that. So it is -- I still continue to feel, it is -- I'm part of this company. I will be available any time on call as required. We live in Chennai. So my support and assistance will be if and when required.
Now when I began my career, one of the important principle is -- that I at least followed is while every employee is valuable, no one is indispensable. That's a principle, under which you need to operate a company. I have full confidence with the team has the ability to deal with these short-term operational issues and come out stronger as such.
I would like to convey my deep appreciation and gratitude for all the support. Thank you.
Our next question is from the line of [ Veer ], who is an investor. Mr. Veer, your line has been unmuted.
Am I audible, sir?
Yes, sir. Please go ahead.
Congratulations for all the patience you've showed with the B-80 and the shareholders. As we have been asking you all along for this field. So I would really happily, honestly, congratulate you, because I know this field, it's not easy and offshore's field. And you've been sailing your boat on and off, on and off, which is a very good thing that the boat has not come down. So thank you for showing so much patience. Now I had 2 to 3 questions. Hello?
Yes, please go ahead with your question.
Yes. The first question is, Dirok. By when can we expect a complete offtake, which was happening in the last quarter?
It should be expected once the national grid is get connected. That would be on the next financial year, not in this financial year.
So if I understand correctly, for the next 2 quarters, the offtake would be 100%, less 66%. That was like 34%, right?
Yes. 1/3. Now, we are coming back second quarter a bit better than that. Somewhere around 20 million, 25 million cubic feet per day against [ 30 million, 35 million ] cubic feet per day.
So that would be, 35%, 36% of offtake.
Yes. No, instead of 2/3 reduction in this first quarter, it will get reduced to 1/3. That's what it is.
Okay. And sir, I was a little confused with B-80, I think it was closed because of the cyclone which came in May end, right?
It is in the June actually, middle of June.
Okay. So we had shut the field from middle of June or June beginning or May end?
The end of June, we survived the cyclone comfortably.
So the production was on?
Yes. We have survived the cyclone. We have completed the June as such. And July, we wanted to go and check all the equipments, then we found, some of things are to be replaced. That has taken the time, then we have to shut it.
Okay, sir. And another thing is, now that the field has already started. Are both the wells on?
No, we have started with the one well yesterday.
And that could be D1 or D2?
D2 well.
D2 well, which is a major gas producing well. Am I correct?
That's it. Yes, that's it.
Sir, any idea when, like a ballpark idea, when would we start the second well?
No, I don't want to commit any time on it, because what is happening is that the ability to the export line, the export line can accommodate more volume than what it is. So we are working on it. And the line is to get clean to some extent, we will be operating one well only.
So if I understand correctly, there is no problem with D1 well. It is just the export line, which cannot take more volumes to be exported to our customer. Am I correct?
Export line to pump the oil, actually. Because what is happening is, this is a facility -- they [ heater treated ] the volume will go up, if I'm not able pump the oil which comes out.
Suppose, if it is a 50 barrel is my ability to pump. So I cannot produce more than 50 barrels.
Okay. And what exactly is wrong with the export line, is there some sea surface material there? Or is it like some waste product, which has choked it or what is it exactly? Which is causing this...
We are expecting some wax formation there into the line.
Okay. And is this a normal occurrence?
It's a paraffin actually, paraffin it is a -- it's a paraffin, which is in the crude. When you keep the oil there in for a longer period, the paraffin sets in the walls of the flow line.
Okay. So does that -- I mean, this occurrence is very normal to happen even to the new equipment?
I think occurrence is normal because you remember that, after July 14, we shut it down. We reopened the wells only in the month of -- 1st of November. There is a substantial period of 4 months we had there.
So how did you solve the problem that time if this is the same problem currently?
No, no. What happened, paraffin deposit was there and what that -- we will be able to pump around, say, 70, 80 barrels, we thought the line is clean. Now we wanted to pump more, then we found out it is started choking. From 80, 70 barrel, 60 barrel, 50 barrel, 40 barrel, and 30 barrel.
Now we made a partial clean. Now end up with somewhere around 60 barrel at the moment. So we will be further cleaning up through the different process. We are talking to experts chemical processing or by putting some hot water or some other treatment. So that is being investigated by the chemist as well as own team at the moment.
Okay. Okay. And well, I can only say that had you been on the board would be more helpful. But I'm sure, like your team has been Mr. Jeeva, and you has been really, really getting this ship sailing well along all this time. So missing you by Mr. Jeeva would be a big thing, because I remember you guys were together in Hardy Oil also, right? I read somewhere on the Internet.
We were together in ONGC, I still hope we will be together.
Our next question is from the line of Vishal Prasad from VP Capital.
Only one question. So for B-80, when things are fine, and we are able to sell gas and oil. So given current price, what percentage of revenue will go to government of India?
I'm not interested to give any revenue projection at this stage. We have to stabilize.
No, I'm not asking about the revenue. I'm asking, there is a formula based on which you will pay a government of India the royalty. So if it is today, what percentage of revenue will go to government of India? That's what I'm trying to understand.
No, that is 10% goes as a royalty to the government on whatever the price we are getting. Then balance is about the range between 10% to 45%. 10% minimum and then 10% to 45%, more than $10,000. So it's basically a progression, there are arithmetic progression...
So between 10% to 55%, that is possibility?
That's right. So if they have about $100,000 revenue, that will be added by about [ $2,000 ].
But we will try to keep it between 10% to 12%? Or how we are thinking?
We will go up to 30% to the government. That is about 25% to the government. So we will ramp up the revenue accordingly depending on the production which we get from the field.
Our next question is from the line of [indiscernible] Shah, who is an investor.
Only one request.
Sorry to interrupt. Mr. Shah may we request you to use your handset, please? As your line was not clear, sir.
So if you can at least, for a [indiscernible].
Mr. Shah, your line is not clear, sir. May we request to -- if you could go close to the network area and then maybe ask a question.
Let's move to the next question.
Mr. Shah, may we request you to rejoin the queue, please, as you're not audible.
Our next question is from the line of Satish, who's an Investor.
Am I audible?
Yes, sir.
So look, I've been watching the performance of the company for the last 4, 5 years. And then what I see is like we are always one step forward and two steps backward. The results could be different in the starting here from the production line, operational issues and so many issues. So are these challenges which you, as a company, are facing, Were they all unanticipated? Are they all accidental? Or what is the reason for this issues coming often?
Mr. Satish, this oil and gas companies are basically valuing the assets below the subset base, right? These assets are continuously growing in the company. You can look at the reserve base of the company 7 years back, and the reserve base of the company now, right? So every quarter, there is an increase in revenue, decrease in revenue. That happens, as you are right. One step we go forward, we are getting back two steps.
But this is all a temporary phenomena. That doesn't change the underlying value of the company per se. The underlying value of the company is in a continuously increasing mode, that will continue to grow more and more. That's what we can say.
Sir, my second question is, like you said that, one of the reasons for the reduction in the production in B-80 is because of the accumulation of paraffin in the passage pipes or whatever it is. Okay. So is this not a phenomenon which is faced by the other producers, for which there is no standard solution available? Because what I hear from you is, like you're still trying to work out the best possible way of coming out of this issue. So is it -- is it an issue which is very unique to this company?
It's not unique to the company. It is a 100-year-old issue they are onto all the oil and gas pipelines. But in our case, what has happened, we have no other option, but to leave the oil there in the flow line in the month of July 2022. That has kept there for 4 months. And subsequent to that, we have now -- we look as at the moment, we are doing the flow improver in PPD siren. We were expecting the PPD pump siren would have helped the assets, but that didn't help the assets. So that's the reason now we are changing the PPD flow improver and also some things now.
So this is a regular phenomenon in oil and gas industry, and we know the ways and means to get rid of it. But unfortunately, we want to restart the production quickly. And the period is there also in the monsoon. So that is the reason we cannot get to open the line at the one end at deployment assets to flush the line completely.
One other question of mine, like, you were saying that many of the operational issues which you have been facing, you are going to plug out those issues maybe in the span of 8 to 9 months. Most of the issues you have mentioned the same timeline. Is there any way by which the timelines can be reduced?
So that's the maximum timeline, we are making our efforts to get it reduced. And it should be less as such, that. Say, at least, tomorrow you should not ask me this, everything is clean actually, everything is done. Again, you get into something. So we are doing our best as such to get the things. The 9 months time should be the reasonable time according to us. Maximum reasonable time. And we should be able to crash it if we are getting the different people working on that.
So you have to look at the 2 months' time, we can't do anything. That is like in September and October. The 60 days is already gone. The balance time available is about 7 months. So that's the reason [indiscernible]. We may crash it little faster, but better to have a little conservative of 9 months.
Okay. So my last question, is because there has been a good amount of production loss happening in Q2. So whether the production from different fields in terms of oil and gas and all put together, will that be lower than Q1 or better than Q1 for the Q2?
I cannot say at this stage, either way I'll be wrong. Because we have to see the peak performance and the off-peak issue at the Assam, that has to be seen. And then the production comes from the B-80 field, with issues there. So I can't predict any number there as of now.
Okay. You can't even say whether it would be less or more as compared to Q1?
That's it.
Our next question is from the line of Tejas Shah from [ Laser ] Securities.
Yes. Just one request to Mr. Elango, if you can prolong in retirement by a year. So at least, what is the most difficult part of trying to workaround is taken care under him or along with Jeeva, sir?
And then after a year, you can renew. And another thing is can we not look at a JV with a international company, who will be more than interested and we are having a lot of interest, lot of producing fields, so just as a thought -- because even Jeeva would retire after some time, then I think, even he is 55, 60 I suppose. So are we not looking at excluding on those aspects also?
Thank you. We have noted your suggestion. We keep one last question and then...
Yes, sir. Our next question is from the line of Ashwin Reddy from Samatva Investment.
I just had one small question, if you can answer that. So would Mr. Elango remain as a shareholder in the company? Or would he be also be exiting the company? I was just curious about that also.
I'll remain the shareholder of the company.
Ladies and gentlemen, that brings us to the end of our question-and-answer session. I would now like to hand the conference over to Mr. Elango from Hindustan Oil Exploration Company Limited for closing comments.
Thank you. We've noted all your suggestions, observations and questions. I think we've done our best efforts to answer them, but we take all your feedback seriously, and we'll continue to work on that.
Thank you for the support. Thank you.
Thank you. On behalf of Hindustan Oil Exploration Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.