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Oil India Ltd
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Ladies and gentlemen, good day, and welcome to the Q3 FY '21 Earnings Conference Call of Oil India Limited, hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sabri Hazarika of Emkay Global. Thank you, and over to you, sir.
Yes. Thank you, and good afternoon, everyone. I'm pleased to welcome you to the Q3 FY '21 post earnings conference call of Oil India Limited. Today, we have with us the senior management of the company, Mr. P.K. Goswami, Director, Operations; Mr. Sanjay Choudhuri, Executive Director, Finance; Mr. [ Rajesh Singhal ], Executive Director, Finance and Mr. Pankaj Kakoty, Executive Director, Exploration and Development. Due to an urgent Ministry meeting, Mr. Harish Madhav, Director, Finance; and Mr. Chandrasekaran, Director, Exploration, were unable to join this call, and they convey their regrets. So today's session would be a brief on the company results and outlook by the management, and that would be followed by the question-and-answer round. So without any further delay, I would now request Mr. Sanjay Choudhuri for the opening remarks. Over to you, sir.
Thank you for arranging this call. Good afternoon, dear friends. The financial results for Q3 2021 have already been shared with all the analysts and posted on our website as well. I hope all of you must have received the same. I'll now go on to briefly give the indications about the financial and physical performance of the company. Coming to crude oil production. Crude oil production for Q3 2021 has remained flat at 0.748 MMT as compared to 0.747 MMT during the corresponding quarter of the previous year. On a 9-month basis, the production was 2.181 MMT as compared to 2.314 MMT in the same period last year. The natural gas production for Q3 2021 has marginally reduced to 673 MMSCM as compared to 697 MMSCM during Q3 of '19, '20. On 9-month basis, natural gas production was 1,993 MMSCM as compared to 2,156 MMSCM during the same period last year. On the financial side, Oil reported 122% increase in PAT for Q3 2020, '21 to INR 903.69 crores against PAT of INR 406.39 crores during Q3 '19, '20. This increase in PAT is mainly due to the adoption of Direct Tax Vishwas se Vivad -- Vivad se Vishwas Scheme 2020, which has resulted in the reversal of tax. The PAT for 9 months, 2021 was INR 894.03 crores as compared to INR 1,658.42 crores during 9 months '19, '20. The financial performance during 9 months 2021 was adversely affected due to the lower crude oil price and natural gas prices and expenses incurred due to Baghjan blowout. The fuel price realization has declined to USD 38.98 barrel from USD 63.62 barrel for 9 months -- which was based 9 months 2019. The decrease in prices led to decrease in turnover by INR 2,838 crores and profitably by INR 1,416 crores during 9 months 2021. We'd like to mention that during Q4 of the current year, the crude oil prices started picking up now, and it is in the range of about USD 55 to USD 60 per barrel, which we are quite hopeful to report a better financial position in Q4 as compared to the previous quarters. The average gas price realization for the 9-month '21 was 2.19 MMBtu as compared to USD 3.54 MMBtu in the corresponding 9 months of the previous year. The decrease in price has led to a decrease in turnover by INR 625 crores and profitably by INR 425 crores during 9 months 2021. In the current year, Oil has taken provision of INR 687 crores in write-off wells, particularly in KG and Mizoram. Because of the low crude and gas prices write-offs and low production, the financial performance, of course, has got adversely affected. The EBITDA due to this reason in the year is INR 2,037 crores against INR 4,431 crores last year. Regarding the Baghjan well blowout incident that happened in mid-2020, we are happy to share that the well has been fully controlled in November 2020, and we have provided INR 397 crores on the exceptional items in our accounts against expenses incurred for killing up the well, as well as for making payment towards compensation of the effected people. On the dividend side, the company has declared an interim dividend of INR 3.5 per share for 2021. As already mentioned, we have with us our, Director, Operations, Mr. P.K. Goswami and Mr. Pankaj Kakoty, EDA, MD and I will request them to give them their insights regarding the operations.
Thank you, Sanjay. Yes. This is -- as it has been already said that production in the last -- this year, i.e., 9 months is low compared to the previous year's performance. So admittedly, there is less production during this quarter, during last 3 quarters. So this is basically we started this year with COVID, there is a slowdown of MMT activity due to COVID. Then the -- in the month of May, the Baghjan incident has happened, then -- which that Baghjan, there was a large-scale protest, then there were bandhs, and not only in Baghjan, in the adjoining areas also. So this has resulted in less crude oil production in that area. And as these are very mature field, very old field, and there is always a material decline in that area. So combining all this, the total production of crude oil was low compared to the previous year. But the -- it is now stable. It is now in a growing trend. So we have a ray of hope that by the end of this year, we'll be in a better position. And similarly, similar is the condition for gas also. We are in last year in spite of all these difficulties, we had good discoveries. We have Dinjan field, which is producing gas which is under testing now. And I'll be happy to say that Oil India is going with a big work plan to increase its production from 3 million tonnes to 4-plus production. So this is the big work plan we have already taken up. And definitely with that effort, we'll be increasing our production in the next quarter and the coming year also. So this is all about production. I would request, Director, Exploration Activities, Mr. Kakoty, may add to that.
Thank you, sir. Regarding exploration. We are doing pretty well, actually. The renewed exploration whatever measures we have taken and whatever, I think you must be knowing that Oil has own almost 25 OALP blocks and most of the blocks activities have already started. And in 7 of the blocks, actually, we have completed our seismic data acquisition. Next phase of processing is going on. And in 1 block, actually, we have -- already we have started interpretation of 2 blocks, and the results will come. And after that, we will be able to do a exploratory well. And exploration is going fine actually. And as D.O. sir, has already said that we are having a very ambitious plan for increasing production. Actually we had already choose our area, those areas do have their potential. We believe that there could be some upside potential also. And that's why we have selected those areas and we had choked out a plan. So as per plan, definitely we will be able to produce more and touch the 4 million tonne mark. Yes, there are some bit of financial slippages and drilling of wells and specifically in development well because -- but not only development both development and exploratory but actually, this is because of all the issues arising out of the COVID and after that Baghjan blowout and cascading effect of all this. And finally, actually the well performance, performance is not to that level in drilling wells. Otherwise it's fine actually, we're going ahead for 2D, 3D acquisition and our exploration is going well. Thank you.
Now we can proceed to the question and answer session.
[Operator Instructions] The first question is from the line of Karan Rautela from Centrum.
My first question is regarding the Baghjan's fire problem has been resolved. So are we still expecting some production numbers? And if you can give any guidance related to that oil fields, that will be great.
Yes. Baghjan is a very potential field for us. It is having lots of potential. In fact, Baghjan plant is only 1 well in that area, which is closed after this blowout, but there are a number of wells in that area. We have been producing from that well -- from all these wells. And we have an ambitious plan for harder drilling in that area also. So we have already earmarked a place from where we'll be drilling 5, 6 cluster wells from the same field. For that action has already been sorted out, and we have been working on that. So there is definitely a scope for increase of production from that area. Thank you.
So any numbers you want to -- in production?
You need the number of production volume. In terms of production volume, the gas production is presently 1 plus, 1.5 to that level, but we have a potential of -- we can go up to 5 million metric tonne from -- 5 million standard cubic meter from that area. So in fact, we have a plan for that. And for that, we have been creating one infrastructure facility in that area also. So after completion of the infrastructure facility and completion of the drilling, we'll be able to go up to the level of 5 million metric standard cubic meter per day production from that area.
My second question is more of a bookkeeping. You have a provision of around INR 650 crores, so what is that related to? Is it a permanent impairment, if you can give any clarity to it, it will be great.
Those impairment of INR 650 crores is basically related to write-offs of dry wells, like you're aware in an exploration company. So in case of any explosion -- exploratory wells, which do not meet commercially viable oil and gas those wells are provided for and subsequently written off. So these are provisions towards -- impairments towards such wells.
[Operator Instructions] The next question is from the line of Varatharajan Sivasankaran from Systematix.
Sir, any update on your overseas assets, each of them how they are progressing and what is the current status?
So overseas assets, as you know, I think already the FID [Technical Difficulty]. Currently, the project financing is in advanced stage, and we are hopeful that the bid closing will be completed by this quarter end or latest by next quarter. So that is -- that project is moving ahead in terms of that. With regard to the project in Russia, there also -- this project is going on as per plan, and we are regularly getting dividends from there. These are the 2 major projects that we have overseas.
[Operator Instructions] The next question is from the line of Sabri Hazarika from Emkay Global.
Yes. So I have a few questions. The first one is relating to this provision that you mentioned that it is because of dry wells write-off. So you give a separate exploration write-off also. So that's also there. So what is the difference between the two? So that was around INR 10 crore, I guess, and this is around INR 650 crore. So what is the -- why different reportings on this dry well?
So if I understood your question correctly, what you're asking is that, why do you have a separate line item for provision and separate line item for write-off? Is that the question?
Yes, yes, yes.
Okay. The point is that whenever there's an -- whenever we get the first-hand indication that the well will not be commercially producible, then as a matter of conservative accounting, we immediately do the provision and charge if off to profit and loss account so that the profit figures are not overstated. Now writing off a well where we are in partnership in a JV with other parties. There is -- it is a little long-drawn process because even DGH is involved in the process of writing it off. So it is just a matter of time before the provision that we take, the wells are written off. And if the wells are actually written off, there is a hit on the financials, because the hit on the profit and loss account takes place at the point when that provision has been taken. Does that answer the question?
Yes, got it. Yes. And second question is on this 4 million tonne plan. So this is quite an ambitious plan. So what is the time line for this? And is it part of the existing INR 3,000 crore CapEx or that can lead to higher CapEx also?
No. The guideline for -- this is '24, '25. By '24, '25, we are supposed to reach 4 million. As you know, E&D activities are -- has to be planned in a long-term plan. So this is -- we have not taken the long term. We have taken for up to '24, '25 and for that, we have selected 5 fields, basically 5 existing fields where the exploration activity will be more, more drilling and more exploration. Out of that, one is in Baghewala that is in Rajasthan, 2 fields in -- or 3 fields in Assam and 1 field in Arunachal Pradesh. So with that fields with more exploration, we'll be producing more. That is the plan now. Because all these fields have lots of potential and on the basis of their potential that 4 million has been designed.
Okay. And this is mostly on the existing blocks that you have mentioned, nothing from OALP or anything?
No, this is not from OALP. This is from existing blocks only.
Okay. And any corresponding increase in gas production also you are estimating from this?
Yes. Definitely, there will be increment in gas production also.
Yes. There will be a corresponding increase in gas production also. Actually, we are going ahead and we'll be producing roughly around 10.5 MMSCM.
MMSCMD?
Yes. Yes.
The next question is from the line of Divya Poojary from JPMorgan.
Sir, I have 2 questions. So what was the total borrowings as of December 31? And secondly, what was the CapEx spent on YTD basis? And also if you can share CapEx guidance for next year?
Yes. Coming to this borrowings that we have in our books. As of December 31, we have a total borrowing of $1.275 billion. The entire borrowing is basically for our overseas project in Mozambique. This is as per the stipulation from the government that we have to invest the entire funds for this, either from overseas borrowings or overseas earnings. So whatever borrowings you are seeing in our books is for this project. For domestic CapEx, we are not borrowing anything as of now.
Okay. And what -- and like on a consolidated basis, what is the CapEx guidance for next year?
We have a CapEx guidance of around INR 4,000 crores.
The next question is from the line of Vidyadhar Ginde from ICICI Securities.
Question on this provision of INR 650 crores. Again, I think in your initial remarks, you did mention there is a write-off of wells in the KG Basin is it, which basins is this?
KG and Mizoram.
Mizoram. And these are -- if my understanding is right, answer you gave earlier is that in case of nil blocks, you make a provision, whereas if it's a nomination block, it's a write -- exploration write-off? Is it?
No, no, no, that is not the answer. As -- till the well is finally written off, we take -- we make a provision. And when the formalities are completed as far as the write-off is concerned, then we write it off.
No. No, but in nomination blocks is DGH involved?
No, DGH is not involved. But I will say, even the interim approvals might take some time, whenever we take an initial indication of the well not being commercially producible, immediately, we take a provision for that.
Okay. Okay. So but this -- both these blocks, this KG and Mizoram, they are nil for nomination or nomination of the two?
Nil. Both are nil.
Both are nil. Okay. And you had a big number. So you have even in past quarters, if you see in first quarter, this year and first quarter, last year, there are big numbers in provisions. Were they also write-offs?
Yes. First quarter this year, there was another well from Mizoram only.
Okay. Okay. And second question is regarding this cost of support services has also gone up very sharply, why is that?
That is because of our -- because of the exploration activity that is happening in the OALP blocks.
Which blocks?
OALP blocks. O-A-L-P.
Yes, yes, yes. The open licensing policy. Yes. So this is now a recurring thing is it? You'll -- this number will be high going forward?
This number has been going forward for 1 or 2 years. And then once we go to the next phase, then depending on the outcome of the seismic data and interpretations we will take it forward.
And why is the insurance and CSR sundry expenses number sharply lower this year in Q3 as well as in 9M, as per the details on your data, the financial data analysis, which you gave it's just INR 13 crores this year compared to almost INR 130 crores Q3 last year. 9-month number is just INR 5 crores, there's a negative item in Q2. So like it's INR 5 crores, INR 5.52 crores this year compared to...
Some amount is because there has been an exchange gain and some exchange loss provision.
Also this is exchange as part of this, sir?
The major part of that is exchange, that's played a role in this.
Okay. Last question is on any thing which you could share with us on the gas pricing front, any possibility that the gas pricing formula may change. There is some talk of committee being formed and there was some buzz in September in press report that something may happen. Any update on that?
Actually, the committee has been formed, and we are also part of that committee. The report has been submitted by the committee, with these recommendations. But any further development in this regard depends on the government policy.
Pardon me? Government policy.
Any further development would depend on the government policy.
[Operator Instructions] The next question is from the line of [ Nimesh Bhoge ] from HDFC Securities.
Yes, sir. Sir, my question is on the Mozambique update. So what is the current status of Mozambique LNG terminal? And by then, do you expect LNG to come to India?
As I already said that we are in the process of tying up the financing for this. And the earliest indication of production from Mozambique is '23, '24.
Okay. And on the second question is on the NRL, sir. Sir, your joint venture with the EIL you are now discussing are the acquiring stake of NRL from BPCL. So what is the current status and by when you expect that valuation and the exact transaction will happen?
Actually, we have not received any formal indication regarding taking over -- there has been a policy decision in these regards, of course. But we have not received any formal indication from the government regarding -- but we are making some internal assessments in this regard, and we'll be able to share more information once the formal government approval comes our way.
[Operator Instructions] The next question is from the line of Manikantha Garre from Axis Capital.
Sir, I have a few questions, which I would like to check with you. First one is on your press release, you have mentioned that adjusted EBITDA is INR 744 crores. If you can please help us with how the INR 744 crores was arrived at? Like what all one-offs are excluded in this?
Only the write-offs pertaining to the Mizoram and KG Basin wells have been excluded because these are one-off exploration projects. That's why we excluded as they don't have a bearing on the continuous earnings of the company. So to give a better picture on the operations regarding earnings, those have been excluded.
How much was that, sir?
Around INR 500-odd crores.
INR 500 crores. Understood. And can you please provide FY '21, '22 crude production guidance as a whole if you have those numbers?
That Director Operations, has just mentioned about it.
Okay. Okay. Sorry, I think I missed it. Then if you can just give FY '22 guidance only for crude and gas?
Next year, definitely, the production will be high. I'm not -- as of now, I cannot give you exact figures, but our target -- targets are yet to be, a number is yet to be finalized for that.
Understood. Okay. I thought I missed the numbers. Fine. And how is the gas output situation currently with Brahmaputra Valley Fertilizers? When do you expect that will get resolved if you can provide some update on that?
Yes, BVFCL, 1 plant is out of order, but now they have been coming up their 4th plant, plant 4. So we get the expected gas production, gas requirement from that, that will be high. But as of now, it's in a planning stage, but 1 unit is still out of order. So that's why -- as for commitment, we are not -- they are not being taken -- they are not taking the exact requirement. So that is -- but the new plant will be taking some time, maybe 2, 3 years.
[Operator Instructions] The next question is from Somaiah V from Spark Capital.
Sir, this new project [Technical Difficulty]
Mr. Somaiah, we can't hear you very clearly. I request you to use the handset if you are on hands free.
Yes. Is it better now?
Yes, sir, please go ahead.
Yes. Sir, my first question is on the new projects in Rajasthan [Technical Difficulty] that 2014.
Mr. Somaiah, your voice is breaking. You're cutting off.
Audible now? Hello is it better? [Technical Difficulty] Hello, is it better now? Hello?
Yes. Yes.
Yes. As for the new project in Rajasthan and Assam, I understand in terms of the ramp-up. So currently, the stage that we are in and how do we see production ramping up over the next couple of years?
In fact, the present production level, if you consider from Rajasthan and Assam, it's around 3 million metric tonnes. So as I already told you, that we are going for enhancing production to 4 million plus. So for that, we have selected 1 field in Rajasthan, that is Baghewala field where we have heavy crude oil. We are producing, heavy crude oil through cyclic steam injection. So this is one of its kind that has been done in India for the first time. So with that, we have been producing the heavy crude in that area. And similarly for Assam field also, we have identified some areas for project activity. And with that, total production will be going up to 4 plus.
Got it, sir. INR 4,000 crores. So I mean, can we have some kind of a broad breakup on where this would be kind of put into like, how much into the exploration? How much into new well developments and how much into maintenance more?
Can you please repeat the question, we couldn't really get the essence of it.
Sir, in terms of our CapEx program, the INR 4,000 crores that we have mentioned, I just wanted to understand the broader hedge of this CapEx program, how much into development drilling, how much of the exploratory drilling? How much into the normal maintenance CapEx that we require?
Basically, if you see our development drilling and exploratory drilling is close to say 25%. So around 50% will be going to development drilling and exploratory drilling. Our overseas CapEx is also included there, which is roughly 15%. And the remaining will be for the equipments et cetera.
The next question is from Vikram [indiscernible] Capital.
Yes. I just want to know, sir, is this the provisions of $6.5 billion, the trend should be going forward the same? Or should -- what is the outlook on that? And the second question is why there was a tax credit? Is there some mechanism for the tax credit?
I'll take the second question first, then you can just repeat your first question. I can't understand it. Taking the second question first, actually, this tax credit you see is because we have opted for the VSVS Scheme, Vivad Se Vishwas Scheme. And there's a tax refund to the extent of about -- around INR 1,300 crores, INR 1,300 crores due to this. And this is the reason why we have the tax credit. And if you could repeat the first question, we couldn't understand the first question.
So there's a provision of $6.5 billion in this quarter. So do you think that provision spend should be like that in the coming quarters? It will -- it will be the -- it will be different from this?
Okay. Okay. No. No, that will depend on how -- it may be on the same lines or it might differ. That will truly depends on what kind of exploration activities happen, what kind of distribution activities that are happening right now. So that call will be taken subsequently at the end of the quarter. It's difficult to give a guidance on that.
[Operator Instructions] The next question is from Sabri Hazarika from Emkay Global.
So I actually wanted to know the breakup of your CapEx plan between exploration, development and other particular heads actually?
We have already answered it. If you want a detailed answer, maybe we can give it to you after this conversation. Okay?
Right. But -- okay. Okay. And second is I missed out on this NRL deal thing. So what is the status right now?
The status, as we mentioned, is that we are making some internal assessments, and we are waiting for the final approval from the government.
[Operator Instructions] Next question is from Manikantha Garre from Axis Capital.
Sir, I just want to check on the CGD projects, that you have won in 9th and 10th bidding rounds. Can provide us a status of how much CapEx has gone into this? And what kind of volumes, if any, are there currently? That's the first question. The second one is, just wanted to check with you on the claim towards natural gas subsidies, can you please remind us, how does this work actually? That's the second question. And the third question is if you can provide the latest 1P and 2P results?
We'll take the third question first.
Yes. The latest, actually, as you know, this result assessment is on a yearly basis. So whatever I can provide you one for 2020 figure that results -- oil reserve is 74.65 million and gas reserve is 60.06 million.
And going towards natural gas subsidy?
This claim is basically, there are some priority sectors identified including fertilizer and tea gardens, which gets a 40% subsidy from the gas price. That is they paying the 60% of the price and 40% is reimbursed by the government. And this goes towards that subsidy.
So 60% by the government and 40% by us?
No, no, no. See, 60% by the consumer and 40% by the government.
Sure, sir. Understand. And this 40%, the government is what you get as planned towards NG subsidy?
Right, right, right.
Okay. And the CGD project?
And first question. First one, the CGD actually this is still in a nascent stage. And not much progress has been made so as to really report on the task.
Okay. If I can ask one last one...
In fact, regarding one company has been formed, where Oil is also a part and Assam Gas Company is leading the team. So that action is going on in Assam.
Sure, sir. And just to confirm this transportation income is your pipeline transportation income, right sir?
Yes. This is all the patents together. This is the crude oil trunk pipeline as well as the NSPL. And then one is a Siliguri product pipeline.
That was the last question in queue. I would now like to hand the conference back to Mr. Sabri Hazarika for closing comments.
So I'd like to thank the Oil India management for this session. And I'd also like to thank all the participants for attending this call. Thank you so much everyone. All the best to the management. Have a nice day.
Thank you, everyone.
Thank you very much.
Thank you so much.
Thank you very much. On behalf of Emkay Global Financial Services, that concludes the conference. Thank you for joining us, ladies and gentlemen. You may now disconnect your lines.