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Oil India Ltd
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Ladies and gentlemen, good afternoon, and welcome to the Oil India Limited 4Q Financial Year '20 Call, organized by Batlivala & Karani Securities India Private Limited. [Operator Instructions]I would now like to turn the conference over to Mr. Bhavin Gandhi. Please go ahead, sir.
Thanks, Mayuri. Good afternoon, everyone. On behalf of Batlivala & Karani, I welcome you all to this 4Q FY '20 post-result conference call with the management of Oil India. It gives us great pleasure to host the management of Oil India.I would now like to request Mr. Harish Madhav, Director of Finance, to give us his opening remarks, after which we'll open up the floor to a Q&A session. Over to you, sir.
Thank you, Bhavin. Thanks for arranging this call. Good afternoon, dear friends. It has been a while since we have interacted with the analyst community. In fact, last few months have gone in all the corona-related activities. So literally, no communication, except on some personal basis based on some calls, et cetera. So we are sorry for this absence on basically communication. That's why we thought let us start communicating once again with all the analysts and investors. Last year, we also could not conduct our annual investor meet because of change in the senior management of the company, the Chairman appointment took place in October. And after that same thing, something or the other, time didn't permit.Coming to the current year results, we have already shared the results with all the analysts. And the details also -- additional details, which we regularly share, that have also been passed on, plus posted on our website also. I will briefly give the indications about the performance, both physical and financial of the company.Coming to the crude oil production. Quarter-on-quarter, the production was -- quarter means Q4, the production was marginally higher at about 1.5% compared to Q4 last year. But on an annual basis, the production is about 5.5% lower at about 3.14 million metric tons as compared to the previous year. The major reasons have been this CAA-related protests, et cetera, for about 10, 15 days in the Northeast. And then last about 10 days gone in this corona-related lockdown issues.Natural gas production also because of these reasons is marginally lower as compared to about 2,000 -- 2.86 BCM, which is about 2.8 BCM this year.On the financial side, the main factor affecting the financial performance was the crude oil price realization, which declined by about 12% compared to last year 2018-'19. The realization this year, average annual was $60.74, whereas in Q4, it was only around $52 per barrel. The gas price realization though was slightly higher in the last financial year, but currently, the realizations are lower, as you are all aware, which is about $2.39 current price, and we expect this to further go down.Crude prices also, in the current year, will be even lower. And though they have started building up now, but maybe not to what level we released. Because of this crude price -- crude and gas prices and the production, the financial performance, of course, has got adversely affected. The EBITDA for the year is down to about 30% as against 45% last year. In terms of numbers, this is about INR 4,110 crores as against INR 6,900 crores last year, resulting in lowering of the profit before tax also by about 45%, 46%.Another reason for down in the lower profit before tax was -- is certain impairment provisions, which I will tell a little bit in detail. Though the profit before tax was lower by about INR 1,600 crores, INR 1,700 crores, about 45% lower, but the profit after tax, we have been able to almost maintain at the same level as last year with very minor correction of INR 5 crores, INR 6 crores. This has happened mainly because of the adoption of the lower income tax treat from 34% to about 25% this year.We also adopted the -- this Direct Tax Vivad se Vishwas Scheme 2020, which was introduced by the government, and all disputes from 2003-'04 assessment year till 2016-'17 have been -- are supposed to be settled under this scheme. Though some cases were decided in our favor at the tribunal level. But the department has gone and appealed at the high court level and subsequent year cases about last 7-, 8-year cases are still pending at the appellate stage. So it was a conscious decision to take it as a company to offer this scheme and take a benefit. Since we have taken provisions of all the additional taxes, even considering the tax liabilities, which we are opting for in this Vivad se Vishwas Scheme. As and when the cases are settled, there will be a reversal of tax liabilities. Some has been taking -- some portion has been considered in the current year, depending on the status of the cases. And as and when the other cases are settled, that treatment will be done.On the dividend side, the company has declared a final dividend of INR 1.60 per share. You will recollect, we had -- in the month of February, we had paid INR 9 per share as interim dividend. So total dividend payout is about INR 10.60 per share. In terms of dividend payout ratio for the profit after tax is about 43%, 44%. This is the range, which company has been consistently maintaining over last several years.One recent incident, which I would like to point out this -- you're aware also about with Baghjan. One gas well, which caught fire -- which started blowout in -- on 27th of May and later caught fire on 8th or 9th of June. We are in the process of controlling that blowout situation, and we expect to control that completely by maybe the beginning of second week of July or maybe middle of second week of July. That is the situation. The well was producing around 80,000, 85,000, 90,000 standard cubic meters of natural gas before -- when it was in production. So that's the production loss we are having today. But overall, if we see the contribution of well to the total production is just about 1% of the total gas production. And we are making attempts to not to completely abandon this well, but we are trying that this well maybe later on can be revised and brought into production once again. We have with us our Director of Exploration, also, Mr. Chandrasekaran, on the call; and my ED Finance from Duliajan. They are from Duliajan. So there may be some pickup in the quality of the call from their end. Director of Operations, also, I was trying to bring him in, which we had mentioned also in the invoice, but he has to be on the field on this Baghjan-related issue, so he could not attend.With this, I think initial thing is over from my side. We can -- we are open to concall. DE sir, would you like to add something on this? Chandrasekaran sir?
Yes. You want me to add something on Baghjan or in general?
Yes, something -- not specifically to Baghjan. Anything, in general, sir, about the company.
Yes. So as far as Baghjan is concerned, like Mr. Harish, Director of Finance, mentioned, we are fully equipped now. And all the equipments and the men and material, everything has been mobilized. And it's a big effort. So we are very hopeful and confident that we would be capping the well very soon. And all the material -- everything is in place now. There's absolutely nothing to worry on that front. But however, the last couple of days, there were a lot of rains, and then we had road comeback situation also today. And so as Mr. Director of Finance told maybe by second week of July, we should be in a position to completely cap the well. And this was an unfortunate incident, but I think -- I believe all of us are aware that these are not uncommon, although it's not so desirable. So this is the status of Baghjan 5.And as also told by Mr. Harish, what we are trying to do is we are trying to retrieve the well so that the well can be brought on production subsequently. But this is -- this would be dictated lately by the technical challenges when we go and actually cap the well. Because it's completely a technical matter. What we are trying to do right now is we will try to retrieve the well so that the same well can be put on production. As of now, we are hopeful that it can be done.Yes. Anything specific? Maybe I can...
Yes, sir. Bhavin, now we can go ahead with the question and answers.
[Operator Instructions] We have first question from Mr. Probal Sen from Centrum Broking.
So with respect to Baghjan, a slightly hypothetical question. We have seen several reports of the increased -- some amount of hue and cry being raised over the entire area. So you obviously mentioned the production numbers for the specific well in question. I just wanted to understand what is the contribution of the overall Baghjan asset to our overall production? Can we get a sense of how many wells are there? And what do they contribute in totality to our gas output, sir? That was my first question.
Yes. Actually...
Maybe you can -- Chandrasekaran, you can start with your responses.
Yes. Baghjan is one of our -- I am Chandrasekaran here. Baghjan is one of the main fields of Oil India. So the -- like if you talk about the oil production, it contributes roughly around 10% to 12% of the total production of oils here. And if you talk about the gas, it's, I think, less than 2% right now, 2% to 3%. It was around 170 million cubic meters was the total production from Baghjan. But it is a big field, which has got a huge potential. And so what we are right now doing is, it's got a very huge potential. And what we are right now doing is we are trying to step up the production. We have got plans in place, where we -- by which we will be increasing the production of this particular field itself to more than around 5 million cubic meters per day, right? So the total current production of Oil India gas production, if you look at it, it's something around 6.5, 6.7 million cubic meters per day.So this field has got a huge potential for roughly around more than 20, 25 BCM of gas itself. So since we had not -- we didn't have much gas infrastructure in place, we are not holding these on production for production of gas. We are not -- we are developing here a field gathering station, gas gathering station. And we are also [indiscernible] infrastructure. We are laying a pipeline [indiscernible] with capacity of 5 million cubic meters per day. And we -- around which will be stepped up to 7.5 million cubic meters subsequently by the year 2028. So initially, we are planning to upgrade it to around 5 million cubic meters per day in the near future.So the field seems potential. And so we have already released a [indiscernible] and you must be following -- if you are aware, it also depends on the gas marketing, the demand in the area. So we are carving these and then that's a subject which we are handling. And we are hoping that the production of this particular field, and [indiscernible] recently is that we have got the oil leg, which has been extending both in the East and the West, so -- on the North also. So field has got a huge potential and -- with both oil and the gas. So there are several layers where we have gas, and there are several layers where we've got oil, which are oil-bearing with some gas also. So this is the scene of Baghjan because Baghjan is going to be one of our main -- which would be producing more than 30%, 40% of the total gas production of Oil India. And this project also is quite substantial.
So if I may -- if I just may interject, just to summarize, you said that current gas production roughly is about 0.17 MMSCMD, which can potentially go up to 5 MMSCMD. Did I hear that correctly, sir?
No, no, no. It's not 0.17 MMSCMD. The total gas production -- the total [indiscernible] gas production was around 169 million cubic meters, that would be roughly 0.5 million cubic meters per day. That will be the...
So 0.5 MMSCMD, which can go to literally 10x, is what we are targeting, correct?
Yes, yes, yes.
And oil production today, you said 10%, which implies about 0.25 million to 0.3 million tonnes from this area?
Yes, yes, yes.
Right? And that can also maybe grow as your more and more discoveries or more glares are discovered?
Yes, that will also grow because as I told you, right now, just last year, we could see the extension of an oil reservoir. So we are hopeful that we will definitely maintain the oil production, maybe increase it by around 10%. And the gas production will subsequently increase maybe, as you said, 10x, yes.
Got it. And the second question I had, sir, was with respect to the KG field. I believe we have taken about INR 300-odd crore of a write-off on one well that has been drilled and completed. Sir, any updates you can share in terms of exploration activity on our KG asset? And time lines in terms of when we can expect to commercialize the asset in the term?
Yes. So there are -- if we -- right now, what we have done is, I think you must be a little aware, but I'll just give you a small brief on what is happening on the exploration front.So I think -- see, we are very actively participating in the [indiscernible] fronts. So our strategy was to strengthen our position in the Northeast and Rajasthan, which was one thing. Number two, was to go into some areas where we have some good potential. So like given in KG, let me first talk about your talk to -- talk with reference to your particular question. The KG onshore blocks which we were holding, there were 3 discoveries in the blocks. And one discovery, we have relinquished. We've said that it is not economical. And hence, we surrendered that [indiscernible] discovery. And we have now -- we have relinquished most of the area. But right now, we are building only roughly around 350 square kilometers or even less than that. So probably, what we are trying to do is there are 2 HP/HT discoveries there. So the 2 HP/HT discoveries, we are in the stage of appraisals. So we are not planning to do any further wells, but we are trying to put these wells on extended processing system. And so the one well, which has been written off, other than that, there are 2 HP/HT wells, which are discoveries, which are gas discoveries. And right now, we are going ahead or we are planning to do and extend the production testing, and we have got the approval of the BBH and the ministry, that we will put the well on production for a continuous period of time and see whether the field is really capable of giving me a commercial -- whether it makes a commercial sense to develop further discoveries. So we will not -- so what we have decided to do is we'll do an extended production testing. And based on that, we'll take a call whether to go ahead and then develop further.So this whole extended production testings -- yes, any...
Sir, I could not get the extended, what testing?
Extended production testing.
Production testing.
Production testing. I'm sorry, sir, I wasn't very clear.
Yes. No problem. So what happens when we drill a well and complete -- the -- test it and complete, the testing is done for maybe a few days. And then -- so in this HP/HT, high-pressure, high-temperature and right reservoirs, most of the time, it becomes very difficult to assess the reservoir in a span of maybe 3 days, 4 days or 1 week after this. So the reservoirs should be allowed to flow for a continuous period of time. And for this, we presented to the BBH and the ministry, and we have now gotten the approval for without drilling any additional appraisal wells or things like it. We will go back to the same well where the discovery was made and put the well on continuous testing for maybe a couple of months or 3 months or 4 months, and see whether it makes a commercial sense to go ahead and then to develop the fields. Because drilling and all is going to be very expensive. So we are not planning to do that. So this is the status of KG. And -- yes.
Got it. Got it. Right, sir.
[Operator Instructions] We have next question from Mr. Sabri Hazarika from Emkay Global.
I have 3 questions. The first one is related to results. So your other expenditures for the quarter, actually, the provisions went up significantly as well as there's an increase in insurance, rent and CSR, sundry expenses. So any -- so if any can you please give us details on this?
Sabri, Harish Madhav here. So the expenses have gone up only because of the impairment and the well write-off provisions that we have taken. The well write-off provisions, just now what we discussed in reply to Probal Sen also. One well of KG, we have written-in now, that is about INR 330 crores. And in respect of overseas assets, we have taken impairment in respect of Russia, less than INR 61 crores, out of the U.S. shale oil asset and about INR 47 crores -- INR 45 crores provision in respect of our Meridian assets. This U.S.A. and Russia, total provision is about INR 1,200 crores, INR 1,250 crores. Because of this, other expenses have gone up. Sorry?
Just to add, you said that INR 330 crores on this KG well. So this is part of provisions? Or this is part of exploration cost written-offs?
This is part of provisions.
Okay. And then exploration cost written-offs you have also around INR 400 crores. So anything on that?
Yes. Yes. In respect of that, this was another well which we had, if you see our Q1, Q2 results, another well in KG, the nearest well, about INR 240-odd crores of this provision was taken in the first quarter. And after -- once it was confirmed, we have written-off that well in second quarter. So basically, KG this time, there have been one write-off and one provision, total of about INR 300 crores -- total, say, INR 200 crores -- about INR 550 crores.
Okay, sir. Fair enough. And on the insurance, rent and sundry expense increase, that can also -- I mean, that has been like -- that thing has gone up in Q4. Y-o-Y has remained in line only. So I guess, was there any foreign exchange loss in this insurance, rent and sundry expense?
Yes. It was because of foreign exchange loss.
And how much would that be?
For Q4, it is about INR 320 crores.
INR 320 crores for Q4. Okay, sir.
Anything else, Sabri?
Yes. Second question is on your depletion. Your depletion has fallen down on 80% Y-o-Y, Q-o-Q. So anything on that?
Yes. Depletion, Sabri, is a -- basically, you must be knowing, it is -- it varies or it depends on the production and the P1 reserves.
Right.
So P1 reserves have -- our 1P reserves have gone up this year. Because of that, the depletion rate has come down.
So it has gone up substantially, that means which is like an 80% dip. So any specific reason behind this increase in 1P reserves?
1P reserve is a redesign you can again extend, but let me tell, 1P, this is a reserve estimate that's done every year. And it's a process of conversion of the results from 2P to 1P. Last 1 or 2 years before also, we had seen how the 1P reserves have gone up, but sometimes it goes down.
Right. Okay, sir. So should we take this quarterly run-rate as the annualized run-rate for FY '21? Or should we take the FY '20 annualized run-rate for FY '21?
Come again. Sorry, sorry?
I mean, your depletion for full year was around, just 1 second, your depletion for full year was around INR 920 crores.
INR 920 crores, correct.
Yes, but for Q4, it has fallen significantly. It was like, just 1 second...
See, Sabri, what happens, reserve estimates is -- they're done only on annual basis. So depletion rate for the particular year, it applies in the first 3 quarters of the next financial year. And the correction on the -- for the whole year is done in the fourth quarter, depending on the revised depletion rate or the revised reserve estimate for that particular financial year. So this will always be happening. If you see the last year also, our quarterly depletion was around INR 225 crores, INR 250 crores range, and suddenly, in the fourth quarter, went up to INR 320 crores. This is like [indiscernible].
Right. Right. But we should take the annualized run-rate to be the recurring run-rate for the reserve estimates.
For the future, yes. So current year is INR 920 crores. At least, for the recurring part, you can consider the INR 920 crores, 1/4 of INR 920 crores as likely quarterly adjusted with minor correction because of the production numbers.
Right. Got it. And just one question related to the production guidance for FY '21 and CapEx guidance, FY '21 and '22 also if possible.
FY '21 CapEx numbers, our approved plan is around INR 3,900 crores, which has been approved. INR 3,875 crore to be precise. So that is -- we have been able to reduce from last year by about INR 300 crores -- INR 250 crores, INR 300 crores. And also, I feel, we'll be able to achieve this number because first 2 months, we are directionally on that trend.Regarding the production, my Director of Operations is not there. But first of all, the MOU targets have not been finalized for the current financial year. But in view of the Baghjan-related incident and the first 3 months, a lot of disturbances on account of COVID-19, corona-related issues, my only take will be that, let us not expect any significant increase on the production numbers compared to the current year. We will try to maintain the current year number or maybe very little bit of marginal increase will be possible. I think DE sir, Chandrasekaran, you can further add to this.
Yes. Sure. I mean, this sort of what you said is correct, and it would -- we have not -- we would be striving to maintain this because of several workplace issues rather than the subsequent issues. One thing, which I would like to add is the fields. We are increasingly getting very confident about the production potential of our -- all the fields and acreages. So there is definitely no 2 ways of thinking about it. However, what has happened is there have been certain unfortunate things, which are happening, like we are started with the CAA. And then because of COVID also, a lot of -- though we are, right now, maintaining the production, maybe with some percentage points less, but we are able to maintain more than 90% of what we have been doing. But what is happening is we are facing a challenge in getting the labor and things like that. We are hopeful that it will get corrected maybe in the next 2 quarters. But we would definitely try to maintain it, and we are always striving to improve it. But at this point in time, it may be very difficult to say that I would increase it by [indiscernible] or something like that over the last year's number. But we are very hopeful that we will definitely maintain the numbers. Let's hope so. That's the -- that's what limited thing I would like to say.
Next question is from Ms. Nafeesa Gupta from Bank of America.
Sir, my question is on the price realization. Historically, it's been -- the price realization has been at a discount to the average Brent price for the quarter, like typically at some discount of $1.5. But in the last 2 quarters, we've seen some [indiscernible] the average Brent prices for the quarter. Is that because -- I mean, tell me if my understanding is correct, but is that because you sold more crude during the first half, I mean, like, when the crude prices were higher compared to the time in the quarter were lower? Or is there any particular reason for that?
I'd just like to explain the pricing mechanism for our crude. You're right that generally our crude, basically, what we sell, the realization is slightly maybe around $1, $1.5 discount from Brent. That is the general trend. But our benchmarking of crude is not with respect to Brent. It is with respect to a basket of 7, 8 crudes, which doesn't include mobilize or Brent. So the prices behave slightly differently. Those general trend is certainly basically after discount. But in this period, we saw that the Brent and mobilize, all crashed. Our prices, the benchmark crudes from which we determine our price, that crudes were trading better than all these crudes because that is the only reason.But of late, if you see, once again, we are almost back to the same trend. Brent is almost similar to what price we are realizing today. Brent is today is around $40.56 as of 2, 3 days before, and our crude price realization is also around $40.8, 20, 24, 25th June, I'm talking about.So -- but you are right that, generally, it has been at a discount, but only because of the behavior of those certain particular benchmark crudes, which determine macro price realizations. The prices, I think, changed during that period.
Sure, sir. Sir, is it possible to, like, we will not be that number, but some kind of an idea as to what are the constraints in the [ plant ] that you took?
Yes, we can tell you maybe -- during the call, we will try and find out and let you know.
Sure, sir. That would be great. And sir, my second question is on NRL acquisition. Sir, anything on that? And any time line that you can look at for this -- for the stake post-NRL?
NRL acquisition, the in-principle decision has been taken by the government that Oil India and [indiscernible] India Limited consortium will be acquiring 48% of BPCL's stake in NRL. And we have already submitted our expression of interest also. But it is purely linked with the BPCL's disinvestment by the Government of India. So both processes will happen simultaneously almost. So I can't give any time line because the BPCL, it depends purely on the government's sell-off of BPCL. So hopefully, this financially year, this should materialize.
Next question is from Mr. Rohit Ahuja from BOB Capital.
Sir, you have said you've had a national increase in P1 reserves. Could you specify what is the quantum of increase?
Quantum of change in the reserve numbers, P1 reserve numbers, 1P reserves?
That's right. Yes, sir.
Sir, can I come in.
Yes, yes. Please. You are the right person to answer this.
Anyway. Can you kindly repeat the question because what I'll tell you...
Basically, sir, he wants to know the quantum of change in the 1P reserves as of March '20 versus March '19.
That was around 6 million tonnes equivalent, if I'm right. Give me 1 second. Yes. 1P is roughly around 8 million tonnes equivalent. And I'll also give you some more information about the reserves. The reserves as on 1/4/2019 have been certified by D&M. We've got all our fields examined, and then we've got the results certified by D&M as on 1/4/19. And subsequently, what we have also done is the government had asked us to submit some production profiles, right? So we slated the production profiles based on our reservoir data, property, well behavior and all those technical details. And then this was also certified by the enhanced production profile, what we call as enhanced production profile. One is the BAU profile and other is an enhanced profile with additional wells and workover and all those things. So this also has been certified by D&M. The DeGolyer & MacNaughton is a world-renowned company for -- in certifying this. So we have got 1/4/2019 reserves certified. And subsequently, during the years '19, '20, whatever we have done, the profiling and other things of all our major fields have also been certified by D&M. So does this answer your question, at least, partly.
Yes, sir. So when does this translate into production? Because you've seen over years that the reserves keep moving up, but your level of production either stays the same or comes off a bit every year. So can you please resolve this thing for us, like when you will see actually this translate into production -- incremental production, sorry?
See, as we shared in the beginning in response to some other queries, see, currently the -- at least, the gas production, I'll talk about it. And the oil production also we are -- so let me first talk about oil. Oil, as you know, all the reservoirs are very old. And we have -- nevertheless, we have got -- we do get some discoveries on a regular basis, though they are not -- they cannot be classified as very big. But recently, in the past 3, 4 years, we have been able to get at least 1 or 2 fields, which are in the category of more than 50 million barrels. So this largely makes up for the decline of the oil fields. So that is why we are able to maintain the 3-plus million tonnes of oil production. And this has been -- this is being -- this is possible only because of these sort of things. Nevertheless, we are going ahead with certain major developments or redevelopments. One is Kumchai, and another is Baghjan itself, and another is Balimara in Assam, and one more, we are also planning to do in Rajasthan because Rajasthan, as you all might be aware, that the heavy oil production, we have made a breakthrough in cyclic steam stimulation. And this is the -- Oil India is the first company in the world, in the whole world to do this technology at this depth of 1,200 meters. There is first time in the world, which has been done, and of course, first time in India as well. So we are very -- we are going in a very focused manner.As far as the oil production is concerned, because the old fields do decline at a rate of around 8% to 10% every year, we are able to make up for this loss for the decline in production, get to the new discoveries and these sort of projects. So we are planning -- we are, at least, aspiring to increase the production by around 10%, at least, in the next 2 to 3 years, maybe by '24, '25, in the short term.Coming to gas, there is a huge potential. And what you see in the 1P reserves -- and there is a huge 3P and 2P reserves of the gas. So 1P, what we have done during this particular year is, we had an issue of getting the contracts signed for the gas volumes, okay? So the gas commitments, we have certain issues with the -- issues in the sense, they were not doing it rather. And now this year, we have done most of those things. And by end of this year, financial year '21, we will -- so that gas production, as I told you in the beginning, which is currently roughly around 6.5 to 7 million cubic meters per day, we -- by 2023, '24, this should definitely go up by roughly around 5 million cubic meters more. Maybe around 10 to 12 million cubic meters per day, we would achieve by '23, '24, which will further increase -- our target is to reach a figure of around 15 million cubic meters or roughly double the gas production. So this is the...
You're currently at 6.7 MMSCMD.
Yes. 6.7 MMSCMD. 6.7 MMSCMD.
You're saying you'll go to 12 by '24 -- 2024?
By '24. Yes, by '24, we aspire to reach 22. The results is not an issue at all. That's what I'm repeating not because of -- but, I mean, let me be understood in the right perspective. Please do not read anything between lines. Even this Baghjan 5 definitely indicates that the results are not there because there are several blowout wells which die down on its own, maybe after a couple of weeks. So we are still having the -- so I mean let this not be read between lines please. What I'm trying to tell you is there is a huge potential in the subsurface. And the correction profile as far as the gas, we are definitely enhancing it to around 12 million cubic meters by '24. And the production of oil, we are definitely hopeful at least by 10%, with reference to 3.2% levels. And I'm talking about with reference to 3.2% level is always possible. And with reference to that, maybe by at least around 8% to 10%, we would be able to push it by '24.
So this -- all this incremental gas wouldn't get -- come under a peak price regime or continue to get the APM price?
Pricing part -- this is still APM only. This is APM, but this is -- it's all fixed by the -- it is governed by the pricing mechanism only.
Yes. So APM formula will be applied to this?
Yes, yes.
Next question is from Mr. Manikantha Garre from Axis Capital.
Sir, just I would like to understand what is the current breakeven cost for our gas portfolio?
Gas, Mani, is about -- exit production cost was about $2 last year on an average, both Rajasthan and Assam, Arunachal put together. About $2, $2.1 per MMBtu.
Sorry sir, can you please repeat that number?
About $2, $2.1 per MMBtu average for the country as a whole. Rajasthan is slightly higher, but overall, on an average if we see for the company, it is about $2, $2.1 per MMBtu will be the breakeven cost.
Understood. In relation to that only, if you can provide some light on what could be the breakeven cost that you're targeting for this additional gas production that you just suggested by far '24, you tend to -- you would like to take your production to 10 to 12 MMSCMD by far '24, right? So would that be at higher gas production costs or at the same level?
Harish, sir, can I take this?
Sir, please.
Sir, actually, productivity of our wells is quite high. The productivity -- so the intention is to produce more gas per well and the objective would be not to drill more wells for more gas. So the per well productivity of, say, the Baghjan or Barekuri or whatever our gasfields, it is quite high. So what we are targeting is to have less cost and more production. So that is the productivity per well. We are -- so we would be initially spending here maybe around 10% to 20% more in the cost of wells, but the total -- overall wells which would be drilled will be much less. See, supposing I have to drill around 10 wells for, let's say, x production, now we will be drilling only 3 wells, but the 3 wells possibly by around 10% to 20% more than the conventional wells. We are planning to have a good production system and the premium casings and things like that. But the overall development cost will be much less. So the cost of production would definitely lower their [Technical Difficulty]
Understood.
Did that answer your question?
Yes, sir. That answers my question. Again, with relation to this only, I think in the initial commentary, Harish Madhav sir has mentioned that from H2 onwards, we will see further decline in APM gas pricing. So is that confirmed? Or is that already indicated to you that we'll be seeing a further decline? I'm asking this because there were also some signs from other companies that there is a possibility of gas pricing keeping -- being kept at constant levels or there could be a slight increase also. So if you can throw some light there?
Mani, my observation was keeping in view the current gas pricing policy. If there's a change in the policy, then it will be a different thing.
Sure, sir. So you are saying, as per the current policy, there will be decline. Understood. Sir, my second question would be, have you seen any deflation in the oil services costs over the past 3, 4 months? It's a small period, but just would like to understand how the oil services costs have behaved in this last couple of months and crude has crashed?[Technical Difficulty]
Yes, we are back. So if Manikantha is there. I was replying to his question about the gas pricing. See, my estimation was based on the current prevailing gas pricing policy. Correct? And as per that policy, the pricing is based on previous 12 months, 4 quarters, certain benchmark intellectual pricing with one quarter lag. That means the pricing applicable from 1st October will be based on the prices -- international prices 1st July 2019 till 30th June, 2020.Now looking into the trend, we expect that there will be a further reduction. However, in case the government modifies the policy in between, comes out with different benchmarks or anything like that, that situation nobody can say at this point of time. That will be a different scenario altogether.
Understood. Can I go ahead with my second question, sir?
Yes.
Sir, I was asking about the deflation in oil services costs that you have witnessed over the past couple of months. It's a small period, but just would like to understand if there is any benefit towards with respect to the oil services cost?
I didn't get -- deflation, what you said?
Oil services cost. Oil services costs, yes, production.
Productions -- service cost?
The rig costs and the operating expenses related to the product and development.
What was the question on that?
So have you seen any deflation -- decrease in the pricing because of -- after the crude crash?
Decrease in the pricing. Chandrasekaran sir, any idea? Can you comment on that?
I couldn't exactly get...
Basically, the question is whether we have some indication whether the -- in view of the crude oil pricing, the low crude pricing scenario since last quarter of -- sorry, first quarter of current calendar year, whether the oilfield services costs are showing any declining trends, like rig costs, something.
Not much. Not much is what I would say right now, but it would be prudent to wait for at least 1 quarter because there is a lot of layoff that's all right, but we have not seen any perceptible drop in the services in this part of the world, at least. So maybe if there is 1 quarter more, it would be -- we would be able -- because, see, most of the contracts which are for the billing or the price mix, they will not come down. Maybe next 1 quarter or 2 quarters, it should be very clear. Because production holdover is not part of this, at least. It is due to something else. So this is my limited knowledge from the subject and [ age. ] But it has not seen any perceptible fall.
Sure, sir. If I can squeeze in one last question. Would you be able to give your natural decline rates for FY '20 for oil and gas field separately?
See, gas is very less, maybe around 1% or 2% but the oil is around 8% to 10%.
Next question is from Mr. Vishnu Kumar from Spark Capital.
Firstly, from the previous caller's question, when you mentioned the $2 is your cost of gas, is it a cash cost or also the investment cost is also covered in it?
Investment cost is not covered in this, but the depreciation depletion is included in this. Depreciation on investments is included in this.
So it will be like 1.3 plus 0.7, something like that? 1.3 would be cash?
Depreciation impact on the cost will be, 1 second I will just now tell you. Depreciation is -- depreciation depletion is around 0.4, 0.45 range.
Got it, sir. And second one, you mentioned that you can increase your gas production by about 5 MMSCMD over the next 3 to 4 or, let's say, even by '25. Are there enough off-takers? Can you just give an idea about the evacuation plan, which customers -- are there enough large customers? Or if not in northeast, then where will we take the gas?
[indiscernible] sir, you would like to answer or should I say something?
See, the gas customers -- see, there's a very -- see, the future, we are -- see, there are several contracts which are expiring in '32-'33. There are some contracts which are expiring in '26-'27. So the requirement is definitely there for the current contracts at quantity of around 9 million cubic meters per day, if I'm correct. So we were only trying to get a firm contracts signed, which is a regular routine process. The problem -- I wouldn't call it a problem. The matter is unless you have the international standards of reserve estimation, they do not allow us to keep it in 1P, right, unless I have firm contracts. So that is the reason why you would have seen also the 1P will start moving. This year we have done it because we have talked to all the people and so there is an improvement in the 1P reserve accretion. And there is a movement of 2P to 1P. So we are currently right now, talking to various customers and then firming up those contracts and then asking for a long-term -- signing of those contracts for a long term. This is the thing what we are doing right now.
To add to this, I will just mention that 2 projects which we are straight away looking into. One is the Numaligarh Refinery expansion project from 3 million tonnes to 9 million tonnes. That -- we presume that, that will require some additional gas supplies to Numaligarh. And the Brahmaputra Valley Fertilizer Corporation Limited, also BVFCL, is also coming up with their fourth unit of, I think, urea plant or something. So we have an additional commitment of about 0.172 or 1.72 MMSCMD, something like that to them. So this -- that plant also has -- will start activity now. Maybe it will come up for production next 3 to 4 years' time frame. At least, these 2 major customers, we can immediately anticipate that demand will come from. And then BVFCL is talking of expansion and all those things. So it should not be difficult to find customers for the extra production.
Got it, sir. So basically, we are also banking on form arrangements that you're entering into, and they will continue with their CapEx plan, post which by '25 if they also complete, then our gas evacuation will have -- will not have a challenge.
Our production will go up only along with the demand projection.
Fair enough. Fair enough. And...
We will -- if demand is not there, we will build up the capacity and not start to receive until the demand is there.
Got it. Sir, NRL, obviously we are going to expand from 3 million to 9 million tonnes when we're saying that. How about oil production? Will we support the requirement? Or how is the current plan? Because you seem to be more confident on gas rather than oil. So the 6 million tonne gap for NRL, where will that gap be filed for?
The entire production -- entire crude requirement for this refinery expansion plan, 6 million is supposed to be met through imports only. The Northeast crude oil production, there is no way it can meet even the current demand. 7 million tonne, I think, it is -- the current capacity is 7 million, and total production in Northeast is just about 4.5 million, 5 million. So the entire new expansion program is based on the import of crude oil.
Got it. Currently for NRL how much are we supplying, sir, out of this? Let's say, how much would be for imported, for NRL?
Total production, almost 65%, 70% goes to NRL.
Okay. So about 70% of NRL requirement would be met by us?
70% of existing 3 million tonne capacity, not the 9 million tonne.
Got it. Got it. Got it. So essentially, when we ferry and import and sell it, then the cost of operations will be way higher because we have to take the -- in the crude doing interline and take it back or at least distribute it.
That's refinery economics certainly they must have worked out. Based on that only, they have got all approvals.
Got it, sir. And sir, just one final question on the NRL acquisition. Is there a number that we have -- Board has agreed as to what will be the rough investment or it is yet to be decided?
It is yet to be decided.
Just a hypothetical question, given the government finances are...
I can't give any number because we also don't know because we have appointed our consultants. The government has also appointed consultants, advisers to this total transaction. And people are in the process. As of now, we have not even released the stage where we submit our dates. So that is another 2, 3 months from now. So simply, we don't have any numbers.
But as you earlier commented, it will happen only if BPCL deal goes through, only then this will also take place. This will not go separately. Both has to go together.
That's what BPCL's view is. And from discussion with the government, we also get that indication, that impression that both these will happen simultaneously.
Okay, sir. And just on your next -- sorry, sir, next 2 years CapEx can you -- if could just give us, what will be the rough CapEx?
For current year, it is INR 3,900 crores approximately, as I told earlier also. Next year also will be around INR 4,000 crores, INR 4,200 crores range.
Got it. And one final thing on the provisions. When you mentioned, sir, INR 1,700 crores, impairment would be roughly INR 1,200 crores to INR 1,300 crores. What would be the rest? I didn't get it clear.
Impairment provision is about INR 1,300 crores. And the rest is the well write-off provision in KG basin, provision for the well which has gone dry.
Okay. So KG basin is fully -- you have taken off all -- you written off everything?
Not fully. We had -- as [indiscernible] mentioned, we have -- we are still working on 2 HPHT wells. Extended production testing program is going on. So that activity is still on. These 2 wells, which we have written off in current year, there was -- already we written off or provided for. One has been written off, one has been provided for. So these 2 wells have -- there was no activity. They are presumed to be dry. So that's why this provision has been taken. But [Technical Difficulty] is going on.
But these 2 put together would be the INR 1,800 crores, roughly, the provisions?
No, no, no. There's 2. Write-off and internal put together. Correct. Yes. Yes.
Next question is from Mr. Avadhoot Sabnis from CIMB.
Sir, am I audible?
Yes, Avadhoot.
Sir, what has been the survey cost in the fourth quarter?
Fourth quarter survey cost.
Yes, fourth quarter it was close to INR 125 crores.
Okay. And out of -- if I look at consolidated P&L, there's INR 1,317 crores, which is the JV contribution profit. How much of that has come from Taas and Vankorneft?
Avadhoot, we'll reply to this question separately, if you don't mind.
Sure. And last question, any numbers you can share on the debt levels, both for stand-alone and consolidated?
Stand-alone debt currency is $1 billion -- $1,050 million worth of bonds and about...
Loans we have drawn so far.
$128 million of loans. So that makes it USD 1,178 million stand-alone and at $500 million on the overseas Singapore subsidiary levels. So $1,178 million plus $500 million, $1,678 million is the consolidated.
We have our next question from Mr. Vikash Jain from CLSA.
Just, sir, wanted to understand this oil production thing. If I look at, say, your production from the FY '12 kind of levels where you used to do 75,000, 76,000 barrels per day, is down by 10,000 -- by almost 20%. What exactly do you think would change for this to be up 10% from here in 3, 4 years? And also keeping in mind, because if you say that production will be higher by 10%, actually you need to add about 50% to gross production if we take decline into account. So what essentially is going to be -- is giving you so much confidence that it will -- that things will turn around so materially in the next 3, 4 years?
Harish sir, I'll try to address this.
Yes, sir.
See, there are 2, 3 things which are being done, okay? Number one, there are at least 3 greenfields, which are being developed or which we're planning to develop faster, you can say. I will repeat this because there is one field, Balimara; there is one field called Kumchai. Kumchai, we have got the clearances after 15 years. So the PML was pending for more than 15 years. And just last year, we could get the clearances, Ningru PML. So here, what we are planning to do is we are planning to go -- earlier, the development thing used to be done one mill after another and so here, we have gone -- we are going ahead with development of certain fields in a bunch. So currently, the production at Kumchai is hardly less than around 100 tonnes, so which we are planning to increase it to at least to 500, 600, which would be more than 5 to 6 fold in that particular field. I'm telling you only examples, there are many other things which are fairly positive. But I'm trying to give you a flavor of what we are trying to do. The question is very correct. What is the material change which is going to be done. Okay. So, if you look at the, I think, 2012-'13 or '13-'14 where the production was the highest, which was around 3.8 million, 3.9 million tonnes. So it was basically due to certain green practices which we have done and the -- some reservoirs that were done through some building techniques. Now these -- as I told you, the Ningru ML, which we have got more -- after around 15 years. I think 2003, we submitted for regrant, which we have just now got in 2018-'19. So we are going to go ahead in a big way there, number one. There is another field called Balimara. Balimara will be -- we disclosed it in '12-'13 or something like that. There are certain related challenges. There the complete field has been assessed from North to South. So we have got some very, very interesting results, which are very positive. So this field also, we are going to go ahead with a very concerted development plan. And there was -- even with Baghjan we have been -- because in the last several years, we have not been able to get any land there due to several reasons like -- probably that is known to many people here in this part of the country, that there is a huge -- there's a local angle to it. So we have been able to overcome it last year. So right now, we have bought a lot of area for drilling. And so the -- as far the oil is concerned, these 3 major things in Assam, number one. Number two is Rajasthan, which is currently -- which was almost 0 production sometime back, today which we are now producing around 200, 250 barrels. There also, what we are trying to do is we are trying to go in an economically sensible manner of drilling pad type of wells so that we optimize the cost of production because it's a heavy oil. It requires [indiscernible] cyclic steam stimulation and things like that. So there also -- there are these 4 projects which have been taken up as a major trust area by Oil India, number one. Number two, we have got so many royalty blocks now, which are struggling all around my producing area in Assam and also in Rajasthan. So I'm talking only about the producing areas and not about the rank exploration area from which the production may or may not come, which is an exploration venture. So even just adjoining Balimara, there is a block which we have got, which we had already completed the interpretation. So basically, the total outlook is positive. And the drop in production also -- I would like to add this. The drop in production in the last couple of years has been mainly due to several local unrisked issues like the PAA and other things, which were very pronounced during 2018-'19, '19-'20. And this is one thing. Next one is we are also going ahead with some EOR projects, the enhanced oil recovery projects, in very mature fields, we are going in. So the is the total exploration and development angle. From this point of view, we are going ahead with a very concerted approach.And as I had already told you about the gas, there is absolutely not a single iota of doubt whether we can increase the production or not, but then it can definitely be doubled in my -- because we have done all the GNG and reservoir studying. Only thing is we need to tie up with good customers here. So that we are in the process of doing. So the -- as for as the MMTOE -- in terms of MMTOE, there is absolutely no problem. We can dominantly touch around 9 million to 10 million tonnes equivalent. But as far as oil is concerned, I only said with a very, very limited air, 3.2 million tonnes, plus 10% to it. That is, in effect, you are very right when you asked this question, we are arresting a 30%, 35% decline from today over the next 2, 3 years and then adding another 10%. So it is quite -- it is the -- there is -- we are very confident about it, and we will do it with a smile. Anything, I'm ready to go on. Thank you.
Sir, just to kind of understand, sir, by when -- since this will be obviously a difficult year, by when would this increase start becoming visible? It is going to be largely in FY '23-'24 when the increase will be more visible because essentially the next 12, 18 months definitely is not going to show significant bump ups, right?
So in the -- I wouldn't call it short term. It's on a daily, daily basis. On a daily basis, our duty is to maintain the production. By maintaining the production what I mean, I'm already taking care of the 8% decline. I think, let me be clear about that. So by maintaining the production at the current levels for any time, you have rightly pointed out that, if I maintain the production, what I -- what it means essentially is, I am already arresting 8% decline. So if I have to enhance the production, so it has to come through only certain development projects. So the development projects do take some time because even drilling up one well takes around 3 to 4 months. So if I have to drill around 30, 40 wells for these reservoirs now, it is going to take a couple of years at least. So that's why I'm saying, the time frame what I'm keeping is '24. '24 should be fair enough so that you would be -- it's already 2020 mid-year, and we are already going ahead with planning. And we are hopeful -- somebody asked a question that whether you're seeing any drop in the services -- service prices. So we are right now going ahead with renegotiating contracts and things like that. But when this type of some big-ticket jobs are being done, you would obviously look out the reduced cost for servicing interest. I think this is what I have to say. Thank you.
Sure, sir. Just one other thing. During the same period that we have discussed, the lifting costs have gone up from -- by about 50%, so about $7 to -- $7, $8 to almost $12 or so. So what is the kind of trend -- of course, a large part of that is also to do with salaries increasing. But what is the trend that we see in lifting cost that we should be baking in? Because sadly, during this year, crude prices have been much weaker. So the effective margin that we are able to take out of -- has come off significantly. So should I continue making something like a 10% -- 5%, 7% kind of an annual increase in lifting costs since it's largely made up of salaries?
No. Because if you see the kind of our lifting cost, is more or less constant from around $11 -- between $11 to $13 over the past 3 years. $11.2, then $12.2, then $13 this year -- last year. And this year also almost in the similar range. We don't expect so much of -- maybe 10% increase annually is too high in the resin costs. And with the production increase, arresting of -- back to exploration stuff, arresting of decline and the production increases, the costs are not going to go up significantly. It will remain in the range of around $30 to $40 per barrel range, not more than that.
Okay. I guess -- yes, sorry.
I agree with, Harish. Yes, please.
Yes. And just one more thing on -- sir, on the gas pricing. So as per your calculation, this is going to fall to about $1.4 per MMBtu, around that price, the GCV price in October? Could you broadly -- roughly what are the conditions. I mean, anyways June has ended, I guess, the 12-month period for this?
Because I don't take shocks too much at a time. Yes, so you are giving me shock that it is likely to fall to $1.4. My estimate was around...
No, no, no. I'm asking you.
My estimate was around $2. This is what we have estimated. So not more than that. Should be in that $1.9 to $2 per MMBtu range this quarter. Beyond that [Foreign Language] further we will take.
Next question is from Mr. [ Jai Prakash Basmi ] from HSBC.
Sir, just wanted some clarity on the gross debt at a consolidated level as at the end of 2020. And are there any clarity on the debt raising or equity raising plans for the particular year?
Total consolidated debt for the group is $1.678 million as of March '20. There is no plan of further raising of debt. Yes, for Mozambique, we have tied up $225 million extended commercial borrowing, out of which $128 million has been drawn as of 31st March. So about $90 million, $95 million loan is yet to be drawn. Beyond that, for the next year -- for the current financial year, we don't expect any further increase in the debt. If at all, some debt is required, definitely -- only with respect to Mozambique project as the project moves further. And equity regime, there is no plan.
Next question is from Mr. Bhavin Gandhi.
Sir, most of the questions have been answered. Just one clarification. On this $1.67 billion of debt, the entire interest cost is on the P&L or something has been capitalized?
Entire interest cost is on the P&L.
All right. That's it from my side. I think that was the last question for the day as well, sir. Thank you so much for sparing time for the investors.
Thank you, Bhavin, for arranging this call and really grateful to all the investors and analysts for attending our call. And we will try to be regular now in conference calls at least. The physical investor meeting, I don't know whether this year again is it possible or not because of this corona-related issue. And I will request Bhavin, you could sort of guide me how to conduct the analyst meet through VC mode or anything because we are really interested in meeting every month.
Sure, sir.
From our side, that's all.
Yes.
Thank you.
Shall I conclude the call?
Yes, please.
Yes.
Thank you, ladies and gentlemen. This concludes your conference call for today. We thank you for your participation and for using iJunxion conference service. You may disconnect your lines now, and have a great day ahead. Thank you.
Thank you.
Thank you, Bhavin, and thank you for arranging call, once again.