Hind oil exploration is this a multibagger bet?

B80:

Pre-commissioning team is on board at KGB offshore installation now.
We need to replace few equipment which will be delivered in next couple of weeks.
Service engineers from OEM will be onsite this week.
Overall we target to complete all commissioining and testing activities to commence production activities by end of March 2022.
Oil will be produced first and then Gas immediately after that.
All offshore facilities which are weather dependendent have been completed.
Getting global experts has been difficult due to covid wave.
Covid wave 3 impacted quite a few of our employees.
Gas contract will be awarded by the end of the month.
Gas contract price - Brent crude *(12%+ premium %) with $6 as floor price.

Regards,
Raj

3 Likes

Hi, everyone. I am a new investor in the company. I went through their Q3 concall and the management said that the production from B-80 will start in March, however, the oil realizations will come in the p&l from June onwards. They said that they will store the oil for the time being. Can someone please tell me why they are doing this?

The oil which will come out of B80 wells will be stored in a floating vessel which remains in position. The tankers which will lift the oil from this vessel is generally of 240, 000 barrels capacity. The production of B80 will be around 4000 barrels of oil. So HOEC needs to store 60 days of production in the floating vessel and then move it to the tanker. Tankers will come, take out the oil from storage vessel and then move. Tanker hiring costs a good amount hence those lifting oil will need quick filling and release of vessel.
You can refer to investor presentation below:
http://www.valoremadvisors.com/hoec/

Regards,
Raj
Disc: Invested

5 Likes

Happy to hear that the weather window dependent part of the installation is over. So we may actually see production starting from March’22. I understand that production from an offshore facility is challenging, but the gap between the initial first oil target of June’20 and now is really frustrating. Now with brent crude crossing 115 $ , it can be a unique hedging bet. But for this to work the company should start producing from B-80 as the current contribution of oil in its EBITDA is negligible.

Company mentioned that they have started selling gas from Dirok at a premium to Govt administered prices on the basis of e auction concluded earlier. About 20 % of gas from Dirok was sold at premium. And Iam happy to see the company naming their customers in North East viz, NRL, BCPL, NEEPCO and AGCL.

Also the gas prices will come up for revision in April and industry expects a steep increase tracking weighted average of gas prices at major gas hubs in the last quarter.

Key risks

Company has been continuously changing the target date for oil production. So it needs to be seen whether it will start producing in March’22.

The quality of crude produced from B-80 is yet to be known, eventhough the company once mentioned that it will be close to that of Brent crude.

The offtake of gas from Dirok is not guaranteed and hence we may not know whether the company will benefit fully from higher govt administered gas prices. In the absence of pipeline, company is fully dependent on North East companies for the offtake. There were quarters in FY19-20 where the production had to be curtailed due to reduced offtake.

Discl: Invested

3 Likes

Looks like the US and Europe will depend on other countries for import of oil and Gas.
Russia May stop supply till d December.
HOEC can be huge beneficiary of this.

https://www.bloomberg.com/news/articles/2022-03-09/u-s-energy-secretary-urges-more-oil-output-amid-war-footing

1 Like

Good news

1 Like

ULJK has given TGP 300+ levels , however just one doubt about that report is that they have considered full year revenue at 378.4 crore , shouldn’t it be more considering premium they are gonna get on GAS


HOEC - ULJK 326 TGP.pdf (1.5 MB)

1 Like

Gas prices are likely to move up from $2.9 to $6.5 from 1st April 2022. This is a steep hike of 114%. HOEC had sales of 44Cr last quarter which is primarily gas sales from Dirok. So the sales should go up to 90Cr+ per quarter from Dirok only. That means 350Cr kind of sales for FY23 from Dirok gas only. B80 should be 400Cr plus. So the figure looks surprising to me as well.
Risk: Government doesn’t allow the gas prices to rise.

1 Like

Domestic natural gas prices hiked to 6.10$ per MMBtu. However, B- 80 disappoints with production further delayed due to unanticipated production issues. Corrective action being undertaken by the company. No timeline mentioned

The report does not disclose the oil price assumption in its estimates.

Looks like another major hurdle, any idea on how long these technical glitches takes time to fix or resolve?

1 Like

How much is the expected revenue without B80… As the gas prices have not been increased to 6 from 1.9 six months back ? any time lines for B80 fix?

Please see the earlier post of Raj1968 for your answer. Gas price was raised from April only and not 6 months back. Please make your own due diligence before posting queries, lest VP moderator will intervene.