Selan Oil Exploration

Selan Exploration Technology currently produces about 2,75,000 barrels of oil every year from. Recently management has undertaken contour mapping of the Bakrol field where they say that they are trying to find sweet spots, which when drilled can have the potential to give 10 times more oil than what the current well is producing. So this means that the production has been more or less stagnant for the past one year but you may have one-two quarters where you may see the production going up significantly, you may see it doubling from the current levels in maybe two quarters because their current well gives about 10,000-15,000 barrels and 10 times of that would be about 1,00,000 to 1,50,000 barrels per well.

Now the reserves of the Bakrol field is about 75 million barrels (2P reserves), which translated into Rs 25,000 crore as against this the market cap of the company is just about Rs 650 crore. They have ownership of five fields, they are all proven fields. The company currently is not even exploiting 5% of the reserves of Bakrol oil field and the other four fields are still virgin.

Towards the end of the previous fiscalSelan Oilbegan drilling it’s first well in the Lohar, Gujarat Onshore field. Selan also intends to dig another 7 wells in Karjisan fields in FY11. The corporate has spent close to Rs 80 crore and nearly 2 years in mapping the unexplored fields for which it holds the licence to operate.The expectations from both Lohar and Karjisan are positive,and even though it may be speculative to count the chickens at this stage, the success of the first well at Lohar will lead to drilling ofanother 8-9 wells.

Theaim is to get around 1.25 to 2.5 lakh barrels of crude per annum from Lohar. This would effectively raise Selan’s Oil production to about 400,000 barrels in FY2012, including production from Indrora and Bakrol.

The other positives for Selan are:1) All proven fields… 2) zero debt…3)Rs 80 cr for drilling oil…4… survey completed…5. drillingcommencedin the lohar field… 6. Selanwill drill 10 oil wells this year… 7… seismic done with 3d.

Annualproduction from existing fields is 2.5 lakh barrel per year from 20 wells. With another 15 wells in 2 new fields production could begin to ramp up over the course of the year.For the moment, cash flows of Selan cover it for the cost of drilling new wells, but there is a likelihood that a foreign strategic partner may be brought in as Selan has discovered Shale gas in some fields, and the latest rock fracturing technology rests with a few US corporations.

Back of the envelope calculations indicate EPS for FY12 will be Rs 60-65 as production is estimated is4 lakh barrel, going upto EPS of Rs 115 in FY13 as production may reach 8 lakh barrels.

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Excellent numbers declared for SELAN Q1FY12

EPS for JUNE Qtr is 7.62 if remaining qtrs are of same as june qtr then also eps is 30+ for FY12. With this estimate the scrip is just trading around 10 PE which by any standard is lower for Oil exploration sector and that to for a debt free company.Management has also indicate sesmic survey of bakrol and lohar completed ,production is getting delayed due to difficulty in getting regulatory approvals…There is a massive ramp up of oil production is excepted to happen,once they get those approvals pending with DGH the scrip should fly away.

Pls comment…

Sales and NP increased by 50%.



I think in Q2 2013 results management had indicated that it started drilling of the new wells .I have come to conclusion from below message " it is important to note that the drilling of wells in our fields has began ".

What ever "Vikas Karunakaran " has mentioned in this thread hold good now as it got approvals from DGH.

HDFC report link

I think it deserved to look seriously . Is Any one tracking this company?

Yes, drilling has started.

A close friend had an e-mail discussion with the mgt. Some key points-

  • The Company has received drilling approvals for approx 10 wells across all its fields.
  • The drilling of wells has started about 3 months back and 3 wells have been drilled.
  • Selan plans to drill approx 18-20 wells across all its fields, over the next 1-2 years.
  • _Co_expect to achieve production / sales volume of 5,00,000 - 7,00,000 barrels each year within the next 1-2 years subject to various GoI approvals.

Nodoubt, current mcap is very less based on its asset-base. However, the key risk is regulatory risk wherein comp needs approvals & then drill asap.

2 very simple questions on Selan.

1). It seems starting to drill is not the only concern for a oil drilling company. They **have to find oil **and be able to extract it for a reasonable cost (vis a vis market price) to be able to make money on it. Can we say with certainly that they not digging dry wells ? What’s the probability of finding oil in this case ?

By now the Riches to Rags story of Eike Batista of OGX Petro (Brazil) is very famous who took billions from Banks only to find dry wells :slight_smile:

2). I found this in Selan FY13 AR “company has received certain environmental and drilling approvals during the year. However the approvals are now valid only for the fiscal in which they are received, irrespective of how late in the fiscal they are received.”

Also the AR clearly explains, drilling is a complex project mgmt. activity needing to put lot of things in place. Which probably isn’t done best at short notice as equipment etc are mostly bought on lease.

Approval’s were received by the time AR went to press (June-Aug??) and the drilling just seems to be starting, clearly taking 3-4 months to just get started. Isn’t it a concern, if we see this in combination with the point about approval process being valid for only the fiscal in which it is received?

Does someone have practical experience of this matter ? It seems like, it can result in a vicious cycle. Get the approval ->prepare for months->start drilling->by the time some result is visible, again start approval process-> Continue till …

While on the topic, here is an old article from Prof. Bakshi’s which could be a good read


Your points are very valid Raj.

On 1-- Off-course it can happen. But company has enough reserves (around 80 mmbbls of 2P reserves in 2 fields & for the rest 3 fields reserves are unknown) & enough cash on the books to carry out drilling without debt. So, dry well is always a risk for oil E&P comp but due to these two reasons its slightly less for Selan.

On 2— Huge risk this is. Getting approvals— getting drilling machines—doing drilling-- getting oil isn’t easy… & this “Valid only for 1 fiscal” rule makes it even more difficult.

So, its easy to say “expect to achieve production / sales volume of 5,00,000 - 7,00,000 barrels each year within the next 1-2 years subject to various GoI approvals” but isn’t going to be that easy.

Lets see.

Yes I agree with your points .

It is like high risk high gain scenario.My only hope is that they spent 2 to 3 years of study to find most probable drill points which yield more oil(that to oil proven fields) .They spent 80 crs for this study and buy drill related oil and I have heard that once they get approval , renewal is easy but i don’t have any document to prove it .

Disc: Initiated position and wait for Q3 2013 results to take further decision

Copied from about selan Soumya’s portoflio thread to track easy for all

Selan Exploration Technology Limited (SELAN) is engaged in oil exploration and production.

The have a right to develop three discovered oilfields situated in the state of Gujarat namely Bakrol, Indrora and Lohar, all withproven oil and gas reserves.

Further to this they have two unexplored fields in Gujarat namely Ognaj Oilfield and Karjisan Gas field.

The Proven and Probable (2P) Reserves of Lohar is around 6 Million Barrels
The Proven and Probable (2P) Reserves of Bakrol Oilfield alone are 73 Million Barrels as per the latest annual report.
As per the management interviews and reports that Indrora Oilfield contain far larger quantities of recoverable oil than Bakrol. Even if we take it to be same as that of Barkol the total recoverable Crude is worth more than 40000 Crores worth.

Selanâs production cost is $11 per barrel, which is one of the lowest.

As these are pre-nelp discoveries the company has to pay just $5 per barrel as Royalty to the government.

The production had stagnated over the past few years solely because of regulatory delay’s by DGH and GOI(Environmental) approvals.
However of-late the company has started getting approvals which makes me believe that good times are ahead for this company.

The company has been generating consistently high positive cash flows from their operations.
Particulars Mar’12 Mar’11 Mar’10 Mar’09 Mar’08
Cash and Cash Equivalent - Beginning of the Year 117.91 78.56 46.90 23.61 10.32
Cash and Equivalent - End of the Year 111.36 117.91 78.56 46.90 23.61

Company has a good return on equity (ROE) track record: Consistent ROE of 24% over the past few years.

Company is virtually debt free over an elongated period of time.

The company has been consistently buying back shares through buyback schemes from the market once every two years.
The Company has bought back 1,54,518 shares as on 30.01.2013 even during a phase where there is significant CAPEX investments taken up by the company.

Extremely conservative management. Sometimes it makes you feel irritated about this.

The dividend Payout is increasing consistently over the years. Last year it was at 50% i.e. Rs. 5
SELAN has a Development Plan for drilling of additional wells in these blocks in the next 2 to 5 years.
The Plan is intended to be executed in a phased manner and would involve large capital expenditures, to be funded through a combination of external borrowings and internal accruals. The proposed external borrowings shall be drawn in various stages of completion of each phase. This approach offers a view to judiciously monitor the debt.

The current production is around 250000 barrels per year. The company expect to achieve production / sales volume of 5,00,000 - 7,00,000 barrels each year within the next 1-2 years.

Former vice presidents of BP and Shell coming on board of this company augurs well for it.


Exploration Restrictions

With respect to drilling approvals, approvals are now valid only for the fiscal year in which they are received, irrespective of how late in the fiscal year they are received.
Complying with international tendering procedures, import from abroad of long lead time items, and lining up of rig and allied services represents a challenging time line.
As such, the process is ongoing and unpredictable.

Regulatory Approvals

This is the ONE major roadblock for this company.
For the last 3 yrs there were virtually no approvals to any of the upstream oil companies.
But things seems to have changed.
SELAN seems to have received limited regulatory approvals since last couple of months.

India encouraging oil exploration through policies : PM

Selan went from 300 to 470+ with-in no time . I think it has go long way . I am expecting Q3quarter results will be flat or some marginal improvement. Good results may come from q4 on words. If some one missed this share can get good chance to acquire after the q3 results(I am expecting) . Last 2 to 3 days volumes were increasedexponentially.

Upto now they have drilled 6 wells and drilling is going on. Not surewhether production is started or not.

Please share comments if some one is tracking this share.

Disc :Invested


Yes, I’m invested since a couple of months or so and tracking it actively -

Its very interestingly placed as the production decline over last two years was due to non-receipt of approval for any new drilling. With the industry getting back into motion…Selan seems very well placed. As per details…co has drilled 6-8 wells till now and a further ramp up is expected in coming years.

On the stock price - the recent run-up has been sharp and with not much growth expected in Q3, may be price can correct and give a good chance.




The results which came out on Saturday is little disappointing…but it was expected as all the new Drilling impact will be seen starting Q4.This Stock is a pure multi bagger even if there is no PE expansion…and should be accumulated in any dips.

The Most positive points of Selan is -

1.Selan is in recession free industry with in-infite demand for oil and with excellent moats (as company has no competition) as country as less oil reserve and India has no option but to promote Oil exploration to reduce current account deficit.

2.Potential to scale up as it as already got approvals for further drilling.

3.As per recent estimates it would scale up the production with top line of 300 cr - 350 cr (as indicated by the management) and with margins more than 50% its bottom line is expected to be around 150 cr.Which could give us the EPS estimate of Rs 88 in another 2 years.

4). The company has a very friendly management and as a good reputation of good governance which gives much added confidence.

I still feel there is lot of money left on the table to be made even from these levels and needs to be accumulated on any dips.

Famous value investors like Dolly Khanna (Hawkins and TTK fame) and Parag Parikh Mutual Fund has already made positions in this stock.

Disc - I am already invested in this stock and accumulating it on any dips.



I see most of them are talking about short term 1-2 year visibility

While i understand in short term if everything pans out well it will give good returns . At the same time in the long run how does this company growth stands?

To improve their PAT they should keep drilling new wells?

Growth can also come from improving per barrel cost?

Considering risk parts

1.Dry wells

2.Drying up wells

3.Regulatory risk

So in a nutshell is this a short term opportunity or a long term story?

I am not going to be invested in this company as the oil company is not in my circle of competence as i hardly understand them.

But would like learn based on how things pan out since many have attention on this stock.

Hi Prabeesh,

Yes, you are right that the industry is such that there is lot of uncertainty and opacity. My thought process was:

As the company has good 2P reserves and current production is less than the potential, so rather than looking too much into future, I drew comfort by not paying much for growth i.e… at about 300 levels when I bought, the stock was trading at just 8-9 times annual cashflows and there was lot of hope that things might get better for the company and industry -



Thanks Ayush.

So this is a short term(1-2 yrs) undervalue play which needs to be exited once fulfilled by market with right price.

What other growth triggers do you see for this company in future or is it very unpredictable?

Hi Prabeesh,

For me, usually the evaluation of an investment idea starts if there is a good visibility for next 2-3 years…it has been quite tough for me to think much beyond…i.e… 5-10 yrs view.

Going by the interviews of the management during 2007-09 or 2010, the company was quite confident of scaling up the production to about 5 lac+ barrels pa. if they get the required approvals. Based on the good results they got till 2008-09, the company invested about 100 Cr in doing seismic data and appraisal of its fields…but due to regulatory problems, they didn’t get much approvals and production started declining. So I feel that if things start going well for them, this is the no possible over next 1-2 years.

Talking about longer term perspective - I think Indrora the new oil field may be a positive surprise as there is hardly any data on the same while the size the 5 times the Bakrol field. Plus, once a co starts making money and comes to growth path, a good management would surely find some good growth avenues. So will re-evaluate once the current things start working out for the co.



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Coping-pasting from my research note on Selan Exploration Technology

**Selan Exploration Technology

**Introduction **
a Private Player in the field of exploration/production of hydrocarbon
a 3 Proven field (Bakrol, Indora, and Lohar) + 2 (Ognaj and Karjistan)
a Extensive Domain Knowledge
a Better realization per oilfield expected with new 3D sesmic study
a Weak rupee helps it in profit
a Govt Regulation had resulted in flat volume in last2 yrs, which is not removed

Investment Rationales:-
a Only operates in provenoil fields
a Cash rich, debt free, with high OPM of 80%, NPM ~ 40%, high cash flow, high return
ratios (~20)
a Has lower capex requirement as compared to peers
a Lowest production cost per barrel (11 USD)
a Recent share buyback at an average price of 274 a Buyback champion
a Expecting huge ramp-up in production post govt regulatory clearance
a Planning increase production to 5-7L Barrel in 2-3 yr(from ~2L Barrel currently)
a Expecting 60K Barrel/qtr in future as opposed to 40K Barrel/qtr
a Govt profit sharing in Lohar (~35% share), but not in Bakrol (65%). Increase in prodn at
Bakrol, can increase profitability

EPS Estimate
Brokerage Date FY14E FY15E FY16E Target Price
HDFC 17-10-2013 29 332-431
Equirus 19-11-2013 32 38 400

a Regulatory Risk/Env ministry risk
a Lack of oils in oil wells
a Reduced crude oil price
a Execution

Cant paste Charts/Figure in vp. So pasting the link to my blog. Hope this will not create issue with administrator sahab :))

Disc : Selan is top holding in my pf, 19% of pf. Majorly bullish on it.


Hasn’t the stock become overpriced at 480/ now. It has already defied all estimates.What upside do you expect from here?

When did you accumulate(at what price)? just curious!!!

I think the Selan story is now well known, which wasn’t necessarily the case a couple of months ago, before the sharp price movement. I wish that it comprised 19% of my portfolio. Unfortunately, it does not. It is more like 5%, with an average purchase price around 300. I have still not taken the fat pitch lesson to heart!!

I think for price movements from here on, the only question is a) whether the company keeps getting permission to drill wells, and b) whether these wells are productive, and whether production of oil and gas is indeed increasing, month on month. As outside investors without access to company insiders, we can only find out from the company’s quarterly releases, in general. However, oil and gas production is regulated in India, and it is quite likely that production statistics, broken down by month, well and field are available with the DGH, in which case, they would be/can be made public. This would give a bit of an edge, and negate some of the advantages that insiders clearly would have under the circumstances. Otherwise, between quarterly releases, one does not know whether price movements reflect any adverse/positive information, not in public domain yet, or whether they are simply speculation, presenting buying/selling opportunities.

There are also sites like, which do seem to possess these statistics. However, these are paid sites. I wonder if anyone here has a subscription?

I would be happy to work with anyone who would like to work more on finding more information about Selan.



P.S. When I am talking of insiders, I don’t mean it is some derogatory way, and I don’t necessarily mean the officers of the company. It could be lots of people, suppliers, consumers, data processors, DGH people, and so on.