Meet the MD. Having a flair for oil and gas

A japi, the traditional Assamese hat, prominently adorns P Elango’s corner office in Chennai. Quite aptly.

The Dirok gas field in Assam is key to the revival of Hindustan Oil Exploration Company (HOEC), which Elango has been leading as Managing Director since 2015.

Edited excerpts of a free-wheeling chat with the English literature graduate who went on to head two oil and gas companies, Cairn India and HOEC.

Please take us through your journey. How did you enter the oil & gas sector, given your background of English literature?

I come from a trading and agricultural family from Thanjavur district. My father wanted at least one of his children to become a doctor. I failed in Chemistry in Pre-University and the doctor dream got dashed (laughs).

I joined Madras Christian College to study English literature. Those three years really changed my outlook. My schooling was in Tamil medium and here I was pursuing English literature. It was a journey of observing, developing oneself, seeing people with multiple skills — who could do wonderful debate in English and all that. After that, I did my MBA from Annamalai University, topping the class.

At that time, ONGC was recruiting. It was, and continues to be, a very good company. So, I applied and got into it. Once into oil and gas, people generally never get out of it. There is something very alluring about the sector. I think it’s because there is a sense of adventure, nothing is predictable.

When I joined ONGC, Col SP Wahi was the Chairman. One of his memorable statements was, “Guys, oil is discovered in the minds of people.” That is a very fascinating thought. Imagine Bombay High. It all evolves from an idea and then to see such an idea grow into something over the years where you can touch and feel the asset. That’s just a great feeling.

Success can be transformational, not just to you but right up to the nation. Think of the Barmer discovery — how it changed Cairn, Rajasthan, India. I always say, ‘This is one industry where you can go to bed as a child and wake up as an adult.’

When I joined Cairn, it was a 3,000-barrels-a-day company. I was part of the growth right when it went up to producing beyond 2,00,000 barrels a day, a rare opportunity.

I realised that one’s strength as a leader is not in technical areas. There are experts who are available. I ensured that I had strong technical guys in my team. As leaders, we bring in different strengths. I think I brought in the people’s strength.

I realised that one has to spend time to understand things in a non-technical manner. That helps in communicating with people, externally and internally. In a sense, having a non-technical background could be a strength.

How was it going from a PSU to Cairn and then to HOEC?

From ONGC to Cairn was a tough decision. I was in Chennai with a secure job. It just happened that in the early 90s when the sector was being opened up, the Production Sharing Contract (PSC) draft of the Ravva asset was sent to the Chennai office.

A committee was set up to review the 300-odd page document and give comments to the government. I was one of the junior guys. I found the document interesting and read it thoroughly.

That gave me the opportunity to be part of the negotiating process of the Ravva PSC on behalf of the government. When I saw how foreign companies look at the business, that was very interesting.

I thought, “You can be in a safe career in the public sector. But here is an opportunity”. Job security was one of the issues those days. But I was confident that the Ravva asset is going to produce for a long period. As long as you can add some value, it doesn’t matter who is going to be the operator.

That’s how the switch to Cairn happened. And as I said, the Cairn journey was fascinating for anyone who was part of the company, from 1998 to 2008, when the Rajasthan discovery was made.

I joined Command Petroleum in 1996 and Command got taken over by Cairn in 1998. Bill Gammell, Chairman of Cairn, was a very inspiring person, someone who thinks very differently. He had good geologists like Mike Watts.

Cairn’s success was not from complicated, technical stuff. It began with a belief that if oil and gas was there in South-East Asia, it should be here too. The Rajasthan discovery is also as simple as that. You have the Cambay Basin in Gujarat discovered in the 1960s.

Just across the border of Rajasthan, in Pakistan, there is an oil and gas field. So, the philosophy was geologically, at one point in time, they should have been integrated. The risk is whether oil and gas got trapped or not in Rajasthan. The only way you can find out is by drilling wells. It is fascinating. After hitting 12 dry wells, the 13th discovery was like a jackpot.

After I quit Cairn, I really didn’t want another job. I wanted to take a good break and then decide what to do. When ENI, the promoter, approached me for this role at HOEC, they were winding up and sending back the management team to Italy. They basically wanted a professional management team to run HOEC.

I was not looking at it as a job. It was a company with some legacy issues that had to be resolved. I said, first of all, it has to be debt-free. We reached an agreement on that. But they also made it clear that whatever money is there, ‘you’ll have to manage within that’.

R Jeevanandam, the CFO, is a close friend; we began our career together at ONGC. We were there for 10 years together. Around the same time, he had quit Hardy Oil. We had a chat and for us, it was a kind of a mature start-up where, professionally, a turnaround would be a good challenge to take on.

I was worried about what happens if I fail. But then I convinced myself that, at the end of the day, you have to give your best. People respect you for that. It’s also nice that there was management freedom; it becomes a very premium thing as you grow in your career.

And I would not have taken it up if it was not based in Chennai. The understanding was that we would decide the strategy and run the company.

In our sector, for experienced professionals, at some point, the start-up bug bites you.

We took what Bill Gammell used to call ‘brave pills’. In this business, you have to swallow brave pills and then move on. You can’t be afraid.

We thought, if we succeed, professionally it will be a very satisfying thing. The vision was to use this opportunity to create a platform, where professionals can come and create value. The company had ₹28 crore cash when we joined. We thought, if we remain focused on Assam, we should be able to turn this around.

How is HOEC shaping up?

As they say, to make the first ₹50 crore is the toughest task. If you make that, making the subsequent ₹50 crore becomes much easier. We joined in February 2015 and we thought our two-year focus has to be sharply on Assam. Bringing the Dirok asset to market would be bringing the credibility back to the company.

We focused on strengthening the finances, on getting some tax refunds that were due for many years. Every quarter, we started getting it. With interest so far, we have got close to ₹140 crore tax refunds.

We did some operating cost optimisation too. So, without borrowing, we were able to fund our share of the Assam development. The Assam development is a $85-million capex programme that involved completing three existing wells and drilling a new well.

IOC and Oil India were good partners. There were two big challenges. One is whether there will be a market for the gas that we produce.

With the commissioning of the Brahmaputra Gas Cracker plant, there’s huge demand. The plant basically draws all the gas produced in Assam, recovers the rich component of roughly about 15 per cent and delivers the lean gas back. So, Oil India is supplying that. This 15 per cent shrinkage led to shortages in committed gas deliveries by Oil India to its existing customers. Our volume is sitting nicely into that. So, demand is not an issue.

Then, it was about optimising capex and how quickly the project could be delivered. Basically, the strategy was low-cost, fast-track. In this business, you got to plan for success. What if it becomes a big field? You plan on that basis, so that without spending too much money, you take care of the facilities.

Take, for example, building a pipeline capacity. You can build the approved number or you can build a cushion. Wherever you can, do not make huge capex allotment but build a facility that can expand quickly. Normally, it takes 3-4 years to deliver a project in Assam, because for eight months, it rains. We wanted to deliver Phase I in maximum two years.

We divided the project into two phases, but progressed on both the phases in parallel. We found there is a gas gathering facility of Oil India with spare capacity available, about 25 km from our wells. We decided to lay a simple pipeline first and use their facility to process the gas.

Along with this, we decided to create our own facilities for the long term. For that, we went for a unique model. With the shale gas revolution in the US, modularised plans are available in standard designs. You can go off the shelf, pick up the equipment, assemble them and start.

This is the first time it is being done in India. We just gave specifications to this UK-based company called Expro, which has done such plants around South-East Asia.

The plant is being built in Indonesia. Cost-wise, it works out very well. Roughly, out of the $85 million capex, around $25 million is for the gas processing plant. We had a requirement to optimise the capex. So, we avoided this $25 million capex. We have also outsourced operation and maintainence to them for a fixed fee. It’s a completely leased model. The costs are lower than the approved capex of $85 million and operating cost of about $5 million. I am getting a 1-million-cubic-metres plant, which is 36 million cubic feet. My production profile now is for 25 million cubic feet. So, I’ve got excess capacity and my target is to ensure that we deliver that capacity over the year.

It’s a very effective new model, the first time in India. This is the fastest developed project in the history of Assam. So, HOEC has shaped up well.The Phase I is completed — all the facilities, the pipeline, existing wells, the Oil India facility has been connected and tested. We are awaiting the petroleum mining lease that Oil India has to get as the licensee. It is now in the final stages and should come soon.

What is your vision for HOEC?

In my mind, the idea was that what Cairn is in Rajasthan, HOEC should become in Assam. Maybe, having spent a lot of time with the Bill Gammells and Mike Watts of the world, I also believe that the toughest part is to discover, but oil and gas as a resource always accumulates in large volumes. I believe that in the Dirok field, we should be dealing with higher volumes. Now, we need to find more of them by drilling more wells.

The initial estimate, based on drilling three wells, was gas initially in place of 244 bcf . With a 60 per cent recovery factor, the recoverable reserves were 138 bcf. The 3P — proven, probable, possible — estimate for Dirok is over 1 tcf. Typically, the recovery factor for a gas field is anywhere between 60 and 85 per cent.

There are two ways we can increase production. Either by demonstrating a higher recovery factor; right now it’s kept at 60 per cent. Or by proving more oil and gas, the gas initially in place can go up from 244 bcf to up to 1 tcf, a four-time jump. Even at a nominal 75 per cent recovery factor, at 1 tcf, that’s 750 bcf — four times of what is currently approved. But to get there, we need to drill more wells.

So, there is a lot of comfort. Now, based on four wells, it is 138 bcf. We drilled the 4th well and the results were good. So, we were able to convince the government to allow two more wells to be drilled. We have created the capacity in the pipeline as well as in the gas processing plant to handle 1 million cubic metres.

If these wells produce properly, we should be able to ramp up. Right now, the approved level is 25 million cubic feet a day. After drilling these 2 wells, we will go back to the government.

We are looking at Assam from the long term. The strategy is never switch off the Assam engine. With six wells, we would have exhausted the environmental clearance. So, now we will be applying for another 10 wells for environmental clearance. It takes almost a year but is now a faster, much more transparent process.

We didn’t want to take much sub-surface risk. We wanted to structure the portfolio where there is lower exploration-cum-lower development risk. We surrendered three exploration blocks. The idea is go for good geology where the resource is already found, focus and build a team more on the development side. Have low-cost, fast-track development and monetise it. Basically, the focus is on generating more cash.

Currently, we have three offshore blocks — PY-1 (100 per cent stake) and PY-3 (21 per cent stake) in Puducherry and CBOS-1 in Gujarat. In all of them, there is no exploration risk. We got two blocks in the discovered small field auctions. We need to prioritise and allocate capex.

In terms of priority, we plan to bring Assam to full block potential. Then, focus on the Puducherry blocks where production can be revived in nine months if approvals for connecting the assets are got. The next big thing is to develop B-80 , offshore field near Mumbai, in 2-3 years. Kherem is a smaller, onshore field in Arunachal Pradesh and seems to have some upside potential.

Importantly, we want HOEC to remain debt-free. Organic growth will be done by internal accruals.

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