It took nearly two years longer than expected for Hindustan Oil Exploration Company (HOEC) to eke out oil and gas from the B-80 field in the Arabian sea that the company won in government auction in 2015, but now thankfully, it is done. B-80 has started to produce and, when stabilised, will put out 4,000 barrels of oil and 15 million cubic feet of natural gas. There are 40 million barrels of oil and 44 billion cubic feet of gas waiting to be sucked out under B-80. Since all the attendant infrastructure — storing and piping the hydrocarbons and sales agreements with customers (Gujarat State Petroleum Corporation for the gas) have been signed— HOEC’s Bombay High venture is a done deal.

And now, the company has decided to set its sights on the other sea of India — the Bay of Bengal — where the company owns the PY-1 field. For certain technical reasons (mainly the rocky seabed that would need to be drilled through), PY-1 is a tough animal to tame; but once tamed it will be a cash cow. 

Also read: ONGC discovers oil in two blocks on Arabian sea

According to the ratings and research agency, India Ratings — which on Wednesday put out its latest rating review of the company’s ₹500-crore bank loan, giving it a ‘stable’ rating — HOEC “has identified new well locations for field development, which would be drilled over a period of time.” India Ratings said that HOEC would invest $50m (₹410 crore) in PY-1. Unlike in other oil and gas fields, where the company owns a ‘participating interest’ (which means part ownership), PY-1 is all HOEC’s.  

“Given the 100 per cent participating interest with HOEC and the limited sharing with GOI, given the large capex already incurred, leading to low investment multiple, any output from PY-1 would have a high impact on the profitability of the company,”, India Ratings says, while cautioning that “the production from the asset could be some distance away.” 

Dirok field

HOEC’s other producing asset is the Dirok field in Assam, which produces natural gas. The company plans to invest there too, to raise production. Expansion of Dirok and PY-1, off Puducherry coast, are the next frontiers of HOEC. Both have challenges. The ratings agency notes that PY-1 features a “complex basement exploration” (need to drill through hard, granitic rock), Greater Dirok “is still under receipt of various approvals to start the production process.” It cautions that “the progress on the same would remain a “monitorable”. 

On Friday, businessline reported that the ratings agency, India Ratings, expects HOEC’s revenues to go up by ₹250 crore in 2023-24, compared with ₹383 crore in the first nine months of 2022-23. On the NSE today, HOEC’s share price rose ₹5.05 to close at ₹172.30.