HOEC aims for a turnaround via Assam

During his stint in Cairn India, P Elango explored the mystery behind fast monetisation of shale gas assets in America, ensuring viability even at a price as low as $2 per million metric British thermal unit (mmBtu).

The findings startled him. Almost every plant and its machinery was modular, ready to be assembled, like a plug-and-play device.

A decade later, Elango, now heading the Chennai-based Hindustan Oil Exploration Company (HOEC), will use the concept to develop HOEC’s 0.56 million metric standard cubic metre a day (mmscmd) Dirok gas field in Assam.

In a place where the rainy season stretches up to six months, throwing up major logistics challenges, Elango plans to build four production wells, a 20-km pipeline and a gas processing plant near Dibrugarh.

The gas will be supplied to Brahmaputra Cracker and Polymer Ltd, which is implementing the Assam Gas Cracker project, the first large petrochemical project in the North East.

Elango targets doing all this in 12 months flat.

The aim is to get the first gas by March 2017, provided green clearances come through on time. And, that will ensure profitability of the venture at prices above $2.5 per mmBtu.

Considering the current gas price of $3.8 per mmBtu on a gross calorific value basis, the project will generate decent profits, shoring up HOEC’s balance-sheet like never before.

“We don’t foresee much of a problem on the production side, which requires development of three existing exploration and appraisal wells and drilling of a new one. Laying 20 km of pipeline is also doable.

“But setting up the gas processing unit, in such a short time, will require smart-engineering,” Elango told BusinessLine .

Instead of following the usual norms of building a plant brick by brick, HOEC has lined up a UK-based supplier, who will ship the plant in ready-to-be-commissioned modules that can be easily transported to the project site.

“This will bring us savings on both time and cost,” he said. The benefits are huge.

HOEC produces only 400 barrels of oil equivalent a day from four marginal fields, including the difficult PY-1 in the Cauvery offshore. The revenues are just enough to meet operating costs.

The ₹40 crore turnover company made huge losses in the last two fiscal years owing to risky ventures in the past.

The promoter, ENI, had written off the entire liability last year on condition that HOEC turns around on its own.

It means Elango can only invest in low-risk and low-cost projects. Naturally, he had put all offshore development plans on the backburner and focussed attention on the pre-NELP Assam field (AAL-ON94/1), where HOEC has already spent 40 per cent of the $100 million exploration cost.

State-owned Oil India (OIL) has contributed 10 per cent of the exploration cost. But it will take 44 per cent of the equity gas in exchange of shouldering the sole responsibility of paying royalties. HOEC will operate the asset with 27 per cent equity. IndianOil will hold the remaining 29 per cent in the joint venture.

“The game is simple. The asset will require another $80 million investment to start production. It means cash will start flowing to HOEC with an additional $22 million investment,” Elango said.

With no revenue sharing with the government on the cards for the next five years, the project is highly beneficial to stakeholders.

It will be more beneficial to HOEC as it will double the company’s top line without much of an increase in costs.

The success of Dirok will open new opportunities for marginal field development in India.

But to reach this goal, HOEC has to cross the green hurdle first.

While environmental clearance is a certainty with the State government clearing the plan, HOEC needs wildlife clearance due to the project’s proximity to a sanctuary.

The State has just formed an expert panel for due recommendations. How long it takes to assess the project is now a key concern.

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