HOEC rises on positive guidance, gas price-hike expectations

M Ramesh Chennai | Updated on June 10, 2020 Published on June 10, 2020

The share price of Hindustan Oil Exploration Company has been rising steadily for over a month. From ₹39.60 on May 12, the share price rose every single day to close at ₹69.20 today.

Two positive factors, which the company communicated in an analyst conference call on June 2, appear to be driving the stock.

First, there is an expectation that the government will hike the price of natural gas in line with the increase in global prices of crude oil — after all, the price fixing is linked to crude prices. The current price of gas is $2.39 per MMBTU, which was fixed on March 31, when the prices of the benchmark Brent crude were around $32 a barrel. Today, it is $40.23.

Secondly, the company has told analysts that its total gross production of hydrocarbons will double in 2021-22 to 16,000 barrels of oil and oil equivalent gas per day. Today, HOEC produces about 8,000 barrels of oil and oil equivalent gas per day, from the Dirok field in Assam and PY-1 field in the Bay of Bengal, though mostly from the former.

HOEC is confident of bringing its offshore field — called ‘B-80’, a 56-sq km area in the Arabian sea off Mumbai coast — to production by the end of this financial year. In the last quarter of 2020-21, B-80 is expected to start spewing 5,000 barrels of oil and 20 million cubic feet of gas a day — or about 8,000 barrels of ‘oil plus oil equivalent gas’.

HOEC has 50 per cent interest in the field. Thus B-80 will give HOEC 4,000 barrels of oil and oil equivalent gas per day. Alongside, production from Dirok and PY-1 will also increase, so that in 2021-22, HOEC will be producing twice as much hydrocarbon output as today.

Furthermore, because of the Covid-19-induced recession, oil field services are available cheap and consequently, HOEC expects B-80 to break even at $35 a barrel. Most energy experts expect crude prices to be around $50 a barrel by the end of this year.

Since B-80 is a field the company won in a government auction of ‘discovered small fields’ in February 2017, according to auction rules, no cess needs be paid on the hydrocarbons produced from the fields.

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Published on June 10, 2020
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