Rising crude price takes HOEC to year high

The share price of Hindustan Oil Exploration Company (HOEC) reached a year-high of ₹119.40 before closing at ₹111.15 on the BSE, thanks primarily to the rise in prices of Brent crude, which has raced past the $64-mark a barrel. HOEC’s rise is due to the sentiment attached to higher crude prices — the company does not produce oil but only natural gas whose prices are fixed.

P Elango, Managing Director of HOEC, said the company has discovered that there is more juice than initially believed in its Dirok field in Assam, which began production in August.

HOEC’s ‘field development plan’, approved by the Directorate General of Hydrocarbons, was to produce 20 million cubic feet of gas and about 200 barrels of condensates (crude oil-like liquid that comes out along with the gas), but there has been a positive surprise.

From April 1, 2018, Dirok will actually produce 36 mcf of gas and 1,000 barrels of condensates, which will give HOEC revenues of about ₹40 lakh a day, net, after deducting the shares of the other partners in the field, IOC and OIL. Incidentally, the government revised the price of Dirok gas upwards to $2.89 an MMBTU on October 1— the cost of production works out to $0.6 MMBTU. In 2018-19, the Dirok field is expected to yield at least ₹100 crore.

Elango said the company was not flogging the wells. (‘Flogging’ refers to the undesirable practice of sucking out as much as possible quickly, leaving a lot behind.) The company had thought it would produce 20 mcf a day over 15 years, but now it can produce daily 36 mcf over the same period, he added.

Furthermore, the company has discovered that if it drills a kilometre deeper than the 2.6 km it has drilled now, it would reach another reservoir of hydrocarbons — another positive surprise. Elango is therefore, speaking of “a second campaign” after two years at Dirok.

Up till August, HOEC’s only sales were the paltry 2.5 mcf of gas it used to produce from the PY-1 field in the Bay of Bengal. PY-1 is known to hold plenty of gas, but the problem is that to reach the area where the gas-holding sands lie, one has to drill through a rocky ‘basement’— a difficult and costly proposition in an offshore field.

Regardless, HOEC has come up with technical solutions for two producing wells, basically re-entering two wells drilled for exploration and side-tracking them in order to reach the gas, as a result of which the production from PY-1 would quadruple to 10 mcf during 2018-19.

The medium-term plans includes a Bombay High campaign — the company won a field (B-80) in the government auctions of ‘discovered small fields’ earlier this year. Developing the field would cost about $40 million (along with partner Aban Offshore, which has an equal share) and can yield 5,000 barrels of oil and 16 mcf a day of gas, both of which can be linked to ONGC oil and gas pipelines that pass by the field.

For the quarter ending September, HOEC achieved a turnover of ₹8.4 crore on which it made a net profit of ₹5.6 crore.

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