'Stay focussed in India and make a difference to Indian Hydrocarbon Industry'

P Elango,
Managing Director, Hindustan Oil Exploration Company.
Being the first ever Oil Company in private sector participated in the oil & gas exploration in India, Hindustan Oil Exploration Company (HOEC) has built a strong portfolio of assets with operating experience in both onshore and offshore in the country, says P Elango, Managing Director, Hindustan Oil Exploration Company. In an Email interaction with Rakesh Roy, Mr Elango simplifies that the company is determined to stay focussed in India and emerges as the finest E & P player who will leverage talent and technology to add value and make a difference to Indian Hydrocarbon Industry.

Being the first ever Oil Company in private sector participated in the oil & gas exploration in the country and having assets in Assam, Cauvery and Cambay, how does HOEC plan to play its role in India's Hydrocarbon growth story?
HOEC, founded as the very first Independent Oil and Gas company in private sector by the legendary Late Shri H T Parekh, has just completed 25 years of listing in BSE. Over the years, HOEC has built a strong portfolio of assets with operating experience in both onshore and offshore.

Since I joined in Feb 2015, our strategy has been to focus first on onshore assets in Assam and Gujarat, build a strong geotechnical team to revive the offshore assets (when the price cycle turns) and leverage opportunities that an under explored Indian Sedimentary Basins and expanding gas sector presents in the context of growing Indian economy.

We are determined to stay focussed in India and emerge as the finest E & P player who will leverage talent and technology to add value and make a difference to Indian Hydrocarbon Industry.

How has the falling crude oil price affected the Indian hydrocarbon industry in whole and the profit margins of HOEC?
The falling crude oil has not only adversely impacted the global oil and gas industry; it is now beginning to impact the global economy too. While the lower prices helped India to reduce its import bill significantly and allowed Govt to remove subsidy, domestic E & P activities have slowed down particularly in offshore as no offshore development will be viable at such low oil prices.

Impact on HOEC margin has been minimal as our production base is low and we produce and sell more gas than oil at fixed contract prices to GAIL. It certainly helps to be a low cost operator and we are generating positive operating margins from every field on production.

HOEC's Q3 result of the current fiscal shows that the company is slowly recovering from its past losses. What are the growth strategies HOEC followed to reach here? How do you plan to maintain the profit margins in future?
Yes! We began the journey at the beginning of 2015 with Rs 30 Crores as Cash on hand in the Working Capital and ended the year with Rs 62 crores

What has helped us is our relentless focus on; 1) Progressing the Assam Development without increasing our cost base; 2) Increasing cash component in our working capital by securing tax refunds; and 3) Cleaning up the balance sheet through appropriate impairment.

We expect to further improve profit margins by reducing the project costs and deliver First Gas from Assam as promised by end of FY 201617. At full year of Plateau Production Dirok field will help to double our revenue.

Can you please detail more about Dirok gas field on its production and development status so far?
The Dirok Gas development project is very robust. We already have three wells drilled that require to be completed and produced. We will also be drilling one new well and will set up a modular Gas Processing Plant away from Eco Sensitive Zone by laying required pipelines. Approved Field Development Cost for this project is Rs 500 crores and we have seen actual costs are below budget estimates as services sector is hungry for work. We are committed to develop this project on a fast track basis, so everyone in HOEC is working as one team to achieve our one goal of delivering first gas in by end of FY 2016-17.

Since the gas will feed to the flag ship Brahmaputra Gas Cracker Project Limited (BCPL), there is a greater support to fast tracking this project from all stakeholders such as DGH, Ministry of Petroleum, Government of India, the State Government of Assam and JV partners Oil India and IOC.

With the announcement of auctioning 69 marginal fields, the government has proposed changing policy regimes like revenue sharing model, free natural gas pricing, uniform licensing policy, OALP, etc for future oil & gas field auctions. What is your view on it?
The changes proposed by the Government under the Marginal Field Policy are well timed and would stimulate interest in domestic oil and gas sector during these challenging times. I see these changes as a precursor to similar reforms for future NELP rounds or OALP - free market pricing for natural gas has been one of the vocal demands of the industry.

Is HOEC planning for auctioning & developing marginal fields in the proposed terms?
HOEC sees the marginal fields bidding under the revised terms as a great opportunity to build a portfolio of low risk and synergetic blocks and will be keen to participate subject to detailed terms that are yet to be announced. It is important for the Government to ensure that burden of past costs on these fields are not passed on to the new bidders. At these price levels, any such move would make several fields unattractive and the resources will remain untapped.

Can you please elaborate more of your comment on 'Drill in India' campaign under the umbrella of 'Make in India' where you said: "the country must become price maker, not price taker"?
India is home to over 3 million square kilometres of sedimentary basins and over two thirds of the basins have not been 'fully explored'. All of us know the only way to find oil is to drill wells, more and more of them. India drills less than 1000 wells/year against more than 20,000 wells/year being drilled in USA.

My point was under the umbrella of 'Make in India' policy, if a Drill in India campaign is rolled out, it would energize the drilling services industry and would lead to intensified exploration and fast track development. Large campaigns would attract global service providers, enhance competition, bring down cost of services and would improve operational efficiencies.

According to you, what should be the wish list of Indian oil & gas industry from the upcoming Union Budget in stimulating the sector in the current environment?
Overall policy objective has to be:
1) To Increase Oil & Gas Exploration & Production
2) To Develop Greener Gas as a fuel of choice
3) To Promote Oil Services Sector

In the context of declining oil and gas prices, financial incentives are certainly required to stimulate investment in domestic oil and gas sector .

Cess on domestic crude oil needs to be reduced. Incentives enjoyed by the NELP Block holders should be extended to all blocks including nominated blocks with PSU's.

OIDB funds should be allocated to promote Enhanced Oil Recovery Projects and National Gas Grid and to enhance E & P activities in the North East region which is estimated by experts to hold significant untapped hydrocarbon resources.

Can you please apprise us the future plans and funding strategy of HOEC whereas ENI, the Italian oil giant, is the company's main promoter?
ENI continues to hold over 47 per cent stake in the company and are our promoters and HDFC holds 11 per cent in the company and has been a consistent investor and a well-wisher.

As ENI our current Promoter has disclosed to the market that they will not be infusing any further capital in to the company. Our strategy is to pick up financially robust projects, de-risk it for execution and raise appropriate capital with committed end use restrictions. This can be either equity or debt after obtaining all the required approval. However, we are neither desperate nor in a hurry to do so.

The Rs 500 crores development cost of Dirok Gas Project will be shared proportionately by the respective JV partners according to their Participating Interest.

We are now a Debt-Free Company, who is able to meet Operating Expenses with Operating Revenue and is capable of generating operating cash surplus to add to cash on hand.

We have now began our journey to turn around the company on the strength of a cleaned up Balance Sheet and we will not look back until we realise our vision, which is to re build HOEC as the finest Independent Oil and Gas Company that transforms the interests of all stakeholders.