Oil India Limited (OIL) Earnings Call Transcript

Ladies and gentlemen, good day and welcome to the Q3 FY '22 Results Conference Call of Oil India Limited hosted by Emkay Global Financial Services. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sabri Hazarika from Emkay Global Financial Services. Thank you and over to you, sir.

Good morning, everybody. On behalf of Emkay Global Financial Services, I welcome you all to the Q3 FY '22 post earnings conference call of Oil India Limited. We have with us the senior management of Oil India Limited, headed by Mr. Harish Madhav, Director of Finance, and Mr. P.K. Goswami, Director of Operations. So without any further delay, I would now request management for their opening remarks, and then we can move over to the question-and-answer round. Over to you, sir.

Good morning, ladies and gentlemen. I'm Harish Madhav, Director of Finance. Along with me is, as just introduced, Mr. Pankaj Goswami, Director of Operations. I will request our ED Finance, Sanjay Choudhuri, to please read the opening remarks. And then we can start the question and answers.

Thank you, sir. Good morning, dear friends. At the outset, I would like to thank M/s. Emkay Global Financial Services Limited for arranging this call. I'm Sanjay Choudhuri, ED, Finance and Account. And today. We have with us, like Mr. Madhav has mentioned, Shri. Harish Madhav, Director of Finance, and Shri Pankaj Goswami, Director of Operations for providing the value insights. We appreciate the interest shown by you on the company. The financial results of Q3 2021-22 have been shared with all the analysts and posted on the website as well. I hope all of you have received them. I will briefly give some indications about the performance of the company both in physical and financial terms. The consolidated turnover of OIL for the 9 months ended 31st December 2021 is INR 21,141 crores versus INR 15,982 crores for the corresponding period 9 months ended 31st March 2020 (sic) [31st December 2020]. The consolidated PBT for the 9 months ended 31st December 2021 is INR 5,699 crores versus INR 2,354 crores for the same period last year. The profitable tax at the group level of the company for 9 months ended 31st December 2021 is INR 4,192 crores versus INR 3,003 crores for the 9 months ended 31st December 2020. Now proceeding on to the stand-alone results, we will begin on the production front. Crude oil production for Q3 '21-'22 is 0.754 MMT, which is almost in the same range for the corresponding period last year. There's a margin increase of about 0.8%. Crude oil production for the 9 months is 2.262 MMT versus 2.247 MMT, which is also in the same region with a margin increase of 0.71%. Natural gas production, however, has shown a substantial increase because in quarter 3, 2021-'22, it's been 793 MMSCM versus 673 million SCM for Q3 '20-'21, which, like I mentioned, is an increase of about 18%. Natural gas production for the 9 months ended 31st December 2021 is 2,311 million standard cubic meters versus 1,193 million standard cubic meters for the same period ended 31st December 2020, which is an increase of 16%. On the financial side, the company's profit after tax in Q3 '20-'21 is INR 1,244.90 crores versus INR 903.69 crores in Q3 '20-'21. For the 9 months ended 31st December 2021, profit after tax is INR 2,257.30 crores versus profit of INR 894 crores for the 9 months ended 31st December 2020. The company's EBITDA in Q3 '21-'22 is INR 2,235.72 crores versus INR 277.42 crores in '20-'21. And EBITDA for the 9 months ended 31st December 2021 is INR 4,813.63 crores versus INR 1,453.66 crores for the 9 months ended 31st December 2020. EPS has increased to INR 11.48 per share in Q3 '21-'22 as compared to INR 8.33 in Q3 '20-'21. For the 9 months ended 31st December 2021, EPS is INR 20.82 per share vis-à-vis EPS of INR 8.24 per share for 9 months ended 31st December 2020. The Board of OIL has recommended a second interim dividend of INR 5.75 per share of our financial year 2021. This is the second interim dividend which resulted in a total interim dividend till date of INR 9.25 per share against a face value of INR 10 during the financial year '21-'22. The average crude oil price realization for Q3 '21-'22 is USD 78.59 per barrel versus USD 44.09 per barrel for Q3 of '20-'21, which is increased by 78%. Crude oil price realization for the 9 months ended 31st December 2021 is USD 72.41 per barrel versus USD 38.98 per barrel for 9 months ended 31st December 2020, which is also increased in excess of 85%. The increase in price has led to increase in turnover by INR 3,841 crores and profitability by around INR 1,900 crores for the 9 months ended 31st December 2021. Average natural gas price for Q3 '21-'22 is USD 2.90 per MMBtu versus USD 1.79 per MMBtu for the quarter -- for the corresponding quarter last year, which is increased by USD 1.01 per MMBtu. Natural gas price realization for the 9 months ended 31st December 2021 is $2.16 per MMBtu versus $2.19 per MMBtu for the 9 months ended 2020, which was reduced by USD 0.03 per MMBtu. The decrease in prices has led to decrease in turnover by INR 20.27 crores and profitability that is PAT by INR 13.81 crores for the 9 months ended 31st December 2021. In the current quarter, OIL has taken a provisions and write-off against wells to the tune of INR 272 crores n Q3 '21-'22 versus INR 537 crores in the same quarter last year. OIL acquired 398,436,929 equity shares in NRL on 26th March 2021, including 77,480,746 shares on behalf of Government of Assam at a total investment of INR 8,676 crores. The transfer process for the entire number of equity shares purchased by OIL from BPCL on behalf of Government of Assam has been concluded on 3rd of January 2022. After transfer of the Government of Assam shares, OIL present equity holdings in NRL stands at 69.63%. The OIL-AGCL, that is Assam Gas Company Limited consortium, where OIL holds 49% and AGCL holds 51% have received letter of intent for grant of authorization for development of CGD in 3gs, 2 in Tripura and 1 in Assam in the recently concluded 11th round of CGD bidding launched by the PNGRB for development of CGD network in the country. Now coming to the financial performance of the Numaligarh Refinery Limited, profit after tax of NRL for Q3 '21-'22 is INR 794 crores against INR 841 crores in Q3 '20-'21. NRL's gross refining margin has improved to USD 12.48 per barrel in Q3 '20-'21 from USD 0.82 per barrel in Q3 '20-'21. And EPS is INR 10.8 per share in the third quarter of '21-'22. And EPS is INR 10.80 per share in the third quarter of '21-'22 versus USD 11.43 per share in the third quarter of the previous year. With this, my opening remarks on the performance of the company is over, and we are now open to the Q&A session. Over to you.

[Operator Instructions] The first question is from the line of Aishwarya Agarwal from Nippon India Mutual Fund.

I have two questions, sir. One is the -- how do you see the gas price going forward on the 1st of April and the 1st of October? My understanding is they should be around $6 and $9, respectively. How do you calculate and how you see the number? Could you share your view? That will be really helpful.

I'm Harish Madhav. See, the gas prices, of course, will be declared by PPAC on 31st of March. But going by the trend, we anticipate anywhere between $5.5 to around $5.75 per MMBtu effective 1st April, not $6. And maybe it's a final corrections little bit here and there but around -- that is the range. And going forward, effective April, maybe $6 and $6.5 per MMBtu, $7 around -- sorry, 1st of October onwards.

Sorry, sir, I couldn't get, 1st of October is $7.5?

1st of October around $6.5 to $7. And the current effective 1st April, $5.5 to $5.75. This is as per our calculation, but these are all estimates because PPAC sources, though we are all aware, we do estimate but then actual calculation maybe slightly different.

Sure. And sir, do you see any indications of any of the under recoveries coming to us, especially on the LPG side. The LPG under recovery, I understand was absorbed by the OMCs in the third quarter. And the fourth quarter is the one where there is an apprehension, so what's your read on that, sir?

I don't think so any burden is coming. See, last several years, we have stopped sharing any under recoveries. So there should be no apprehension that some under recovery burden is likely to come on us. In any case, going by the indication in the budget provisions, government has provided only INR 4,000 crores of LPG subsidy. So it's very, very likely that all the price increases, as the government has been passing on, will be passed on in the consumer prices with a little bit subsidy mechanism, which is in place today. That will only continue. So the burden is going to be very less. And the INR 4,000 crores, the government has already provided. Beyond that -- and OMCs, whatever they absorbed, I'm not having any idea whether it was only a temporary option or government will reimburse in subsequent period or what it is. But upstream companies, especially Oil India, you can be rest assured that no subsidy absorption of any kind is likely to come to us.

Sir, that is very helpful. And my last question is, sir, how we should look at the CapEx number for the next financial year? Should we see an increase in the CapEx number because we have the better oil and gas realization?

Yes. CapEx for the next year, that is FY '23 is already worked out around INR 4,300 crores. We have already offered the plans. So that will be the number.

So I mean -- okay. So you don't see any further increase in -- on the top of this INR 4,300 crores? And this includes the...

See, the CapEx plan is all decided, Aishwarya. CapEx plan is decided almost 6 months before. October-November, we had worked out. So in case there is any requirement -- of course, we will have a midterm review sometime in August-September. So in case any requirement comes up, we will certainly invest. But then it is not overnight that suddenly in 6 months' period, we can increase our CapEx or like that because the drilling plan, production plan, asset whatever, the infrastructure is to be developed, all those things are to be planned, and then the investments made. So there should not be any significant increase over this INR 4,300 crores number. But whatever is required, certainly, we will spend.

Sure Harish, sir. And this INR 4,300 crores includes the CapEx on the subsidiaries, JVs, everything together?

No. Subsidiaries means NRL?

Yes, NRL and whatever ventures we have...

NRL, we don't envisage any equity investment in the FY '23. But rest of the overseas companies, overseas projects, whatever joint venture projects, domestic OALP, NELP, DSF block exploration, all those things are included in this.

And sir, one last thing, sir. Do we see any increase in the OpEx number going forward because of any reason? Or it will remain stable the way it is, excluding the royalty, which is a percentage of...

Yes, royalty and cess, these are our ad valorem levies. So they, of course, will go up or down as the crude prices or the gas prices behaves. But apart from that, we don't anticipate any increase. Maybe a minor corrections here and there, otherwise, no major increase in the operating cost.

The next question is from the line of Somaiah V. from Spark Capital.

Sir, my first question is with respect to the other income. So this time around in Q3, we have had a higher number of other income. Generally Q4 is the quarter where we have a higher other income. Can you just help us understand? I think you had categorized this under miscellaneous income. So what is driving this? And what is your outlook for Q4?

Other income is higher basically due to -- yes, it's higher basically due to the higher dividend income.

Okay. And this is from IOCL, that's part of...

Yes. And this is basically because INR 265 crores from IOCL, INR 265 crores from Oil India International and INR 245 crores from -- INR 265 crores of NRL, INR 265 crores from Oil India International and INR 245 crores from IOCL.

Sorry, sir, can you just repeat the numbers, INR 265...

Yes. NRL INR 265 crores, IOCL INR 242 crores, OIIPL INR 265 crores and INR 2 crores from [ BNPL ].

OIIPL is our overseas subsidiary in Singapore, which is -- through which we are holding our investments in the Russian assets of Taas and Vankor. So during last -- current year, that company has also paid us a dividend.

Got it, sir. Sir, is this -- do you see some kind of a timing impact? I think like we've got it preemptively in Q3 and Q4 probably would be lower when compared to the previous year's run rate?

Q4 number may be slightly lower because Oil India International or OIIPL, we may not be getting any dividend. But certainly, IOCL has declared dividend. NRL also may declare, of course, they have not declared so far, but they may be declaring something in the next month because as and when there is a review by the government. So we expect some more dividends from IOCL and NRL. IOCL, of course, has been declared already. So it will be less but not very, very -- not very -- lesser to a large extent. But certainly, it will be lesser than the third quarter.

Understood, that's very helpful. Yes, sir. Sir, my second question is with respect to NRL. So I think you did mention close to INR 800 crores of PAT. And last year, PAT, you had said is INR 841 crores if I'm right. And GRM of $12.4 this year and was it $0.8 last year. Is that what you said?

GRM last year for the 9-month period was $1.44 and this year, 9-month GRM is about $10.43.

Sorry, sir. I'm looking for Q3 this year versus last year?

Q3 numbers?

Yes.

What you mentioned was a correct number. I think, $0.8 last year and $12-point-something current year.

Sorry, sir, because of your voice, I couldn't get it. So it's $0.8 last year. And is it $12.4 this Q3 '22. Is that right?

Yes. $12.4 is current year Q3 and last year Q3 was $0.82.

Okay. I think the PAT numbers you mentioned is also for Q3, the INR 794 crores and INR 841 crores?

Yes. Yes.

So given that the GRM has been substantially high this time versus Q3, whereas PAT is relatively lower, what would explain that?

There was a correction in the excise duty, INR 10 per liter on diesel and petrol in the third quarter compared to last year. So that has made the difference.

Got it. Sir, what would be the debt at NRL currently, net debt?

Sorry, can you repeat your question, please?

Can you provide the net debt number at a consol level and probably break it at the subsidiaries also it'll be helpful?

Percentage on what numbers would you...

The net debt numbers, sir.

Net debt numbers?

Yes, yes.

Net debt at the consol level is what -- we have already declared, I think, in our results.

So net debt at the group level as of 31st December 2021 would be around INR 17,000 crores.

So this would include how much at the stand-alone and how much at the international subsidiaries and NRL?

Standalone is INR 12,800 -- INR 12,900 crores is the standalone.

Got it, sir. And possible to give on the international subsidiary, would that number be available?

INR 17,000 crores minus INR 12,000, which is about INR 4,500 crores, INR 4,200 crores is the...

So NRL continues to be almost negligible?

As of now, NRL continues to be debt free. But going forward, they will be drawing out of the debt funding what they have arranged for the refinery expansion program. And going forward, NRL will be drawing some from. But as of 31st of December, they were debt free.

Got it. Sir, and one last question from my side, continuing with NRL. So what is the CapEx that you have invested so far as part of the expansion program in NRL and what we envisage for next year? And I also mentioned that you don't see any equity contribution from our side for mix. Can you just elaborate a bit on the spending and the plan, sir?

Can we move forward with the other question in the meantime, by the time we collect these details and I'll let you know the CapEx.

The next question is from the line of Varatharajan Sivasankaran from Antique Limited.

Am I audible?

Yes, sir. You are but request you to speak a bit louder.

Sir, if you can give some clarity on the quarterly provision numbers and the service cost which seem to be volatile even now, though it is kind of stable quarter-on-quarter but, in general, we find these numbers moving up and down.

Sorry, could you repeat the question, please?

Yes, at the OpEx, we have this provision as well as this service cost number, which seems to be fairly volatile. If you can give some insights into it? And how -- what is kind of a stable number which we should consider on an annual basis if not quarterly?

These provision numbers basically relate to wells and provision for impairment of investments. Did you get it, please?

Sure. Not a problem. You're talking about INR 4,300 crores of CapEx for FY '23, I believe, was it okay? Any guidance on going forward as well? Or would you mean broadly at those levels? Or should we look at any kind of major CapEx apart from NRL and possibly was...

For NRL, I think CapEx will be around in that range only, INR 4,200 crores, INR 4,500 crores, in that range.

Okay. Any breakups available in terms of what goes there, exploration, development?

Exploration -- see, probably about exploration and development put together, you can say around 60% as per the trend will be in that activity. And about 15%, 16% in overseas and the rest in infrastructures. And there was a question by the previous gentleman about the NRL CapEx detail. So NRL so far on the exploration project, we have spent about INR 3,000 crores; INR 900 crores last year -- last financial year and current year, up to December, around INR 2,100 crores. And this year, the plan is to invest around INR 3,600 crores. That is another about INR 1,500 crores will come in the fourth quarter.

The next question is from the line of Gagan Dixit from Elara Capital.

What is your...

Sorry to interrupt you, Mr. Dixit. May I request you to come on the handset mode? Your audio is not very clear.

Am I audible now?

This is better. Please go ahead.

Yes. What your production guidance for gas and oil separately for this FY 23?

I request gas -- oil and gas production numbers.

You're talking about production numbers?

Yes. Any guidance or your expectations for next year, sir?

Okay. As of now, as you can see the trend, the crude oil production has increased marginally. And the present target, if you talk about, the net targeting total production by end of this year is around 3 million metric tonnes for oil. And -- okay. You're asking about '22-'23?

Yes, sir. Yes, sir.

Okay. In that case, I have to change by view. In fact, you may be knowing that OIL is picking up a very deep expansion plan in some thrust areas where we are growing more and we are going for accelerated drillings and as for that plan, by end of '23-'24, our production, what is presently at 3, will be 4. So as of now, '22-'23 will be around 3.6 million metric tonnes of crude oil. And similarly, for gas, also, we are going to increase the production to around 4 million. So that is the target as of now.

Okay. Sir, so what are the -- if you can give some color on what are the major fields that you are trying to bring online? And what is the, I mean, peak production that's expected? Just want to get a sense that whether this FY '23 will be the peak? Or might we expect it more from going forward?

In fact, presently, we are targeting some five thrust areas where the exploration is presently going on, drilling activities are going on, out of which one is at Rajasthan, one is at Arunachal and rest three are in Assam. So these are the five fields identified. And over and above, you may be knowing that Oil India has started drilling in the first OALP block, that is in Rajasthan. And one deep drilling we have started in Sadiya. So that is one NELP block. So these are the two new fields we have now started. And these are purely exploratory activities. We cannot say anything right now, but we have started exploration in these new fields. But the rest of the production, we are expecting it from the old fields, that is by exploratory drilling in the five major thrust areas that I have mentioned.

Yes. And sir, on the domestic production point, typically in the past, you have the problem, especially from the natural gas side because of the demand constraints you are not able to increase the production. So what's the guidance we are seeing in the rise in the production in FY '23? So may I assume that it would be constrained by the demand or there is the possibility to further increase -- I mean is the demand constrained? Or might you see there further, I mean, possibility of increase in the production from those fields?

Yes. There is great possibility of increasing production because we have many commitments to the nearby industries in Northeast. So there are requirements for enhancement of capacity in the Namrup power drills, then the expansion of capacities in the fertilizer plant. So we have new commitment. So I don't think there will be the market constraint. We'll be able to produce more.

Okay. Sir, you mean that you are able to increase the production, so demand is there, that's what?

Yes, exactly.

The next question is from the line of Kirtan Mehta from BOB Capital. The next question is from the line of Vishnu Kumar from Spark India.

A few questions. Firstly, on the gas pricing, so we have until June for the October reset, I understand. So if the gas prices globally remains pretty high and, let's say, if we inch towards $8 to $9, is there any risk that the government may cap it at a certain price? I'm sure some conversations are going given the fertilizer cost and other things that governments are -- overall subsidy outlay increases. So any thoughts on that, let's say, if gas prices were to move towards $8, $9?

No. Currently, there is no thought process, no discussion going on as well as the issue of capping of the gas price is concerned. The formula which is in place since October 2014 is continuing. And no discussion, nothing is in place to apprehend that there may be some correction or some capping. But of course, October is a bit far off as of now. So if anything happens in between, it's a different thing. But as of today, there is no indication.

Got it. Sir, how many -- how much percentage of our gas, if you could split into what is that we get at the APM and, say, other pricing methodologies?

Oil India 100% gas production comes at the APM price only.

As of now our bidding is APM.