Margin & Profit have declined due to Royalty & Cess Payment for Dirok block: P Elango, MD, HOEC

P Elango, Managing Director, HOEC, talks about September quarter numbers, borrowings, Cash position and plans related to dividend payment during a candid chat with Swati Khandelwal, Zee Business. Edited Excerpts:

Q: Your revenues have shown good growth but there is a decline in profits and margins. What led to this decline?

A: Mainly, the margin and profits have come down because, in Dirok, where we are operating in Assam, the government has made it mandatory that the royalty and cess should be paid by all the partners. Earlier, Oil India was the licensee for the block and they are required to pay the royalty and cess for the total production. Since the new notification has been announced, the royalty and cess component now comes to almost slightly more than the operating cost itself. That is affecting the margin. As you know the prices of gas has also come down that is also hurting us. But in terms of volume, we did extremely well and the last quarter we had a record volume of output of gas from the North East block, Dirok.

Q: Was looking at the balance sheet where the long term borrowing has gone up from Rs 32 crore in March to Rs 41 crore, now. Why is there such an increase, however, the long term borrowing was just Rs 18 lakh in FY19? Why such an increase in two years and what is the future outlook and are you looking at more borrowing?

A: If you look at the standalone than the company doesn’t have any borrowing. In terms of consolidated, we are developing this B-80 offshore field. And in that field, the well will be drilled by HOEC and the field will be developed by HOEC but it requires the field support services by way of floating storage offloading vessel. What we thought was that vessel, if it could be funded and retained within the group level that would help to retail the revenue within the group company level. So, HOEC has got a 100% owned subsidiary Hindage Oilfield Services Limited and that subsidiary company has borrowed capital through a term loan to invest in this mobile asset called floating storage offshore vessel, which will be used in our field. The idea is to develop our subsidiary company as an independent oil field services provider mainly for group activities. And, once we build the company, we would extend it to other activities. So that was the idea, so that is again the fixed asset.

Q: The cash position of the company has come down from Rs 85 crore in March 2020 to Rs 75 crore now. What led to this decline?

A: For some current payables has been paid. As you know that during this lockdown period we were in the Mumbai B-80 block, so some of the payment payable has been settled. So, the money has been converted into working capital money.

Q: The company has not given any dividend or say has not rewarded investors since 2010. Do you have plans to reward the shareholders?

A: I think, the expectations are genuine and reasonable. As we know our industry is a highly capital intensive industry. So what we are trying to follow an asset ride model in the capital intensive industry, like Uber and Ola. So, we are trying to look at how to build a business model, which is similar to Uber and Ola in oil and gas. So, we are consolidating the capital and trying to outsource through wherever possible. We have done that successfully in the Dirok field development and right now, we are doing a similar model for our B-80 development. The B-80 field, which will come up for full production next financial year will almost double the revenue as well as the volumes for the company. So, I think that puts the company is a very different league providing a very consistent long term cash flow for the company. We don’t control the oil or gas prices.

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