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We have tried to ensure that the Company’s Annual Report should reach you well before the meeting. I trust all of you have received them.Therefore, with your permission, I take the Annual Report as read.
At the end of the year under review, your Company produced 2.7 million barrels of oil equivalent, surely a landmark performance till now. You would recall that we touched the first million barrels production mark in the last fiscal.
Let me now take you through the financial results of the Company for the year 2010-11. Your Company achieved a total income of Rs. 3,373 million, being more than double, over the previous year, primarily on account of production growth.
The sales turnover and stock for the year 2010-11 was Rs. 3,285 million as against Rs. 1,450 million for the previous year. With no unplanned shutdown during the fiscal year 2010-2011 in either PY-1 or PY-3 Field and a buoyant crude price environment, the sales turnover registered nearly 2.2 times increase in sales turnover over previous year.
During the year under review, depreciation and depletion charges, which are computed on a unit of production method, were higher by around Rs. 751 million over previous year, this being in commensuration with the annual production growth in PY-1 and PY-3 Fields.
The Company reported Profit-Before-Tax of Rs. 1,179 million, an increase of 81% over the previous year. During the year, your Company has generated pre-tax cash from operations, before working capital changes, of Rs. 2,442 million, being double of the previous year.
Profit-After-Tax for the Company in fiscal year 2010-11 was Rs. 802 million, compared to Rs. 416 million in the last fiscal, an increase of around 93%.
During the year under review, the Directors declared a modest dividend of 5%. We have been cognizant of your expectations of a higher dividend payout. However our decision in this regard has been guided by the requirements of the Company, the ground realities of oil and gas sector and the volatile macro-economic environment. In these highly uncertain economic times besieged with complexities, we would like to tread with caution.
We all recognize that we have many miles to go.I quote John D Rockefeller, the well-known oil magnate and philanthropist: “Be up and doing with a heart for any fate, still achieving, still pursuing, learn to labor and to wait for the best”.
At HOEC, we need to de-risk our dependence on an individual asset, which hitherto had singularly determined our financial results from year to year. We are poised to build a portfolio of producing assets, each of them contributing materially to the overall performance of the Company.To achieve this, your Company would need capital expenditure: for development of discoveries in Assam and Cambay Basins; for augmenting production from existing producing fields in Cauvery Basin; and risk capital to support exploration activities in Jaisalmer Basin and elsewhere.
Your Directors believe that a strong balance sheet would place HOEC at an advantage to fund its growth objectives through internal cash accruals in an environment where access to capital resources at competitive costs is becoming increasingly constrained. If you recall, this was anticipated last year in my statement, and now has become a reality not only from a global perspective but very much in the Indian context.
I now invite your attention to the status of the operated and non-operated assets of your Company.
In PY-1 Field, located in offshore Cauvery Basin, your Company has updated the Geological, Geophysical and Reservoir Model by synthesizing and analyzing the dynamic data, recorded for over 12 months of production period, and thereby allowing a better definition and characterization of unconventional basement reservoir in PY-1. This high quality work product has been made possible with active participation of Eni team. I take this opportunity to thank Eni, a major integrated international energy company and your promoter, for providing technical support and assistance par excellence and helping us continuously in our journey of growth and value creation.
Based on the results of these studies, the Company has prepared and submitted a comprehensive Plan of Development 2011 to the Government authorities which inter alia involves drilling of additional infill wells besides work-over to carry out perforation jobs in gas bearing reservoir sections in two existing wells. Your Company is scouting for a suitable drilling rig through an international competitive bidding process and subject to availability of the same, would like to undertake this drilling campaign at the earliest opportunity.
In Assam-Arakan basin, your Company, as Operator, drilled an appraisal well namely, Dirok-2, and successfully carried out testing in select horizons. Well test results, as announced by the Company earlier, have been quite encouraging, and we are all excited about the potential which this discovery presents. The Joint Venture has finalized the location for drilling another appraisal well, namely Dirok-4, to assist in proper delineation of this discovery. The drilling of Dirok-4 is expected to commence before the end of year 2011. Subsequent to drilling of Dirok-4, the Operator shall prepare a Commercial Discovery Report, which would include concept selection for development. And consistent with the provisions of the Production Sharing Contract, the Joint Venture shall be seeking approval from the Government authorities. Several players have expressed interest to buy the gas from this Discovery.
We have been operating North Balol, Asjol and Pramoda Fields, all located in Cambay basin, in an incident free environment with a continued focus on cost to ensure profitability in these small sized fields.
I would like to share a positive outcome of an arbitration proceeding ongoing in GN-ON-90/3 Block located in Pranhita Godavari basin. The arbitral tribunal has unanimously given its award in favor of the Company and the counterparty, ONGC, has already paid the claim amount along with interest as per the award.
Your Company has awarded contract for acquisition of 3D seismic data in RJ-ON-2005/1 Block located in Jaisalmer basin based on the outcome of a tendering process, and the seismic acquisition campaign is expected to commence shortly as the Ministry of Defence has granted consent on September 19, 2011 allowing our contractor to operate in the licence area.
In RJ-ON-2005/2 Block, which is also located in Jaisalmer basin, and wherein your Company holds non-operating interest, Oil India Limited, the operator, is evaluating the bids received pursuant to a tendering process for finalizing the award for seismic acquisition.
During the fiscal year, in PY-3 Field located in offshore Cauvery basin, wherein your Company holds a non-operating participating interest, Operator has presented an updated G&G and Reservoir Model. Independent studies have been also carried out by a team comprising of experts from Eni and HOEC to review Operator’s findings. PY-3 Field is under shutdown pending conclusion of the process of approval from the Government for award of contract relating to production facilities, consistent with the PSC provisions.
In another non-operated asset namely CB-OS/1, located in Cambay basin, ONGC, the Operator, is pursuing an alternate development scheme with the DGH in view of the limitations of the original conceived Plan of Development to the CRZ guidelines. Your Company has provided technical inputs to the Operator in its efforts to develop an alternate development scheme, so as to be CRZ compliant.
Let me now briefly address the governance aspects, which your Company pursues in a proactive manner. Board and its various Committees including Audit, Shareholders/Investors Grievance and Compensation & Remuneration Committees met regularly during the year. Your Company is compliant with all mandatory requirements under Clause 49 of the Listing Agreement with the Stock Exchanges. Your Company has implemented certain provisions of the ‘Corporate Governance Voluntary Guidelines’ issued by the Ministry of Corporate Affairs in order to pursue best corporate governance practices.
In recent times, our Industry has been in the spotlight on account of proprietary audits conducted by the empowered agencies. While your Company has always stood for high standards of governance and accountability, we are all enjoined to set for ourselves even higher standards by adopting various policies, regulations and guidelines, in line with international practices.
Your Company is committed towards Health, Safety, Environment and Social Responsibility. During the year 2010-2011, we achieved yet another milestone as the year passed without any environmental incident, no oil spill incident, no fatality nor any lost time incident. Here again, ably supported by Eni, we are continuously striving to enhance our HSE systems, processes and practices while learning lessons from the global events. Community and social initiatives in areas of our operations continue to be an integral part of our business philosophy. Your Company has participated in development of rural infrastructure and community center in its areas of operations.
With these words, I would like to take the opportunity to thank all our esteemed shareholders for their unwavering support, patience and guidance. I would, on behalf of the members and the Board, like to express my gratitude for the support and co-operation received from the Ministry of Petroleum & Natural Gas, Directorate General of Hydrocarbons, Ministry of Defence, Government of Gujarat, Government of Tamil Nadu, Government of Assam, Government of Rajasthan, Government of Andhra Pradesh, Consortium Partners and Bankers. I thank all my colleagues on the Board for their constructive inputs and valuable guidance in our endeavor for sustainable growth. Finally,
I would like to acknowledge that our HOEC team – though small in numbers, yet full of dedication and passion – has the capability and commitment to make big strides.
As we all celebrate 2011 as the birth centenary year of our Founder Chairman, late Shri H.T. Parekh, let me conclude by quoting him on this occasion: “The task of exploration is complex and journey tortuous. Glorious is the vision of development but those who are charged with the realization need to be imbibed with that vision as they steer along their path in spite of many impediments. There are no signposts on the road. Those who do the steering will be able to traverse the difficult terrain if they maintain faith in their mission.” Surely we remain committed to this vision and strive as a team, with boundless faith, to deliver our mission of creating a truly world class E&P Company in India.
Thank you very much,
R. Vasudevan
Chairman
September 28, 2011
Note: All figures have been rounded off.
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Chairman's
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Chairman's
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