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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.
Five years back your Company first got the approval to take over the operatorship of PY-1 Field. We then had a dream – a dream to develop PY-1, an unconventional basement granitic reservoir and establish HOEC as an offshore operator. I can say with a great sense of satisfaction that your Company translated the concept encapsulated in the Plan of Development to reality and we shall shortly commence gas production from PY-1 Field upon receipt of statutory consents.
Your Board sanctioned the PY-1 Field Development in May 2007 based on the test result of first development well and in a period of 28 months, your Company established infrastructure comprising of offshore well head platform, a 56-km sub-sea pipeline, an onshore gas terminal and tied back first extended reach development well “Earth” to the “Sun” platform and hooked-up for production. And all this has been delivered within budget, at a development capex of approx. USD 6.5/boe, and high safety standards. We expect PY-1 to reach first plateau production of around 50 million scfd. The natural gas from this Field shall be supplied to GAIL (India) Limited under a long term contract. Pursuant to the Production Sharing Contract, Chennai Petroleum Corporation Ltd., is designated as the Government nominee for purchasing the condensate.
On this occasion, I take a pause to remember and pay our grateful homage to the illustrious founding father of your Company - Late Shri H. T. Parekh, and Chairman - Late Dr. I. G. Patel. It was their vision to establish your Company as a premier upstream oil and gas player in India and contribute to the energy needs of the nation. We shall continue to strive in pursuit of that vision.
As you are all aware of, Eni became a promoter in August 2008. And since then, I must heartily acknowledge, that your Company has benefitted tremendously from Eni’s technical leadership and expertise based on their worldwide E&P experience in this journey for a smooth and safe execution of PY-1 Project.
Let me now take you through the financial results of the Company for the year 2008-09. Your Company achieved a total income of Rs. 1,291.7 million as against Rs. 1,036.3 million during the previous year, an increase of 24.6%. The sales turnover and stock for the year 2008-09 was Rs. 829.3 million as against Rs. 834.8 million for the previous year. This marginal decrease in sales turnover has been primarily on account of: (a) lower net entitlement from PY-3 Field, and (b) decline of net production from Pramoda Field. However, the impact of lower net entitlement and production has been partially offseted by higher crude oil price realization of USD 80/bbl during the year, up by 3.9% over previous year.
The Company reported Profit After Tax in fiscal year 2008-09 of Rs. 535.7 million, compared to Rs. 241 million in the last fiscal. During the year, your Company has generated pre tax cash from operations before working capital changes of Rs. 446.3 million.
Subsequent to the RBI approval in July 2009, your Company has drawn down the ECB facility of USD 125 million from Eni Coordination Centre. This facility has been made available to the Company on very attractive terms and has an average maturity of 5 years.
Your Company has made, in aggregate, a capital expenditure of approx. Rs. 10,335 million over the last three years in terms of asset creation, which is nearly 3 times the capital spend since inception. And we remain in an intensive capital investment phase as your Company is uniquely placed in addressing and monetizing appraisal and development opportunities in its existing portfolio. To finance this growth, the Company needs financial resources in the immediate term and hence your Directors have not recommended any dividend for this year. While some amongst us may be disappointed on foregoing of the dividend, let me assure you that this is an exciting and transformational time for your Company to establish quality producing assets which demands capital allocation and we hope to receive your usual and enthusiastic support in this endeavor.
During the previous year 2007-08, the Company had completed the Rights Issue to part finance by equity capital its various project initiatives. In compliance of SEBI Guidelines, your Company had appointed IDBI Bank as the monitoring agency to monitor the utilization of proceeds of the aforesaid Rights Issue amounting to Rs. 6,105 million. During the year, your Board received half-yearly reports from the monitoring agency confirming the utilization of funds as per the objects of the Rights Issue.
I now invite your attention to the status of the operated and non-operated assets of your Company.
Besides development of PY-1 Project, which I have already dealt with in the beginning, during the year your Company, as Operator, acquired 3D seismic data in the Assam acreage. We are processing the seismic data and based on the interpretation results, we expect to drill appraisal wells in 2010 to delineate the Dirok discovery.
We have been operating the North Balol, Asjol and Pramoda Fields in an incident free environment with a focus on cost to ensure profitability in these small sized fields.
Your company has been successful in acquiring two exploration acreages in Rajasthan basin under the NELP VII Round; the Production Sharing Contracts for the same were signed with the Government of India in December 2008. In July 2009, the State Government has also granted the petroleum exploration licenses for these Blocks and planning is underway for environment and survey related activities.
During the fiscal year, in PY-3 Field, wherein your Company has a non-operating participating interest, the Joint Venture undertook a drilling programme to sidetrack PY-3 D4 RL well, which incidentally did not achieve expected results. The Operator is presently engaged in remodeling PY-3 Field from a geological perspective by integrating the dynamic data of past 12 years, 3D seismic data and results of recent sidetrack. The revised and updated geological model would form the basis for the Joint Venture to plan for exploiting the balance potential of this Field.
In another non-operated asset namely CB-OS/1, we are happy to note that DGH has approved the Plan of Development for Gulf ‘A’ Discovery. ONGC, the Operator, has already established a dedicated team for implementation of this project and initiated tendering process. Based on Operator’s assessment, the project is expected to be completed in around 42 months time period.
Let me briefly address the governance aspects, which your Company pursues in a proactive manner. Board and its various Committees including Audit, Shareholders & Investors Grievance, 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. Additionally, the Company has adopted whistle blower policy.
Your Company is committed towards Health, Safety, Environment and Social Responsibility. During the year under review, your Company crossed the three and a half million man-hours mark with no fatalities, lost time incidents and environmental incidents. Community and social initiatives in areas of our operations have been and continue to be an integral part of our business philosophy. The Company has participated in “Self Help Programs” at panchayat levels to facilitate development of rural infrastructure and promoting rural employment. We have helped communities in our areas of operations by providing education assistance.
We, members of the Board, are particularly thankful to all the shareholders and count on your continued support. I would, on behalf of the members and the Board, like to express my gratitude for the support and co-operation received from Ministry of Petroleum & Natural Gas, Directorate General of Hydrocarbons, Government of Gujarat, Government of Tamil Nadu, Government of Assam, Government of Rajasthan, Government of Andhra Pradesh, Consortium Partners and Bankers. Finally, I would also like to express my gratitude to the management team and all the employees for their passion, dedication and hard work.
Thank you very much,
R. Vasudevan
Chairman
September 29, 2009
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Chairman's
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Chairman's
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