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.
FY 2011-2012 has been a challenging year with the dark shadow of economic uncertainty looming large across geographies and sectors. In India, we too had our share of anxieties and dilemmas.
From a Company perspective, at the end of the year under review, your Company produced a little over 1 million barrels of oil equivalent. The unusually high shortfall in production of nearly 60% against previous year is attributed to two key events: shutdown of PY-3 Oil Field since July 2011 pending submission of a comprehensive field re-development plan; and downtime of 44% in PY-1 Gas Field on account of no off-take of gas due to downstream constraints and aggravated by unexpected behavior of the reservoir.
Your Company has taken a series of actions in PY-1 with twin end objectives: (a) to ensure higher uptime of gas evacuation and sales; and (b) to optimize rate of gas production from this unconventional
Notwithstanding the non-operatorship position in PY-3, your Company continues to proactively engage with all the stakeholders to move away from
status quo and towards delivering a comprehensive field re-development plan to restart the production operations in the earliest possible timeframe, whilst respecting the PSC provisions. And I want to assure you that this issue is being addressed by us at the highest level with the Government.
Let me now take you through the financial results of the Company for the year 2011-2012. Your Company achieved a total income of INR 1,690 million, nearly 50% of the previous year, primarily on account of loss of production due to shutdowns in PY-3 and PY-1 Fields, as explained earlier.
During the year under review, depreciation and depletion charges, computed on a unit of production method, were around INR 619 million lower than previous year, this being in commensuration to the annual production.
During the year, your Company reported Profit-Before-Tax of INR 442 million and generated pre-tax cash from operations, before working capital changes, of INR 866 million.
Profit-After-Tax for the Company in fiscal year 2011-2012 was INR 335 million, compared to INR 802 million in the last fiscal.
For sure, we cannot but be disturbed by the results. Yet undauntedly, our team has taken variety of initiatives addressing the issues of production and well productivity, initial yields from which we may begin to realize by the end of this fiscal year. It will be in order for me to highlight here that during the definition and, thereafter execution of these initiatives, Eni, the Promoter Group has extended to your Company unfettered technical support and access to proprietary engineering resources.
Indeed, the support from Eni has not been just limited to technical aspects. I am happy to state that Eni Finance International has entered into an agreement to provide a term loan facility of 60 million dollars at very attractive terms vis-ŕ-vis the market, to part finance Company’s ongoing capital expenditure programme. All these actions reinforce the commitment of our Promoter to the growth of your Company.
In view of the production performance together with the foreseeable capital expenditure, for re-development programme in existing producing fields and potential development of Assam Discovery, the Directors have not recommended any dividend for the financial year under review.
At the last AGM, I had emphasized the necessity to de-risk our dependence on existing producing assets, the urgency for which has become more pronounced. Supported by Eni, we are engaged in developing discoveries in our portfolio of assets in an accelerated manner. Each of these discoveries is expected to contribute materially to the overall performance of the Company, providing a positive outlook for the Company and adding value to the shareholders.
I now invite your attention to the status of the operated and non-operated assets of your Company. PY-1 is a unique gas reservoir. We, as Operator, took it as a challenge to put this discovery on commercial production in 2009. The performance of this Field has been adversely impacted due to high downtime on account of no offtake of gas by the end user. Besides loss of revenue for the year, the serious casualty from this situation has been build-up of water columns in the wells, a phenomenon which in turn impacts well deliverability. We have also noticed bottom-hole pressure decline in certain sectors at a rate higher than predicted in the simulation studies. Based on the results of the updated reservoir studies undertaken in association with domain experts from Eni, your Company embarked on a series of action plans involving both surface and sub-surface interventions.
As part of the surface initiatives, in PY-1 your Company has commissioned onshore compression units to allow operations at low pressure and therefore improving production recovery of gas. Further, GAIL, the gas buyer, has completed the installation and commissioning of an alternate gas evacuation pipeline from PY-1 Onshore Terminal to its local gas grid network. Aimed to de-risk dependence in the event of a prolonged shutdown by the single end user, this pipeline would help in evacuation of gas on a continuous basis and thus avoid water build-up in the wells under static condition.
To execute the sub-surface programme involving work-over in existing wells in PY-1 and drilling a multilateral well, Surya, the Company has deployed Perro Negro 3, a jack-up rig owned by Saipem. With the completion of work-over operations in two of the existing wells, we have noticed gain in production
albeit lower than the simulated results, indicating irreversible deterioration of down-hole conditions in the respective well drainage areas. Your Company has drilled the multi-lateral well, Surya, and preparation is ongoing to activate this well for testing by the end of this month.
We are working with the experts from Eni team to determine an optimum level of production in PY-1 Field, which can be supported by the reservoir pressure. Based on the results from this study, which is underway, the alternate GAIL pipeline shall be operationalized to allow continuous evacuation of gas to end user(s) with matching supply-demand requirements.
In Assam, your Company, as Operator, drilled the appraisal well namely, Dirok-4 to the target depth of 2668 metre. We successfully carried out the testing in two sands, the results of which were announced by the Company in July 2012 to the Stock Exchanges. You would recollect that all the wells drilled to delineate the Dirok Discovery have been hydrocarbon bearing and we remain excited about the potential which this discovery presents. We are in the midst of integrating various geotechnical, reservoir and test data from all the wells to establish reservoir model for quantification of reserves and preparation of a Commercial Discovery Report and Plan of Development. Our technical studies shall be peer reviewed by Eni domain experts and we will also engage with our Joint Venture Partners for their inputs and suggestions while finalizing the Plan of Development. Considering the approval of Plan of Development by the Government as the zero date, we, as Operator of the Field, are targeting to put the Dirok Discovery on commercial production within 24 months.
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.
Upon securing approvals from various governmental authorities, including the Ministry of Defence, your Company, as Operator of this Block, has successfully acquired 3D seismic data in RJ-ON-2005/1 Block located in Jaisalmer basin within budget. The processing of this data is underway and the interpretation is expected to be completed by March 2013 resulting in generation of prospect inventory and prioritsation of prospects for drilling exploratory wells during the year 2013.
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, has started 3D seismic acquisition in July 2012.
In non-operated asset PY-3 Field, located in the offshore Cauvery basin, Hardy, as Operator, has been directed by DGH to submit a comprehensive plan of development taking into consideration the upside potential. An immediate priority for PY-3 Joint Venture is to ensure compliances with various regulatory requirements and restart the production of crude oil from PY-3 Field at the earliest. HOEC, as a non-operator, has been pursuing with all the stakeholders towards this objective. We have ourselves carried out technical, engineering and market studies for PY-3 Field and offered assistance to the Operator, to finalize the comprehensive full field development plan, as sought by the authorities.
In another non-operated asset namely CB-OS/1, located in Cambay basin, ONGC, the Operator, has prepared an alternate development scheme in view of the limitations in the original conceived Plan of Development arising due to the amendment in the CRZ guidelines. Your Company has provided technical inputs to the Operator in its efforts to develop this alternate development scheme, so as to be compliant with the present CRZ guidelines. Subsequent to the approvals from the regulator, ONGC is planning to drill offshore well(s) in the contract area during the first half of 2013 by using a shallow water drilling unit.
With respect to GN-ON-90/3 Block located in Pranhita Godavari basin, following the favourable award from the arbitral tribunal, we have been actively pursuing with the Government on the administrative aspects of PSC finalization. Recognizing that sufficient time has elapsed since the pronouncement of the arbitral award, we expect the Government to settle the aspect of PSC finalization soon.
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 not just adheres to the
mandatory requirements under Clause 49 of the Listing Agreement with the Stock Exchanges but has also adopted
voluntary guidelines issued by the Ministry of Corporate Affairs and best principles, practices and guidelines as followed by Eni worldwide.
Your Company is committed towards Health, Safety, Environment and Social Responsibility. During the year 2011-2012, we achieved yet another milestone as the year passed without any environmental incident, no oil spill incident, no fatality nor any lost time incident. However, we are by no means complacent and continuously striving to enhance our HSE systems, processes and practices. 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 and maintenance of rural infrastructure like roads, community center; and plantation and fencing of trees in its areas of operations.
I wish to assure you of the highest commitment and resolve on part of HOEC team in working diligently for the growth of Company and its shareholders and to make utmost contribution towards the national objectives of energy security and economic development.
Arise, awake and stop not till the goal is
reached. With these guiding words of Swami Vivekananda, I would like to conclude and take the opportunity to thank all our esteemed shareholders for their unwavering support. 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, Bankers and EFI. I thank all my colleagues on the Board for their constructive inputs and valuable guidance in our endeavours.
Thank you very much,
September 26, 2012
Note: All figures have been rounded off.