Energy Central Professional


Communication Feature: ‘We Aim at Pursuing Selective and Profitable Diversification in the Energy Value Chain’

Dalal Street Investment Journal  


    S C Mishra, CMD, Oil India Limited

    Oil India Limited (OIL)is a fully integrated E & P company having significant presence across the entire value chain in the hydrocarbon sector, pan-India and globally. A Navratna PSU, the company’s main focus is exploration and development and production of crude oil and natural gas. The company also produces LPG and transports crude oil and refined petroleum products through cross-country pipelines. The company also has renewable energy projects of 188 MW generation capacity. In a major strategic step towards vertical integration, the company has recently acquired majority stake in Numaligarh Refinery Ltd., having a state-of-the-art 3 MMTPA refinery in Assam. Excerpts from the interview:

    What is your outlook on the crude oil sector?

    Though globally there is a strong push towards development of alternate energy sources, the energy demand is also increasing significantly. Therefore, we feel that the hydrocarbons sector, including crude oil, will retain its share in energy value chain for a long time. On the pricing front, after suffering the shock in early 2020 due to the pandemic, the crude prices have recovered to the pre-pandemic levels. Currently, crude is trading around USD 65-70/bbl range and we expect the prices to remain in the USD 60-70 range in near future. Demand recovery post the pandemic is also expected to support the prices. Our company’s crude price realisation in Q1 FY 22 was over USD 67/ bbl and we expect similar price trend to continue in remaining 2021-22.

    Oil India's net profits in Q1FY22 increased to Rs 508 crore on a YoY basis from a loss of Rs 248.61 crore in Q1FY21. EBITDA during the period also increased by 295 percent to Rs 1,296.92 crore. What factors have helped you chart this spectacular turnaround?

    The main contributing factor for improved profitability is recovery in crude oil prices. In Q1FY21, the crude price realised by OIL was only around USD 30/ bbl due to the corona virus-induced price shock. This was the lowest price that we realised over the last several years. The rebound in oil prices since the beginning of 2021 led to improved price realisation of over USD 67/bbl in Q1FY22. Several cost optimisation measures, 4% growth in natural gas production and lower exploratory write-offs also led to improvement in profit position.

    Do you expect natural gas margins for Oil India to improve from September 2021 as the government may hike prices by around 50 percent?

    As per the prevailing domestic natural gas pricing guidelines, the price of natural gas produced from nomination fields is revised by the government every six months. The current price under these guidelines is USD 1.79/MMBTU, which is non-remunerative. However, going by the trend of prices of international benchmarks, we expect natural gas price to increase in the next revision, which is due effective October 1, 2021. Any such hike will certainly improve our margins.

    What are your growth levers?

    We are an integral part of India’s oil and gas and energy sector. Over last many decades we have demonstrated our technical stewardship and developed our core strength of operating mature assets in India and across the globe. We have strong financial fundamentals and project execution capabilities. Our stronghold in Assam-Arakan Basin in Northeast India provides us strong opportunity for growth. To boost our crude oil and natural gas production, we have drawn plans for fast track development of certain prolific oil and gas reserves which should give us good results in the next 3-4 years. To further strengthen our E & P activities, we have secured large acreages of about 49,000 sq. km under the Open Acreage Licensing Policy of the government through winning of 25 blocks. Our recent acquisition of controlling stake in NRL is also a very strategic business decision which will boost our group performance significantly.

    What are your top three strategic objectives?

    We have consistently maintained our crude oil production of over 3.0 MMT in spite of ageing and matured fields and natural decline in production levels. We continuously resort to adoption of new technologies and enhanced oil recovery measures to increase/maintain production. The company is working on fast-tracked development of certain identified fields which is expected to boost our oil and gas production significantly. Multiple initiatives by the government through Open Acreage Licensing Policy (OALP), Enhanced Recovery (ER) Policy and positive development at operational level like success in appraisal of wells and adoption of cyclic steam stimulation (CSS) technology has given impetus to our growth targets. Further, we aim at pursuing selective and profitable diversification in the energy value chain and participate in India’s push for clean energy. We aspire to be a global E & P player with operations at scale, significantly higher production, reserves and cash flows while being known globally for our capabilities to extract value from mature assets.


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