New Delhi, Dec 7 One of Indias first private oil and gas companies, Hindustan Oil Exploration Company (HOEC) has come a long way since the time when majors and supermajors — Unocal, Chevron and Eni owned a significant share of the company.
Going by the shareholder details forming part of the 36th Annual Report for FY19-20, the promoter has only 5,745 shares, a meagre 0.004% in HOEC. Absence of international players largely due to improper and incorrect governance speaks volumes on the fall of HOEC from its days of glory, sources said.
For any investor in the company, the current level of visibility that HOEC has been gaining maybe beneficial from a short-term perspective.
However, the gains may end up being short lived due to decision and leadership of the management namely the CEO and CFO of the company.
The former came on board after ending his sabbatical of 10 months due to his sudden exit as Interim CEO of an energy blue-chip energy major, and the latter last served as an accountant at Hardy Oil Exploration (India) Inc. before mysteriously leaving Hardy, can claim responsibility for the positive surface level change brought to HOEC.
According to sources close to the company, despite service providers and vendors remaining unpaid in excess of Rs 150 crore, financial statements of the company for FY 19-20 reflect the awarding of substantial bonuses and ESOPs to the above-mentioned leadership team.
The question however that still begs to be answered is while the leadership team has rewarded itself substantially , the company has seen a steady departure of key personnel with more rumoured to be on their way out due to salaries having been slashed up to 40% from July 2020 onwards. The steady stream of exits of key people from the company will undoubtedly have a serious impact on business continuity and commercial production of gas from B-80 Block.
HOEC’s first attempt commercial extraction took place in February 2020 with the drilling of its first well D-2, nearly 1,000 metres away from ONGC drilled Discovery Well, B-81 using a drilling rig from Shelf and drilling services from Baker Hughes,
Much to the dismay, D-2 turned out to be a duster and produced some gas and associated condensate due to absence of the main reservoir pool.
Undeterred, HOEC proceeded to drill a second well, D-1, in April 2020, just 350 metres from the ONGC drilled Discovery Well B-81, in an attempt to ride on the success of ONGC’s discovery in the same area. This too, proved to be a futile effort resulting in testing of some gas flow with slug of oil but having an exceedingly high water cut. This was due to poor cement behind casing and perforation closer to oil-water contact as explained simplistically by a former expert of a National Oil Company. Understandably, HOEC tested Well B-81 for less than 24 hours to avoid exposing low production potential and short life of this well which might have triggered a downswing in its stock price.
Finally, in its final attempt, HOEC completed the drilling of another offshore well B-80 in April 2020. Despite the claim of the well producing over 8,000 boepd, the project was grounded even before it took off.
With commercial production from B-80 still proving to be elusive, it is plain to see that HOEC has run out of money needed to carry out design changes in production infrastructure. These are needed to counter high levels of water, coupled with more gas and less oil basis results on tests carried out.
Also, due to non-payment to vendors for variation orders, changes like conversion of a discarded jack-up drilling rig to a Mobile Offshore Production Unit (MOPU) and retrofitting with second-hand topsides at Lamprell yard have ceased.
As weeks rolled into months with no progress, it became crystal clear to vendors that HOEC no longer has the money to bankroll the B-80 Project.
Sadly, the worst hit due to this shortfall has been the service providers and vendors who have not been paid for their services and equipment since March 2020. The accrued liabilities owed by HOEC to these service providers related to Block B-80 alone stands more than Rs 150 crore.
What is alarming is that these service providers have no idea as to when or if at all, they will be able to recover their dues. Despite this financially dangerous situation, the management of HOEC continues to put up a brave face.