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Hindustan Oil Exploration Co shut second well in western offshore for tech issues

Management hopes to resolve technical issues in oil well D1 and gas well D2 in the current calendar year.

August 16, 2022 / 02:44 PM IST
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Listed crude oil explorer Hindustan Oil Exploration Company Ltd (HOECL) has shut-in its second well (D-2) in the B-80 oil and gas field in the Mumbai offshore basin because of technical disruptions. Its first well (D-1) was closed down earlier, soon after the wells were commissioned, the management told investors in a post-earnings call.

Reacting to the news, shares of HOECL declined 4.2 percent to Rs 162.55 on the BSE at 2:30 pm on August 16. In the oil and gas industry, shut-in refers to when a well is closed off so that it stops producing.

“Intensification of monsoon, and the resultant rough weather is leading to challenging current system performance, causing disruption to offshore production operations. Our integrated marine system is witnessing the first monsoon post commissioning,” said P Elango, managing director. 

HOECL commissioned the integrated system and managed to flow both the wells in June this year after much delay due to the pandemic and then a cyclone. But soon after that the D1 oil well was shut down as technical issues emerged in the actuator line, the part of the well in which water-based chemicals are pumped in to put pressure to open the wells. The company had informed about this after the financial result for the fourth quarter of 2021-22 in June.  

The D2 gas well, on the other hand, delivered 11.4 mmscfd on June 11, 2022 along with 369 bopd of oil, but was shut down on July 14 following issues related to floating storage and offloading unit (referred to as FSO) and the loading hose. 

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The company disclosed after the latest closure only after announcing the financial for the first quarter of 2022-23, which upset some analysts and investors. Few analysts and investors on the company’s conference call on August 16 raised concerns over lack of transparency and timely communication about a significant development like this that impacts the company’s performance. The management said that it was working on resolving the technical issues. 

The company’s management said that a permanent solution can be found for D1 oil well only after monsoon following a comprehensive underwater survey, while it is hopeful of rectifying the technical issues in D2 well sooner so that production resumes and the company has revenue inflows. 

“By the end of the calendar year, we expect both the wells to be fully onstream,” Elango said. 

The B80 block, spread over 56 square kilometers, is a western offshore asset that was awarded under the First Discovered Small Field (DSF) Bid Round 2016 in March 2017. HOEC is the operator of this field with 60 percent participating interest, while rest is held by Adbhoot Estates. Under the terms of the Revenue Sharing Contract (RSC), the oil and gas produced from this block enjoys marketing and pricing freedom.

HOECL is in a pact with ONGC to pump in the processed gas through the state-run oil marketing company's pipeline network to its Hazira Gas Processing Terminal. ONGC then redelivers B-80 gas into the HVJ (Hazira-Vijaipur-Jagdishpur) pipeline owned by Gas Authority of India Ltd, which is then supplied to Gujarat State Petroleum Corporation (GSPC) for delivery to end consumers.

The HOECL management said that the contract between the company and GSPC allows for one year of stabilisation phase from the time of commissioning and, therefore, does not expect any penalties for missing supply targets till June 2023. 

“At the macro level, the prices of both gas and oil are strong and are expected to remain so. We will remain focussed on bringing B80 to a stable operational mode. Our plan is to engage internationally reputed consultants and contractors to find a permanent solution,” Elango said.

The management told analysts that while there is a working capital issue right now, they don't expect any challenges regarding repayment of current liabilities. 

“When both the wells are brought on full production mode, the revenue generated would be adequate to address all the short-term challenges. After that, we will be able to invest and unlock the potential of our existing portfolio to drive the production growth,” he said.  
Rachita Prasad heads Moneycontrol’s coverage of conventional and new energy, and infrastructure sectors. Rachita is passionate about energy transition and the global efforts against climate change, with special focus on India. Before joining Moneycontrol, she was an Assistant Editor at The Economic Times, where she wrote for the paper for over a decade and was a host on their podcast. Contact: rachita.prasad@nw18.com
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