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Oil India sets higher output target as Assam situation normalises

Monday, 18 August 2014 - 5:03am IST | Place: Mumbai | Agency: dna

Oil India Ltd (OIL), the energy exploration company which saw a sharp fall in crude production last fiscal due to strikes in Assam, is hoping to achieve 3.7 million metric tonne (mmt) of output in the current fiscal, the management guided in its first-quarter earnings call.

OIL gets most of its crude oil production from Assam, but operations were effected last year due to renewed protests for a separate Bodoland state. As a result, its crude oil production fell to 3.5 mmt last fiscal from 3.7 mmt in 2012-13.

The company had missed production targets earlier too due to frequent protests. It produced 3.7 mmt of crude oil in 2012-13 against a target of 3.95 mmt, of which 3.64 mmt was from Assam.
In the earnings call, OIL management indicated it was upbeat on Assam production this year. "There is considerably lower disturbance in Assam now. We have taken up several CSR (corporate social responsibility) activities, and are confident to achieve our production target," said Rupshikha Saikia Borah, director (finance).

During the first quarter of this fiscal, OIL's crude oil production target was 864,350 tonne while actual production stood at 835,449 tonne, achieving about 96.66% of the target.

Analysts, however, see 3.7 mmt too huge a target to achieve considering OIL's current production run rate. Most analysts expect lower production of around 3.6 mmt for their calculations. "In Q1, OIL's total crude oil output was 0.844 mmt, which translates in to annual production of 3.36 mmt. So if the company wants to achieve the target of 3.7 mmt, it will have to produce 0.95 mmt of crude oil in every quarter of the current fiscal, which looks difficult considering the strikes dampening its production," Dhaval Joshi, analyst with Emkay Global Financial said.

He, however, said that even if the company manages to achieve 3.5-3.6 mmt of oil output in current fiscal it will be a big positive for its profitability. "While crude production has recovered somewhat QoQ, we expect full year crude production to be well below management target of 3.7 mmt - our estimate is 3.55 mmt. Gas price hike and positive news on subsidy share would be the key catalysts," Ratings agency Jefferies said in a note.

"We are moving our resources to developing fields and strategically locating wells to get more production," Borah said on the company's plan to achieve the target.
Brokerage KR Choksey said that the company's production in fiscals 2013 and 2014 was down (nearly 5.5% YoY) because of disruptions due to employment related strikes. "However, the matter is largely resolved now and we expect fiscals 2015 and 2016 production to grow at 5-8%."

The company is sitting on cash reserves of Rs 9,400 crore. In the current fiscal it hopes to spend Rs 3,000 crore on the capex, which will be mainly utilised for exploration drilling at Mizoram and Krishna Godavari D6. The company may consider an acquisition of around Rs 5,000 crore. "We can look at overseas acquisition but not as large as Mozambique one," the company said in the earnings call.
OIL has domestic acreage of over 88,927 sq km in over 55 oil and gas blocks, and has international acreage of 71,126 sq km. However, most of its assets are concentrated in North-east India, which accounts for its entire crude oil production and 90% of its gas production. Rajasthan is the only other producing area, contributing around 10% of its total gas production.

The company has participating interests in exploration blocks in Ganga valley, Mahanadi offshore, Mumbai offshore, and Krishna Godavari offshore in India and also has participating interests in various overseas projects in the US, Venezuela, Gabon, Egypt, Iran, Libya, Nigeria, Timor Leste and Yemen.

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