Hindustan Oil Exploration - Undergoing A Strategic Shift: Motilal Oswal

Motilal Oswal Report

We met with Mr. Ramasamy Jeevanandam, Chief Executive Officer of Hindustan Oil Exploration Company Ltd., on Dec 01, 2023.

Hindustan Oil Exploration is a play in the upstream sub-sector within the oil and gas sector, which is seeing a multi-year upcycle (as we noted in our report) after nearly eight years of under-investment globally.

Hindustan Oil Exploration management highlighted the following positive factors:

1. the company is transitioning from a single-asset to a multi-asset growth strategy;

2. the management remains confident of doubling the production in the next three-four years from a primarily low-cost reserve base (opex: $5-8/barrel of oil);

3. operating cash flow has improved significantly after the start of the B-80 asset (partially operating) in May 2022;

4. the company has engaged Baker Hughes to resolve production issues at the B-80 asset.

Hindustan Oil Exploration (not covered) trades at FY23 price-to-earning of 13.2 times.

Our top picks in the oil and gas sector remain Oil and Natural Gas Corporation Ltd. and Oil India Ltd.

For oil and gas companies, we believe the key risks are volatility, a sharp decline in oil prices and execution issues related to production volume.

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