Hindustan Oil's Gas Discovery In The Dirok Field Could Boost Revenue
Revenue potential depends on demand uptick in the Assam region, which the management expects the Duliajan-Numaligarh Gas Pipeline will solve.
Hindustan Oil Exploration Co. announced on Tuesday that it has made a major gas discovery in an unexplored layer called Sand-9 in the Dirok-1 well.
According to the exchange filing, initial tests show a flow rate exceeding 6 million standard cubic feet per day. If further tests are successful, this discovery could increase the company's proven reserves and boost revenue.
Dirok Field: Gas Production Volume
The Dirok gas field, located in Assam, India (Block AAP-ON-94/1), is operated by Hindustan Oil Exploration Co. in partnership with Oil India Ltd. and Indian Oil Corp.
The field currently produces around 35 million metric standard cubic feet of gas per day, which represents more than 15% of Assam’s natural gas production, according to the company. Moreover, the company's management has indicated that this could rise to 70 million, with consecutive workovers on wells 2 and 4.
In its fourth quarter FY24 investor presentation, the company had mentioned about plans to test sand layers 9 and 10 in the Dirok-1 well. It was during this same testing that the company discovered a gas flow exceeding 6 million standard cubic feet per day.
In its latest exchange filing, the company has informed that further production testing at Sand-9 is in progress. If the production test results are positive, the discovered gas reserves in Sand-9 will be added to the Dirok field's proven reserves. This has the potential to increase gas volume of the company.
Revenue Potential
Hindustan Oil Exploration's Dirok field produced an average of 22.62 million cubic metres of gas daily in the final quarter of the fiscal, selling it at a price of $8.41 per million metric British thermal units.
The company benefits from selling its gas at a price set by the Petroleum Planning and Analysis Cell, currently at $8.2 per million metric British thermal units, which is higher than the capped price for nominated gas blocks of Oil India and Oil and Natural Gas Corp., which can sell gas at $6.5 million metric British thermal units.
As a result, increased demand for Dirok gas could lead to higher revenue for Hindustan Oil Exploration.
Demand Restraints
A significant risk to potential revenue growth is demand. The company's management noted that although the Dirok field has a capacity to produce around 50 million standard cubic feet per day, production is limited due to insufficient demand.
The primary issue is that the company's main customers, predominantly public sector undertakings, prefer the lower-priced gas at $6.5 per million metric British thermal unit offered by ONGC and Oil India. Consequently, any remaining demand is fulfilled by Hindustan Oil Exploration at a higher price set by the Petroleum Planning and Analysis Cell.
Demand Uptick Expected
Hindustan Oil Exploration is, however, optimistic about improving demand once common gas carriers begin operating in the Assam region and grid connectivity is established.
In its Q4 FY24 conference call, the management had said that the Duliajan-Numaligarh Gas Pipeline becoming a common carrier is expected to boost volume. Additionally, once the Indradhanush Gas Grid completes its pipeline from Duliajan to Numaligarh, approximately 180-km-long demand constraints will be further alleviated.
This development will facilitate full gas connectivity between the Eastern Gas Grid and central India, leading to increased stable operations for the company from 2025–2026 onwards.
