Eni's Former Indian Oil Explorer Targets 12-Fold Sales Jump

(Bloomberg) -- Hindustan Oil Exploration Co. is rising from the ashes about a year after Italy’s Eni SpA sold its controlling stake.

The private Indian explorer started oil and gas production from a new field in northeast India and is pushing ahead with another development offshore Mumbai that it won earlier this year in an auction, Chief Executive Officer P. Elango said in a phone interview.

Eni's Former Indian Oil Explorer Targets 12-Fold Sales Jump

New production is critical for Hindustan Oil after its biggest field halted crude oil output in July 2011, dragging the company into losses. Its revenue tumbled to 255 million rupees ($3.9 million) during the year to March from a peak of 3.5 billion rupees six years ago. The company is targeting annual sales of 3 billion rupees within three years led by production from the new fields and the revival of an older field in south India, Elango said.

The 12-fold revenue increase is partly a consequence of Prime Minister Narendra Modi’s push to ease rules and speed up exploration with a goal to reduce the country’s oil imports. Eni acquired Hindustan Oil in 2008 through its acquisition of Burren Energy Plc. The Italian company exited last year after output dwindled at the Indian producer and oil prices plunged to their lowest in a decade.

The private explorer expects the Dirok field in north eastern Assam state to achieve daily peak production of 36 million standard cubic feet of gas and 1,000 barrels of oil and condensate by April 1, Elango said. Hindustan Oil, which operates the block, has a 27 percent stake. It will use the cash flow from that operation to fund development of the two other blocks and retain its debt-free status, he said. 

Hindustan Oil rose as much as 2.3 percent to 132.70 rupees in early Monday trading in Mumbai. The shares have doubled this year, outpacing a 23 percent gain in the benchmark S&P BSE Sensex.

Internal Reserves

Total investment in all three projects will be about $115 million, of which Hindustan Oil will fund its share of $50 million entirely through internal cash generation. “We wanted to adopt a minimum capex model,” Elango said. “Once we understand the reservoir and start generating cash, we can drill more wells and increase the production.”

The Chennai-based company and its partner Aban Offshore Ltd., India’s largest drilling-services provider, submitted a $42 million development plan last month for field B80 offshore Mumbai. The companies plan to produce 15 million standard cubic feet of gas and 5,000 barrels of oil every day after the first phase of development by June 2020, Elango said.

Hindustan Oil is also reviving two existing wells in the offshore PY-1 field in southern India. It is producing about 2.5 million cubic feet of gas per day from the field at present and plans to quadruple it, he said. Peak output from the field was 50 million cubic feet.

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