Oil India Ltd Q2 FY2023 Concall Summary

Key Takeaways

• Record PAT on price surge, moderated by windfall tax: Standalone Q2 FY23 PAT was the highest ever, driven by a ~40% YoY jump in crude realization, though the benefit was partially offset by a \$24/bbl special additional excise duty.
• Production growth on track for FY24 step-up: Total standalone production rose 4% YoY in Q2, and management reaffirmed targets of 3.6 MMT oil and 4 BCM gas for FY24, progressing toward a 4.2 MMT/5 BCM goal by 2024-2025.
• NRL GRM collapsed on diesel margin and export duty hit: NRL's GRM fell sharply from \$32/bbl in Q1 to ~\$14/bbl in Q2, driven by falling diesel margins and the imposition of windfall tax on product exports from July 1, dragging its PAT down to ₹728 Cr.
• Balance sheet strength enables aggressive capex cycle: OIL has nearly repaid its rupee acquisition debt, NRL is funding its ₹29,000 Cr expansion largely from internal cash flows with minimal debt drawdown so far, and the company expects to sustain a ₹4,000–5,000 Cr annual capex run-rate for Oil India standalone.
• What to watch next quarter: Whether crude and gas prices hold to support a catch-up dividend in Q3, the pace of NRL's debt and equity drawdown as project execution accelerates, and any concrete progress on lifting force majeure at the Mozambique project.

Realizations & the Windfall Tax Overhang

• Crude price tailwind: Average crude realization rose ~40% YoY in Q2 and ~54% YoY in H1, the primary driver of the record standalone PAT.
• Gas price boost: Average natural gas realization rose by \$4.31/MMBTU YoY in H1 to \$6.10/MMBTU, contributing to the strong upstream performance.
• Windfall tax clawback: The government imposed a special additional excise duty at \$24/bbl in Q2, which directly moderated the benefit of higher crude prices and introduced a layer of policy uncertainty into earnings.
• Forex loss drag: A ₹290 Cr forex loss in Q2, up from ₹200 Cr in Q1, added to the cost pressures alongside guided OPEX increases for labour rates and seismic surveys.
• Dividend conservatism reflects price uncertainty: The interim dividend of ₹4.5 per share was deliberately moderated, with management citing unpredictable prices and the windfall tax as reasons for caution, while signaling a likely catch-up in Q3 if prices hold.

Sanjay Choudhuri: "On the back of higher prices that we have received, however there has been windfall tax, which has come and accordingly the dividend has to be moderated to that extent. Now with the unpredictable prices in the next 6 months, it would be difficult to take an absolute call regarding the dividends, however, conservatively speaking we have been a little conservative may be, but then we will be likely to make up for that in the third quarter if the prices hold good."

NRL: Margin Collapse & Expansion Funding

• GRM freefall: NRL's GRM collapsed from \$32/bbl in Q1 FY23 to ~\$14/bbl in Q2, driven by a combination of falling diesel margins and the imposition of windfall tax/export duties on diesel, ATF and petrol from July 1. PAT consequently fell to ₹728 Cr from ₹957 Cr YoY.
• Project funding largely internal: Despite a sanctioned ₹18,000 Cr loan for the ₹29,000 Cr refinery expansion, NRL has drawn only ₹1,500–1,600 Cr so far because refining margins and cash flows have been fairly good, allowing the refinery to fund project activities from internal resources.
• Debt drawdown likely back-ended: Management expects loan drawdown and OIL's ₹3,000 Cr equity contribution to increase in the next year or possibly the later part of this year, with a likelihood that the full loan may not be drawn or drawn only toward the project end.
• Excise benefit secured: The excise duty benefit for NRL's incremental capacity has been confirmed, supporting the project's post-expansion economics.
• Product mix stable: Post-expansion, middle distillates (HSD) will remain ~80% of production, though this may shift depending on export market conditions since large quantities will be exported.

Harish Madhav: "There is a likelihood that we may not draw the whole loan or draw the loan only towards the end of the project, so currently the refinery is able to fund the project activities."

Production Growth & Exploration Progress

• Current-year delivery: Total standalone production up 4% YoY in Q2, with gas production up over 2% YoY and H1 gas production up ~5% YoY, keeping the company on track for its FY23 targets of ~3.2 MMT oil and ~3.5–3.6 BCM gas.
• FY24 step-up targets: Management set FY24 targets of 3.6 MMT oil and 4 BCM gas, with a medium-term goal of 4.2 MMT oil and 5 BCM gas by 2024-2025, progressing almost as per schedule.
• OALP drilling underway: Three locations drilled in Rajasthan and one in the North-East, with Mahanadi drilling planned to start by the last quarter of FY23; contribution from OALP blocks will be added at a slightly later date.
• Offshore exploration in planning: Initial planning is in progress for drilling a location in an offshore area, though no timeline was committed.
• Russian assets steady: Overseas production from Taas and Vankorneft is performing almost in line with last year, with total production around 0.25 Cr tonnes of crude oil.

Mozambique: Stalled but Hopeful

• Force majeure persists: The Mozambique Area 1 project remains under force majeure, with management hoping that things settle down in 3–5 months and the declaration can be withdrawn.
• Sporadic instability: While there has been some breakthrough at the ground level, sporadic events continue to occur, and management cannot say for sure that everything is sorted out.
• Funding mechanics post-restart: Once project activities kick off, loan funds will start flowing and OIL's equity contribution will slow down or remain at current levels; no other overseas equity contributions are lined up beyond Mozambique.

Sanjay Choudhuri: "There have been efforts from the operator as well as G2G efforts... There is some breakthrough at the ground level, but then some sporadic events have also occurred, so we cannot say for sure that everything has come to a standstill per se and everything is sorted out totally."

Capital Allocation & Balance Sheet

• Acquisition debt nearly cleared: 90–95% of the rupee loan taken for the NRL acquisition has already been repaid, with the remainder expected to be liquidated by December; the dollar loan value has changed only due to rupee depreciation.
• Capex run-rate sustained: OIL's annual capex run-rate remains around ₹4,000–5,000 Cr every year, with FY24 standalone capex directionally around ₹4,500 Cr and NRL capex around ₹8,000 Cr for project execution.
• Dividend floor confirmed: Management committed to at least 30% payout as per government guidelines, and noted that if profitability is good, 30% should be at par with the previous year in absolute terms or slightly better; the final call comes after annual results.
• Depletion trending lower: Depletion numbers have come down this year over last year because the PR rate has been lower, and are expected to remain more or less flat for the rest of the year at ~₹300 Cr per quarter.

Harish Madhav: "If production output, physical numbers are going to improve from now onwards further and financially the pricing support also apparently if it remains, the company will be in a very, very good financial position."

Guidance & Commitments

Key Metrics