Oil India Ltd Q3 FY2024 Concall Summary

Key Takeaways

• Volume growth story intact, price headwinds mask it: Crude oil production rose 5-6% YoY on new drilling, but a \$17/barrel drop in realization drove a 7% turnover decline for 9M FY24.
• Gas is the coiled spring: Production is customer-constrained, not reservoir-constrained; the IGGL pipeline connecting to mainland India unlocks a path to 5 BCM within 2 years, and every additional molecule sells at full market price.
• One-off charges obscure underlying profitability: A ₹2,893 crore GST and service tax provision on royalty, plus NRL's Q1 shutdown, depressed PAT; EBITDA margins actually improved to 47.28%.
• The drilling ramp-up is real and aggressive: Wells drilled will double this year, then rise from ~45 to 75-80 in FY25, targeting crude output of 3.8 MMT next year and 4+ MMT by FY26.
• What to watch next quarter: The Q4 reserve estimate update that could change depletion rates, the IGGL Phase I commissioning timeline, and any premium gas pricing guidelines from the government.

Production Growth: The Volume Engine

• Crude growth is old-field, new-well driven: The 5-6% YoY oil production increase comes entirely from new development drilling in existing Northeast fields, not from EOR or IOR activities. New wells are being drilled in old areas using new technologies to extract from old wells.
• Decline is already compensated: Management factors in an 8-10% annual decline rate; the reported growth is net of that decline, meaning total gross additions are around 16% to deliver the stated net growth.
• Drilling activity doubling: The company is targeting a doubling of wells drilled this year, with a further step-up to 75-80 wells in FY25 from a base of ~45. This is the mechanical driver behind the production ramp.
• Mission 4+ is underway: Five fields have been identified for the 4+ MMT target; drilling activity has already ramped up across all those areas. FY24 production is guided to 3.35-3.4 MMT, FY25 to ~3.8 MMT, and FY26 to 0.4 crore tonnes (4 MMT) or more.

Goswami: "This is not due to EOR or IOR activities. This is from our existing fields in the Northeast, mostly. This is basically due to new drilling activities in the old areas."

Gas: The Constrained Asset Unlocking

• Production is customer-driven, not reservoir-driven: Oil India has the potential to produce all its gas wells right now but does not because there are no offtakers; producing would mean flaring. Some wells are being closed until customers and grid connectivity are established.
• Q1 was the poster child for the problem: Gas production was very low in Q1 because of limited offtakers and seasonal customers like tea gardens; the non-connectivity to mainland India constrained sales. The drag on 9M gas earnings is entirely attributable to that Q1 shortfall, compounded by shutdowns at NRL, BVFCL, and Brahmaputra Cracker and Polymer Limited.
• IGGL is the unlock: All three phases of the IGGL pipeline matter because they connect Oil India's fields to mainland India. Phase I is getting commissioned within FY24 or early FY25. One more line has been proposed in IGGL to connect Oil India's field directly to the mainland connection.
• Baghjan gathering station under construction: A new gas gathering station at Baghjan targets 5 BCM of gas production over the next 2 years, with most of that volume coming from Baghjan.
• Every additional molecule is full-price: Only certain customers with allocations made in 2005-2006 receive a subsidy (40% of gas price). Every additional molecule of gas beyond those legacy allocations sells at full market price, with no subsidy.
• Premium pricing pending: A provision exists for 20% premium pricing on new gas to certain areas, but guidelines have yet to be issued by the government; once issued, the company will determine how much of its gas production qualifies.

Management: "As of now, as I speak, we have the potential to produce all those wells. But we are not producing because we do not have customers. If we produce, we will have to flare it up. So, we do not produce."

Financials: Price Pain, Provision Shock, Margin Resilience

• Turnover decline is a price story: The 7.04% drop in 9M FY24 turnover was mainly due to lower crude oil price realization of \$82.89/barrel versus \$100.27/barrel in 9M FY23.
• EBITDA margin actually improved: Margins rose to 47.28% in 9M FY24 from 44.96% in 9M FY23, showing underlying cost control even as the top line compressed.
• PAT hit by three non-recurring items: The 9M PAT decline came from lower crude price realization, turnaround maintenance at NRL, and a ₹2,892.78 crore provision for service tax and GST on royalty. The GST provision includes not only the tax but also interest on the outstanding balance: ~₹1,400 crores has been deposited, while ~₹1,100 crores remains undeposited due to a stay from the Guwahati High Court and may be liable to interest.
• DD&A jumped 18% on reserve ratio change: Depletion expense increased because of a change in the production reserve ratio; reserve estimation is done annually at year-end, and a new estimate will be available before Q4 results, which may change depletion again in Q4.
• Exploration write-offs are lumpy: ₹258 crores was written off in Q3 FY24 for dry wells in the Northeast and one well in the Mahanadi basin; this will fluctuate depending on exploratory drilling results, and going forward more write-offs may come from new exploration areas like OALP blocks.
• Cost run rate stable: The current run rate of other expenses (excluding the provision) will continue at similar levels; the royalty element will be similar with crude at \$75-85/barrel and gas at \$6.5; exchange rate variation is the unpredictable element.
• NRL profitability improved QoQ: Despite lower GRMs, NRL's profitability improved sequentially because it operated at ~114% of installed capacity. NRL also declared an interim dividend the day before the call, though management declined to disclose the amount, calling it not relevant for Oil India investors since NRL is a closely held company.

NRL Expansion & Refining Economics

• Expansion timeline: The NRL expansion is scheduled for July 2025, with a possible 3-4 month extension; a fair estimate is around September 2025.
• Marketing tie-ups secured: Agreements are already done with BPCL, IOCL, HPCL, and private marketers; the majority of offtake will be through BPCL.
• Evacuation infrastructure in place: The Numaligarh-Siliguri pipeline is being expanded from 0.17 to 0.55 crore tonnes annually; a diesel pipeline through Bangladesh of 0.1 crore tonnes per annum has already been laid.
• Excise duty benefit is material: The reported GRM is a core GRM without excise duty benefits; the excise duty benefit is about \$15 to \$16 per barrel for the 9-month period, and it will remain available as long as excise duty continues.

Exploration & Mozambique: The Optionality Bucket

• Near-field exploration dominates for now: Current exploration activity is concentrated in and around PML areas; OALP explorations are kicking off for the drilling phase, with drilling in Mahanadi, Northeast, and Rajasthan.
• Mozambique restructuring completed: The Mozambique asset (BREML) has undergone restructuring into a one asset company, one holding company structure; the borrower SPV (FPE) structure has changed, and this is applicable to Oil India as well. Future project CAPEX will be borrowed at the project level by the borrower SPE and on-lent to the asset company.
• Oil India's standalone ECB debt unchanged: When pressed by an analyst, management clarified that the ECB taken by Oil India will not be impacted by the restructuring and will remain on Oil India's books as borrowings.

Guidance & Commitments

Key Metrics