Oil India Ltd Q2 FY2025 Concall Summary

Key Takeaways

• Production growth, but gas constrained: Crude oil output rose +4.79% YoY in Q2, yet natural gas dipped 1.36% as key thermal power stations shut down, highlighting the persistent offtake bottleneck.
• Earnings surge despite softer realizations: PAT jumped to INR1,834 cr from INR325 cr YoY even as EBITDA margin slipped to 47.67%, driven by higher volumes and operational strength.
• The infrastructure unlock is approaching: IGGL Phase 1 is mechanically complete and set to start by December 2024, while the NRL refinery expansion is 70% done and targets a December 2025 commissioning, promising a step-change in gas demand.
• Underground gas storage is the novel fix: To stop losing oil output when gas wells are shut in, Oil India is pioneering underground gas storage, injecting produced gas back into reservoirs to keep condensate flowing.
• What to watch next quarter: The actual start of IGGL Phase 1 gas flow, any progress on premium gas pricing quantification from the ministry, and whether Q3 gas offtake ticks up as management expects.

Production & the Gas Offtake Bottleneck

• Crude oil growth unconstrained: Production rose 4.79% YoY in Q2 and 5.5% in H1, with management stating crude output is not capex-constrained but demand-constrained because Northeast refining capacity of 7.5 MMTPA far exceeds the 4 to 4.5 MMSCMD produced, so any barrel finds a buyer immediately.
• Gas production held back by customers: Q2 gas output fell 1.36% YoY because Namrup Thermal Power Station and Lakwa Thermal Power Station did not operate during the period, a reminder that gas production lives and dies by downstream offtake.
• Q3 offtake outlook mixed: Management expects a small increment in Q3 gas upliftment, with some customers taking more but Tea gardens entering their lean season, bringing volumes back to earlier quarter levels or slightly above.
• The hidden cost of gas curtailment: When gas wells are shut due to low customer demand, associated condensate and oil production is also lost, a dynamic management calls unacceptable.
• Underground storage as the workaround: Oil India is planning to inject produced gas back into identified reservoirs during curtailment periods, allowing continued oil and condensate production, a first-of-its-kind initiative in the country now being pursued on a war footing.

Management: "We cannot afford to lose even a single drop or barrel of oil. And that's the reason we have taken up this initiative that we will have a facility for underground gas storage."

Infrastructure: The Demand Unlock Ahead

• IGGL Phase 1 imminent: The 385 km Guwahati to Numaligarh section is mechanically complete with nitrogen feeding done for ~280 km, and management expects it to start by December 2024, creating the first trunk pipeline connectivity for Northeast gas.
• NRL refinery expansion on track: Physical progress has reached ~70% with over INR20,000 cr of the INR28,000 cr budget spent, and commissioning is targeted for December 2025, with a ramp-up from 50-60% capacity in the first year to full capacity thereafter.
• Gas offtake to more than double from NRL: NRL's gas demand is set to rise from the current 0.9-1 MMSCMD to 2.5-3 MMSCMD once the expanded refinery comes online, with the DNPL pipeline's first phase activated by the last quarter of next calendar year to feed it.
• Duliajan evacuation line in progress: A 116 km, 24-inch line from North Bank to Duliajan is targeted for completion within 2 years, further strengthening the Northeast gas grid.
• Substantial gas growth from FY26-27: Management expects IGGL connectivity and other gas lines in the Northeast to enable a material step-up in gas production from FY26-27 onwards, though it declined to quantify FY26 gas guidance, saying the situation remains similar until IGGL arrives.

Pricing & the Premium Gas Opportunity

• New well premium pricing unlocked: Gas produced from new wells or through new well interventions in nomination fields now qualifies for premium pricing above the standard APM cap, and management is actively identifying areas that will meet the criteria.
• Quantification still pending: The company is sharing data with the ministry and awaits a report before it can estimate how much production will qualify, with management cautioning it is better not to give any number before that.
• OALP blocks enjoy full marketing freedom: For discoveries in OALP regime blocks, there is no price restriction on gas, a structural advantage as the company expands its exploration footprint.
• Capex directed at premium-eligible wells: The majority of the INR700 cr development drilling budget targets nominated blocks in Assam and Arunachal, and monies will be spent on new wells that could qualify for the extra premium, though qualifying conditions will take some time to meet.

NRL: Refining Margin Pressure & Expansion

• GRM hit by industry-wide inventory loss: NRL's reported GRM of \$2.25/bbl was depressed by an estimated \$4.5/bbl inventory loss; excluding that, the underlying GRM would have been ~\$6.5-\$6.7/bbl, consistent with the prior quarter.
• PAT fell sharply YoY: The inventory loss flowed through to NRL's bottom line, dragging down its contribution to Oil India's consolidated PAT despite the parent's strong operational performance.
• Expansion capex running hot: NRL plans ~INR10,000 cr of capex in the current year and the same level next year, with a revised total project cost of INR32,000 cr submitted to the ministry and awaiting approval.
• Product evacuation being built out: The existing 1.7 MMTPA product pipeline is being augmented to 5.5 MMTPA to coincide with refinery completion, and NRL is planning an additional pipeline from Siliguri to high-demand areas, currently in the planning stage.
• Pet-chem project approved: A ~INR7,000 cr petrochemical project has received approval, with some physical activities already underway alongside the refinery expansion.

Capex, Exploration & Portfolio Moves

• Upstream dominates capex allocation: 75% of capex is directed toward upstream initiatives, with the balance going to renewables, CGD, and other areas.
• Exploration drilling heavily weighted to nomination blocks: Of the INR2,000 cr projected for exploration drilling, a significant chunk targets near-field exploration in the nominated regime, not just rank exploration or OALP blocks.
• Write-offs and provisions booked: The quarter saw INR72 cr written off on a Puri well (OALP) and INR297 cr provisioned across 5 wells spanning NELP blocks like Ashoknagar and Malickberia (with ONGC as partner), the Dima Hasao OALP block, and some nomination areas.
• CGD footprint expanding: Oil India secured 9 geographical areas in the 12th bidding round, with 3 already functional in Kolhapur, Ambala, and Kurukshetra, plus operations in Tripura; none are stand-alone, with partnerships mostly with HPCL and one with BPCL in Arunachal.
• 25 CGD stations planned: The company is excited to set up 25 stations and has identified technology partners for a station in Tinsukia, Assam, reaching some level of finality, though the rollout will take time because CGD must be spiked with natural gas.

Guidance & Commitments

Key Metrics