tata petrodyne ltd Management discussions

TATA PETRODYNE LIMITED ANNUAL REPORT 2006-2007 MANAGEMENT DISCUSSION AND ANALYSIS 1.0. FINANCIAL RESULTS: Rs. in Crores 2006-2007 2005-2006 a) Sale of Crudo Oil (net of stock and Govt. share) 95.10 91.11 b) Sale of Gas 57.24 63.78 c) Sale of Commingled Crude & Condensate (net of stock) 33.99 12.50 d) Other Income 7.69 3.54 e) Total Income 194.02 170.93 f) Less: Total expenses excluding Depreciation & Depletion 24.11 25.57 Expenses g) Profit before Depreciation & Depletion Expenses 169.91 145.36 h) Less: Depreciation & Depletion Expenses 50.27 37.12 i) Profit before tax 119.64 108.24 j) Less: Adjustment for shift in accounting method to 39.42 - Successful Effort Method* k) Less: Provision for tax (including provision for Deferred Tax) 19.63 26.78 l) Profit after tax 60.59 81.46 m) Profit/(Loss) brought forward from previous year 115.78 62.85 n) Profit available for Appropriation 176.37 144.31 o) Less: Proposed Dividend 19.60 19.60 p) Less: Dividend Tax 3.33 2.77 q) Less: Transfer to General Reserve 5.00 6.15 r) Profit/(Loss) carried to Balance Sheet 148.44 115.78 * Further details given in undernoted paragraph (Net change after considering reduction in depletion of Rs. 10.26 Crores is Rs. 29.16 Crores). The Company has shifted from the Full Cost Method of accounting that was being followed earlier to the Successful Effort Method. Institute of Chartered Accountants of India vide its Guidance Note of March 2003 allows companies for adoption of either method. Major international and domestic Oil & Gas Companies follow Successful Effort Method in their method of accounting. Under this method of accounting: i) Geological & Geophysical costs are expensed in the year incurred. ii) Cost of unsuccessful exploratory wells drilled are written off in the year incurred and; iii) Other capital expenditure are amortised over,asset life. On the other hand, under Full Cost Method of accounting, all costs including Geological & Geophysical costs and unsuccessful exploratory well costs are capitalised and amortised over asset life. After discussion in the Audit Committee, the Directors have taken the view that it would be more appropriate to follow the new method since the same is more conservative in its approach. After considering the change in method, the profit after tax for the year was Rs. 60.59 Crores as against Rs. 81.46 Crores in the previous year. The profit after tax for the current year is after a net additional charge of Rs. 29.16 Crores on account of change in accounting method to Successful Effort Method. The total income for the year increased by 13.51% to Rs.194.02 Crores (Rs. 170.93 Crores in the previous year) of which, income from Crude Oil sales was Rs. 95.10 Crores (Rs. 91.11 Crores in the previous year). Quantity of Crude oil sold during the year was 438,358 barrels as against 434,069 barrels in the previous year. Crude Oil Sales realization rate net of stock adjustment was higher at Rs. 2219 per barrel as against Rs. 2095 per barrel in the previous year due to higher oil prices during current year. The sales realization would have been even higher but for the share of profit oil with Government of India of Rs. 26.54 Crores as per the production sharing agreement (Previous year Rs. 20.53 Crores). Income from Gas was lower by 10.2% to Rs 57.24 Crores (Rs. 63.78 Crores in the previous year). Sales of commingled crude oil were higher due to increased off take at Rs.33.99 Crores (Rs. 12.50 Crores in the previous year). However, sales realization rate from Commingled Crude Oil was slightly lower at Rs. 2643 per barrel as against Rs. 2649 per barrel. The total operating expenses for the year were Rs. 24.11 Crores as against Rs. 25.57 Crores in the previous year. The decrease was mainly due to common cost optimisation among the various gas fields. 2.0. HIGHLIGHTS: The highlights of the existing operations of the Company in Cauvery & Cambay basins as also new growth initiatives taken by the Company in NELP VI round of bidding & farm in into North Sea Block in United Kingdom are given here under: 2.1. Cauvery Offshore Block CY-OS-9011 (Operator-Hardy Oil for PY-3 Field): The average oil production from the field for the year was 5,671 Barrels of Oil per day (BOPD): During the year, 2,087,419 barrels of PY-3 crude oil was delivered to Chennai Petroleum Corporation Limited, of which the Companys share was 438,358 barrels as against an estimate of 400,000 barrels. The field performance review and reservoir simulation studies indicated that the PY-3 Field holds higher in-place oil than what was estimated earlier. Accordingly, based on the simulation studies, the In place oil has been revised upwards to 156 Million barrels (MMbbls) from 113 MMbbls and the reserves to 39.38 MMbbls from 29.65 MMbbls. 2.2. Northern Cambay Offshore Block CB-OS-1 (Operator ONGC): An exploratory well in North Harinagar was drilled in the financial year. Logging data indicates two to three sands to be hydrocarbon bearing which has been intimated to the Directorate General of Hydrocarbon. The feasibility study conducted to develop the A & D structures with both onshore and offshore options was reviewed by the Joint Venture. The studies indicate that onshore development option for A structure is commercially viable while commercial development of D structure is not so viable. Accordingly, the Operating Committee of the Block has approved the Commerciality of Gulf A discovery. The preliminary report from the Operator indicates Initial Oil. In Place of order of 48 MMbbls with recoverable reserves of about 9 MMbbls which will shortly be reviewed by the Management Committee. The Operator will then submit the Commercial Evaluation Report to Directorate General of Hydrocarbon for its approval. 2.3. Southern Cambay Offshore Block CB-OS-2 (Operator-Cairn Energy for Lakshmi, Gauri and CB-X Fields): The average daily production from the Gauri and Lakshmi Field was 100 MMscf/day. The combined gas production during 2006-07 was 34.591 Billion Cubic Feet (BCF) and the gas sales were 34.55 BCF. The companys share of gas sales was: 3.455 BCF as against an estimate of 3.648 BCF primarily due to lower, offtake by one of the buyers for its plant maintenance shut down. The gas sales contracts were due for renegotiation in 2007 with the buyers i.e. Gujaratgas Trading Corporation Ltd and Gujarat Paguthan Corporation Ltd. The Company along with its Joint Venture partners have renegotiated the contracts wherein some earlier unfavourable conditions with respect to Quantity, Quality and Price have been addressed in the Companys favour. The new contracts were signed in January 2007. The Lakshmi oil development plan is envisaged to be implemented during 2007-08. In the first phase it envisages conversion of two existing gas wells into oil wells. In view of decline of gas production oil is now planned to be tapped from the, lower reservoirs. Two new wells are also planned to be drilled. An integrated oil & gas well is also proposed to be drilled in the Eastern part of Lakshmi Field. Similarly, it is planned to convert one gas well into an oil well and also drill one new well for both oil & gas in Gauri Field. The total production of commingled oil from Lakshmi and Gauri Fields was 1,446,625 barrels of which the Companys share was 144,663 barrels as compared to estimate of 106,333 barrels. Part of it is being sold on spot sales to private buyers and part is transferred to ONGC Koyali terminal from where it is sold to Indian Oil Corporation. Development plan for CB-X gas field was approved last year and gas sales agreement has been firmed up with Gujarat State Petroleum Corporation. Production will commence in the first quarter of the following financial year. 2.4. NELP VI Blocks: The Government of India, under NELP VI round of bidding, had offered 55 blocks. After careful scrutiny, the Company then bid for 9 Blocks along with other partners. The Company has been successful in being awarded two Exploration blocks (PR-OSN-2004/1 & KK-DWN200411). The consortium comprised of ON GC, Cairn Energy and Tata Petrodyne Limited. The Production Sharing Contracts (PSC) for the Blocks were signed on March 2nd, 2007. The Blocks have initial exploration period of five years commencing from 2007. The PR-OSN-2004/1 Block is located in the Palar Basin in the East coast of India, east of Chennai, in shallow water up to 400m depth. The Company has bid for the PR-4SN-200411 Block after initially estimating recoverable reserves of about 30 MMbbls of oil based on existing Geological & Geophysical studies and data from adjoining fields. The company intends to conduct seismic surveys & drill 3 exploration wells in the block as part of minimum work programme commitment. The Company has a participating interest of 30% in the Block. KK-DWN-2004/1 Block is located on the West coast of India, off Goa coast, at water depths varying from 400mn to 2000m. For the KK-DWN-2004/1 Block, the companys work programme is initially for conducting a seismic survey to determine possibility of hydrocarbon existence. Reserve estimates if any will be possible only after analysis of results of this survey. The Companys share of cost estimate of the surrey is Rs. 3 Crores. The Company has a participating interest of 15% in the Block. 2.5. North Sea Block 48 -1b/2c (Operator-Encore Oil): The Company along with Bharat Petroleum Corporation Ltd (BPCL) identified an opportunity for farming into a North Sea Block in the United Kingdom where the existing holders were M/s Encore Oil Plc and M/s Norwest Energy. The Farm to agreement was signed by the Companies on 13th March 07. The participating interest of all partners is 25% each. In 1984, AMOCO had drilled and located gas in the Block which was not commercially viable at that time for various reasons including low. gas prices prevailing then, However, in the current scenario the Block became quite viable and the company currently estimates the Block to contain gas reserves of about 60 BCF. The first well in the block is expected to be drilled in the 2nd quarter of F.Y 2008-09. 3.0. FUTURE PLAN OF ACTION: The Company intends to participate in the bidding process of the forthcoming HELP VII license rounds to be offered by the Government of India. The Company will also be looking for such overseas prospects which fit in with its requirement.