Indian Oil & Gas Exploration & Production Industry
The Global Oil and Gas (O&G) producers had a robust but volatile FY
23. Indian Oil & Gas producers were no exception to it. At the start of the year
strong energy demand was expected as the economy continued its recovery from the global
pandemic. However Russia-Ukraine conflict introduced huge geopolitical uncertainties and
caused energy priced to soar. This has only strengthened the intent of the nations across
the world to further bolster the Energy Security and Self Sufficiency while transitioning
to greener sources of energy in the long term. The trident of Energy Security & self
sufficiency, Supply chain diversification and transition to low carbon energy sources is
in focus like never before.
Figure 1: The Energy Trilemma
Energy Security
Reflects nations ability to meet current and future Energy demand
reliably and affordably
To withstand and bounce back from systems shocks with minimum
disruption to Energy supplies
Energy Transition |
Energy Diversification |
Transition of countrys
Energy system towards mitigating and avoiding potential environmental harm and climate
change impacts |
Dealing with concentrated
demand, production and supply and trade of Energy resources |
India is now worlds third largest energy consumer and is expected
to grow its energy consumption at thrice the speed as compared to rest of world by 2040.
Further 25% of global energy growth between 2020 and 2040 is envisaged to come from India
due to its fast growing economy backed by favorably placed demographics.
India is also a fourth largest importer of LNG (Liquefied Natural Gas)
and currently imports large quantities of LNG to support its overall natural gas
consumption. India has got abundant reserves of Natural Gas, largely untapped. Natural Gas
as a source of energy is greener and still cheaper. Government of Indias aim to
increase the share of Natural Gas in primary energy basket from current 6.5% to 15% by
2030 opens up the doors for huge opportunities in natural gas domain. The shift towards
natural gas will not only bring in larger share of greener energy but will also carry
remarkable economic and strategic significance as India targets to stay on multi-year
growth trajectory and need to harness the gas reserves to feed to the growth. It also
saves us huge foreign exchange resources for us and helps increasing our energy
independence in a significant way.
According to IEA (India Energy Outlook 2021), primary energy demand is
expected to nearly double to 1,123 million tonnes of oil equivalent, as the countrys
gross domestic product (GDP) is expected to increase to US$ 8.6 trillion by 2040. Robust
energy demand, focus on energy self sufficiency coupled with proactive reforms in energy
policies sets the brighter outlook for Indian Oil & Gas Industry in the years ahead.
Industry structure and developments in Natural Gas Domain
The Oil and Gas industry is typically split into three segments mainly
- Upstream, Midstream and Downstream.
Opportunities and Threats
The Natural Gas Opportunity in India
- Indias Natural Gas consumption is~174 mmscmd. Of this around
49% is met through domestic production while the rest is through import in form of
Liquefied Natural Gas.
- Indias Natural Gas consumption is expected to reach around 550
mmscmd by 2030 of which ~380 mmscmd is expected to be coming from domestic production.
- India targets to increase the share of Natural Gas in the
countrys energy mix from 6% to 15% by 2025. Global Average is around 24%
- India holds the Natural Gas reserves of 1,339.57 bcm.
- $60 bn investment planned in Natural Gas Infrastructure of the
country by 2030 including expansion of pipeline network to 30,000 km. by 2025 and
10,000+CNG stations by 2025.
Why Natural Gas? Why CBM?
Cleanest Fossil Fuel: Natural Gas is cleanest of all fossil fuels
and the best energy choice for the clean environment. During utilisation of Natural Gas,
the emissions are very low as compared to the alternate fuels like coal, Fuel Oil,
Naphtha, Petrol, etc. Natural Gas is pre-dominantly made up of Methane (CH4) and results
in lesser carbon emissions. Natural Gas burns cleaner without leaving any smell, ash or
smoke.
Global Energy Transition Trend: Natural Gas is increasingly seen
as a source of energy assisting in a global transition trend towards low carbon / carbon
neutral and sustainable energy supply. Natural Gas is gaining ground as an important
contributor to the Indian Energy mix and is capable of ensuring affordable, clean and
sustained energy supply.
Coal Bed Methane (CBM) extraction helps in producing cleaner energy
from coal as the Natural Gas is extracted first preventing the release of the Natural Gas
into atmosphere while coal mining. The technology also enables the relatively safer and
cheaper coal extraction later on from the same field and results into duel monetization
from the same field. India has fifth largest coal reserves in the world and hence
great potential for CBM exploration and production.
Figure: 2 Advantage India – Drivers to the growth of Industry
Threats
The deployment of skilled human resources and harnessing of technology
has becoming increasingly important. Timely execution of the development plans and
monetization of the gas assets remains critical for the growth objectives to be achieved.
The fortunes of the exploration & production business are largely
tied up with the buoyancy of gas prices and stability in pricing regime.
Strategy of the company
The Company and its subsidiary companies are holding large acreage of
onshore exploration & production assets in both conventional and unconventional
category. Out of 10, 4 assets are in development phase, 3 assets are in exploration phase
and 3 have been relinquished. DERL holds 25% stake in North Karanpura CBM block through
its subsidiary Prabha Energy Private Limited (PEPL). This asset is in development phase.
PEPL is the joint operator of this asset along with ONGC and IOCL is the third partner.
PEPL also signed a Revenue Sharing Contract with BCCL for exploration, development and
production of CBM gas from Jharia CBM Block I. PEPL holds 100% stake for development of
this block. The Company has a strong management team with decades of experience in oil
& gas and CBM development businesses.
The Company is currently focusing on developing the CBM Gas Assets
portfolio through its subsidiary – Prabha Energy Private Limited. Along the lines,
the company has started engaging in trading of Natural Gas. This activity is carried with
strategic intent since it greatly helps in establishing natural gas market connectivity,
brings familiarity with industry norms and builds important supplier – client
relationships. It better positions the company within the entire eco-system of natural gas
market when the commercial production of natural gas starts from the gas blocks in future.
Performance and Progress of the CBM Gas Assets.
North Karanpura CBM Block:
North Karanpura CBM block was initially awarded to the consortium of
ONGC & IOCL during first CBM bid round in 2001. ONGC had completed drilling of 9 core
holes and 6 test wells during the Exploration Phase I & II. Exploration work by ONGC
had indicated good CBM reservoir parameters like coal thickness, gas content, saturation
levels and permeability. Gas-In-Place (GIP) for the development area is about 22.93
billion cubic meters (BCM) of gas. Field Development Plan was approved by the Government
of India in 2012. The statutory clearances like environmental clearance, mining lease and
other approvals has been granted by the government. In the Year 2015, ONGC through
international competitive bidding process awarded its 25% participating interest and
operatorship to Prabha Energy Private Limited (PEPL) Thereafter, PEPL started further
developmental activities in the block wherein a total of 74 wells were planned to be
drilled.
The initial developmental activities have now been completed. The wells
drilled and completed so far have shown good CBM gas production. Most of the wells have
shown the gas during production testing. One of the well has shown initial gas production
of about 12,000 standard cubic meter per day (SCMD) during initial dewatering of well
which is very positive.
Further steps are being taken to start commercial production from the
North Karanpura Block as well as towards selling small quantity of CBM gas from the block.
For this, Gas Sales Agreements have been signed with few buyers. Volume of gas to be sold
will be around 25,000 SCMD and the gas will be transported by the buyers using cascades.
Infrastructure development for gas off-take is also being developed.
The National Gas Grid is 68 kilometers away from North Karanpura block.
Petroleum & Natural Gas Regulatory Board (PNGRB), after competitive bidding process,
has now awarded the contract to Indian Oil Corporation Limited (IOCL) for laying the gas
pipeline for connecting NK CBM block to Jagdishpur-Haldia-Bokaro-Dhamra Natural Gas
Pipeline (JHBDPL) which is part of National Grid.
Jharia CBM Block I
Jharia CBM Block I was awarded to PEPL in September 2021 as a CBM
Developer with 100% Participating Interest through international competitive bidding
process by Bharat Coking Coal Limited (BCCL) – subsidiary of Coal India Limited.
Environmental Clearance (EC) for exploration phase has been granted by the State Pollution
Control Board (JSPCB). Initial survey activities have been completed. Locations for
exploration phase work program have been identified. Lands required for drilling of core
holes and test wells have been acquired. The Work Program & budgeting exercise has
been completed and the procurement of goods and services have commenced. The Tenders for
Core hole drilling rig, testing rig and other long lead equipment & materials have
been floated.
Discussion on Financial Performance with respect to Operational
Performance and Key Financial Ratios
| Key Financial figures on standalone basis: |
|
(in INR Lakhs) |
Particulars |
FY 2022-23 |
FY 2021-22 |
| Revenue from Operations |
1,490.28 |
43.43 |
| Other Income |
175.22 |
0.29 |
| Total Income |
1,665.50 |
43.72 |
| Total Expenses |
1,294.93 |
40.13 |
| Profits Before Tax |
370.56 |
3.59 |
| Profits After Tax |
279.47 |
3.19 |
| Key Financial figures on consolidated basis: |
|
(in INR Lakhs) |
Particulars |
FY 2022-23 |
FY 2021-22 |
| Revenue from Operations |
3,345.29 |
265.48 |
| Other Income |
30.46 |
21.86 |
| Total Income |
3,375.74 |
287.34 |
| Total Expenses |
3,064.42 |
233.45 |
| Profits Before Tax |
311.33 |
53.89 |
| Profits After Tax |
216.21 |
46.13 |
Revenue from Operations
Revenues from Operations were Rs 1,490.28 Lakhs on standalone basis and
Rs 3,345.29 Lakhs on consolidated basis. The revenues were largely derived from dealing in
Natural Gas i.e Natural Gas Trading activity- engaged in with strategic intent.
Operating Expenses
Operating Expenses on standalone basis has been Rs 1,200.79 Lakhs and
Rs 2,373.08 Lakhs on consolidated basis. The operating expenses are largely consisting of
costs incurred on account of purchase of natural gas for trading purposes and other costs
associated with it.
Other Expenses
Other Expenses have been listed in table below:
Particulars |
FY 22-23 (Standalone basis) |
FY 22-23 (Consolidated basis) |
| Employee Benefit Expenses |
7.63 |
141.60 |
| Finance Cost |
0.54 |
28.34 |
| Depreciation & Amortization |
6.94 |
31.40 |
| Other Expenses |
79.03 |
102.80 |
Total |
93.60 |
304.14 |
DETAILS OF SIGNIFICANT CHANGES IN THE KEY FINANCIAL RATIOS & RETURN
ON NET WORTH
Pursuant to Schedule V Para B Clause (1) (i) of the Listing
Regulations, Please find below details of Significant changes (i.e. change of 25% or more
as compared to the immediately previous financial year) in Key Financial Ratios along with
detailed explanation therefore.
Financial Ratios |
FY 23 |
FY 22 |
Change |
Explanation / Remarks |
1. Debtors Turnover Ratio |
62.28 |
3.39 |
1,736% |
Expedited collection
mechanism. Also trading activity has a faster cash conversion of trade receivables. |
| 2. Debt Equity Ratio |
N.A |
N.A |
N.A |
Not Applicable as there is no external debt. |
| 3. Return on Net worth( Please refer note 1) |
4.33% |
0.05% |
|
Better utilization of assets. |
| 4. Inventory Turnover |
N.A |
N.A |
N.A |
Not Applicable as there were no inventories. |
| 5. Interest Coverage Ratio |
N.A |
N.A |
N.A |
Not Applicable as there is no external debt. |
6. Current Ratio ** |
2.53 |
1.61 |
|
Larger proportion of short
term assets relative to the short term liabilities. |
7. Operating Profit Margin
(%) |
13.14% |
8.17% |
|
This is due to better
revenue mix whereby large share of revenues revenue came from activities with better
operating margins. |
8. Net Profit Margin (%) |
16.78% |
7.30% |
|
This is due to better
revenue mix whereby large share of revenues revenue came from activities with better
profit margins. |
Note 1
Return on Net worth is calculated on average net worth and is on
Ex-Goodwill basis.
RISKS & CONCERNS
1. Tapping of skilled Human resources
2. Lower / Volatile Natural Gas Prices
INTERNAL CONTROL SYSTEMS AND THEIR ADEQUACY
The Company has built adequate systems of internal controls to
safeguard all assets against loss from unauthorized use or disposition as well as ensuring
the preparation of timely and accurate financial information. Regular internal audits and
checks are carried out to provide assurance that adequate systems are in place and that
the responsibilities at various levels are discharged effectively.
HUMAN RESOURCES & DEVELOPMENT
The Company values its Human Resources most and continued in its
endeavors to ensure work-life balance of its employees. The Company believes that
employees are the key to achievement of Companys objectives and strategies. The
Company provides to the employees a fair and equitable work environment and support from
their peers with a view to develop their capabilities leaving them with the freedom to act
and to take responsibilities for the task assigned. We provide our employees outstanding
career development opportunities and reward to the staff for their good performance and
loyalty to the organization.
In order to meet steady flow of talent, Company has appointed
experienced professionals in Technical as well as Commercial Departments. Apart from that,
as a strategic policy, every year, Company hires new pool of talent from reputed Technical
/ Petroleum Institute through campus selection process. Other than Key Managerial
Personnel, there were no any other employees in the Company as on 31st March, 2023.
HEALTH, SAFETY & ENVIRONMENT
Being a service provider to high risk industry, safety of employees is
utmost priority of our Company. While carrying out operations, Company ensures compliance
to all Rules and Regulations regarding Health, Safety and Environment protection.
Imparting essential health and safety training such as MVT, Firefighting etc is being
followed on regular basis.
CAUTIONARY STATEMENT
Statement in Management Discussion and Analysis may be forward looking
within the meaning of applicable securities laws and regulations. Many factors may affect
the actual results, which could be different from what the Directors envisage in terms of
future performance and outlook.
The Company assumes no responsibilities in respect of the forward
looking statements herein, which may undergo changes in future on the basis of subsequent
developments, information or events.
|
For and on behalf of the Board of
Directors |
|
Deep Energy Resources Limited |
Date : 11th August, 2023 |
Premsingh M. Sawhney |
Place : Ahmedabad |
Chairman & Non Executive Director |
|
DIN:03231054 |
+91-9892691696
