Hindustan Oil Exploration Navigates Operational Headwinds, Eyes Future Growth in Q2 FY26

Hindustan Oil Exploration Company Limited (HOEC) reported its Q2 FY26 earnings, showcasing a period of active project execution amidst some operational challenges. The company's consolidated revenue from operations stood at Rs. 315.01 crores, reflecting a dynamic quarter with significant crude oil sales from its B-80 field. Despite a dip in consolidated profit after tax to Rs. 2.83 crores, primarily due to production disruptions and subsidiary losses, management remains focused on its long-term strategy of unlocking value from its diverse asset portfolio.

The quarter saw a substantial contribution from the B-80 block, with crude oil sales accounting for Rs. 258.78 crores and gas sales adding Rs. 22.94 crores. The Dirok field, a key asset in the North-East, contributed Rs. 26.57 crores from gas and condensate. The remaining revenue of Rs. 6.72 crores came from other oil and gas operations, including Kharsang and Cambay. This product mix highlights HOEC's reliance on crude oil, particularly from B-80, while gas assets are poised for future growth with improving infrastructure.

Operational Progress and Strategic Initiatives

HOEC is actively pursuing a multi-pronged strategy to enhance production and monetize its discovered resources across its key geographies. In the Kharsang Block, the company is in an intensive drilling phase, with five new wells already contributing to production, pushing the block's output to approximately 900 barrels per day. This progress follows the environmental clearance for 40 development and 3 exploration wells, signaling a robust expansion plan.

The Dirok field in the North-East is another focal point, with a revised Field Development Plan (FDP) approved, enabling a block extension. Plans are underway to drill a new well in North Dirok and three additional development wells. A significant catalyst for Dirok's gas monetization is the ongoing development of the Northeast Gas Grid, with the Guwahati to Numaligarh section already commissioned. Management anticipates the full grid to be operational by FY26, expecting a substantial increase in gas offtake before Q4 FY26.

Offshore, the Mumbai Offshore B-15 block is progressing with its geological and geophysical (G&G) review and development plan. HOEC aims to bring this discovered field, spanning 332 square kilometers, into production within two years. Similarly, the Cauvery Offshore Block PY-1 is slated for a drilling program in FY27, which includes in-fill, appraisal, and exploration wells, leveraging existing infrastructure for economic viability. In the Cambay Blocks, two wells have been drilled in North Balol, and plans are in motion to drill two additional wells in Asjol and install Sucker Rod Pumps (SRP) in Palej wells to boost production.

Navigating Challenges and Financial Prudence

The quarter was not without its challenges. Production from the B-80 block was disrupted due to the monsoon season from mid-June to early August 2025, impacting revenue. Furthermore, an issue regarding chloride contamination was raised by HPCL concerning a crude oil off-take, which HOEC is actively discussing to resolve. The company also encountered well-control issues in Kharsang's 6th well during gas zone perforation, though this is expected to be resolved swiftly. Despite these operational hurdles, management has been transparent in acknowledging delays, such as the deferral of the first well drilling in PY-1 to Q1 FY27 and the delay in the D1 well workover in B-80.

Financially, HOEC demonstrates prudence. The company secured Rs. 250 crores in debt capital specifically for its capital expenditure program, aligning leverage decisions with long-term strategic goals. India Ratings has reaffirmed its 'IND A' rating for the bank loan, underscoring the company's financial stability. Management explicitly links major investments to returns, citing an expected IRR of over 21% post-tax for its CAPEX, even at current commodity prices. The company also highlights that over 50% of its resources are gas-based, aligning with the energy transition towards cleaner fuels.

Outlook and Investor Confidence

HOEC's management maintains a confident yet balanced outlook. They are targeting a net production level of at least 6,000 barrels of oil equivalent by FY27. The expected capital outlay for the Northeast region alone is Rs. 250 crores over the next two financial years, demonstrating a strong commitment to growth. The company's strategy of continuous drilling and monetizing discovered reserves, coupled with strategic partnerships with entities like ONGC, Oil India, and IOC, reinforces its position as a meaningful player in the Indian upstream sector. While temporary setbacks are acknowledged, HOEC's focus on disciplined execution and leveraging improving gas infrastructure positions it for sustained growth and value creation for its stakeholders.