The company witnessed a volume-led growth in FY08 as its sales volumes saw a growth of 23.5% year on year while the realizations improved by 6.7% during the year. Crude oil production from its three oilfields grew from 100,963 barrels in FY07 to 120,226 barrels in FY08.
The highlight of the annual report is the upgradation of the proven and probable (2P) reserves of its Bakrol oilfield from 43.22 million barrels estimated earlier to 73.3 million barrels after the completion of the current drilling campaign in the field.
The company kept up its efforts to further develop its oilfields in FY08. It drilled seven new wells in the last quarter of FY08, which was the prime reason behind its dazzling performance in the first quarter of FY09.
The company hopes to continue these efforts, as it aims to identify eight to ten more prospective drilling locations and take them up for drilling in FY09.
Selan had obtained the environment clearance for the oilfields at Bakrol, Indrora, Lohar and Ognaj in FY08. It is now awaiting the mining lease for the Ognaj oilfield from the Gujarat state government.
Once complete, the Ognaj oilfield would be handed over to the company by Oil and National Gas Corporation (ONGC) and development activities would commence.
Meanwhile, the cash flow from the company’s operations grew from Rs17.98 crore in FY07 to Rs28.7 crore in FY08. The return ratios were also maintained — return on capital employed at 27.1% and return on net worth at 23.6% — despite the high capital expenditure undertaken by the company to develop the oilfields during the year.
Taking into account the disclosed 2P reserves at its Bakrol oilfield, the company is currently trading at an enterprise value/reserve (2P) of $1.17 per barrel of oil equivalent.
The valuation is much cheaper compared with that of the other domestic exploration companies such as ONGC and Hindustan Oil Exploration Company. At the current market price, the stock trades at 8.3x FY09 and 7.1x FY10 estimated earnings. We maintain our BUY call on the stock with a price target of Rs345.