Hindustan Oil Exploration working on a turnaround plan

Mumbai: Hindustan Oil Exploration Co. Ltd (HOEC), the first private sector company in India to venture into oil and gas exploration, is working on a turnaround plan as the company’s promoter, Italy-based Eni SpA, seeks to move out of a management role to that of an investor, indicating an impending change in ownership.

add_main_imageOn 21 February, Eni, which holds more than 47% equity in HOEC, had requested the company’s board to declassify it as a company promoter.

“It (Eni) wants to move from the managerial role to an investor role. How far they want to continue in the investor role would be their call,” said P. Elango, managing director, HOEC.NextMAds

HOEC is eventually looking to exit the business, said two people familiar with recent developments at the company, including an Indian investor in it.

In response to an emailed query sent to Eni asking whether the company is looking to partially or fully divest its stake in HOEC, an Eni SpA spokesperson said, “We do not have any comments on the issue enquired.”

Last week, CNBC TV-18 reported that Dilip Shanghvi Associates (DSA) has evinced an interest in buying Eni’s 47% stake in HOEC, after throwing a lifeline to wind turbine maker Suzlon Energy Ltd. Dilip Shanghvi is the managing director of Sun Pharmaceutical Industries Ltd.

DSA, however, strongly denied this. Sudhir V. Valia, who is part of DSA and brother-in-law of Shanghvi, said it is no joke to run an oil and exploration company profitably. “It is the riskiest business in India. We are not at all interested in this business,” Valia added.

HOEC was incorporated in 1983 by the late H.T. Parekh, who also founded housing finance company Housing Development Finance Corp. Ltd which still holds a little more than 11% stake in HOEC.

According to one of the two persons quoted above, HOEC has struggled financially as its investments failed to generate returns. In February 2009, Eni Coordination Centre (which conducts financial activities for the benefit of the companies of the Eni Group) extended a loan of $125 million at near-zero interest rates to help the firm.sixthMAds

However, in November 2014, HOEC said it cannot service the outstanding external commercial borrowing (ECBs) drawn from Eni and that the lender shall waive all repayment of principal and other amounts outstanding, except for interest.

Prior to that, in October, the managing director of HOEC and three independent directors resigned for reasons that weren’t disclosed.

In the December quarter, HOEC reported a net loss that widened to ₹ 118.01 crore from a net loss of ₹ 15.03 crore in the year-ago quarter. Net sales fell 43.5% from a year ago to ₹ 9.61 crore.

In February, the HOEC board appointed Elango as additional director and managing director and named R. Jeevanandam as additional director and chief financial officer.

With a new management in place, HOEC is working on a turnaround plan.

“The focus now would be on two main onshore projects—one in Assam and another small project in Gujarat. The first few steps for the two onshore projects would be to get the required green approvals,” said Elango, adding that HOEC is unlikely to consider any offshore projects.

HOEC is exploring and developing the AAP-ON-94/1 block in Assam with Indian Oil Corp. Ltd and Oil India Ltd.

HOEC is also exploring CB-ON-7 (Palej) block along with the Gujarat State Petroleum Corp. Ltd.

Elango does not see a major impact on these two projects from lower crude oil prices. In the last six months, Brent crude prices have fallen 40% from $102.5 per barrel to $61.38 per barrel.

“The Assam onshore project is for developing a gas field, so no issues there. Gujarat onshore are marginal fields. A better price will be great, but it’s viable at current price levels too,” he said.

A presence in marginal fields will help the company as this space is expected to see major activity in the next six months, said a senior director with a consultancy firm who did not wish to be identified as he is not supposed to comment on individual companies

“Marginal fields are still viable in the current price scenario,” said the person.

Some experts, however, question the decision of the largest shareholder, Eni, to exit as a promoter.

“One cannot choose to be called a promoter one day and then ask to be declassified. It is a responsibility and not a choice. In case of wanting to be a classified as public shareholder the company should also resign from the board,” said Anil Singhvi, chairman of Ican Investments Advisors Pvt. Ltd.

Singhvi said for the capital market regulator Securities and Exchange Board of India (SEBI) to even consider such a request, the company’s representatives should have stepped down from the board and the lenders should have given them a clean chit.