Aug 18: Hindustan Oil Exploration has finally exorcised the ghost of the extraordinary write-offs that it had incurred on unproductive oil wells over the last two years. A prize well in the Gulf of Cambay had turned out to be dry, while a substantial amount had already been invested. Since the well was not productive the capital investment was written off over two years. The first year saw a write-off of Rs 8.6 crore, while 1998-99 saw another write off of Rs 2.75 crore. In the previous year the international price of oil was high enough to overcome these extraordinary losses and the company managed to report profits. In 1998-99 international oil prices were unobliging and quoted at a 20 year low, and consequently HOEC made a huge loss for the year.
But the worst now seems to be over. In the new exploration and licensing policy (NELP) 1999, HOEC and its consortium partners have been awarded seven blocks for exploration and development. The successful development of these blocks will lead to an increase in revenues and a diversification of risk. Others such as ONGC and Shell have already suceeded in striking oil in the Godavari Offshore and Bombay high respectively. The company's experience in the Gulf of Cambay underscores the need of oil companies to diversify their production assets. A larger number of producing wells spread out geographically the greater will be the comfort levels of investors.
Currently the bulk of its oil revenues comes from the PY-3 field in the Godavari basin, where the production crossed 3 million barrels last year. Second, the NELP allows the private sector oil companies international parity prices for its domestic sales, unlike the price ceilings imposed earlier. This has come at an opportune time for companies like HOEC now that international crude oil prices are on the rise, and the production potential is also greater. Prices have increased by 50 per cent since the begining of the year. The HOEC stock has subseqently bottomed out following the sharp fall over the last two years, during which it lost 80 per cent of its value.
Amara Raja Batteries; frothing at the surface
In the rush for smaller stocks, Amara Raja Batteries has been a top gainer ever since it was transfered to the specified list on the BSE. The transfer to the specified list means that transactions in this stock can be carried forward from one settlement to another. Despite the obvious co-relation between the sudden spurt in the stock and the forward listing, analysts familiar with the company say that the expected performance for the remaining three quarters is driving the stock. It must be recalled that the first quarter results came as a rude shock to the stock market, when the company reported a 80 per cent fall in earnings, following what the management claimed was an unscheduled plant shutdown.
Now, analysts point out that the plant is back at full production, and will be able to match the last years profit. This means a growth of atleast 30 per cent in the next three quarters. Analyst feel that the company can cover lost ground since it has substantial orders on hand for industrial batteries. But despite the opitmism and the current speculation in the stock, a conclusion can be formed only after the second quarter results are announced.
Copyright © 1999 Indian Express Newspapers (Bombay) Ltd.