Oilex 2Q 2018 results commentary

July 31, 2018 | Posted by

By Dr Michael Green

Oilex has developed a strong position in some highly prospective producing basins in the booming Indian energy market. India relies on imports for something like 80% of its oil needs and LNG imports have doubled. This is despite this country having some highly prospective world-class hydrocarbon basins. Certainly, Oilex is one of just a handful of foreign companies operating in India today. The June 2018 quarterly results provided compelling evidence of the progress that has been made in recent months.

At the vast and well-regarded Cambay Block, Oilex has gained approval from the Ministry of Petroleum and Natural Gas (MoPNG) for the grant of a 10-year extension in April 2018. The new expiry date of 2019 is now pending finalisation by the Directorate General of Hydrocarbon.

Oilex holds a 45% equity interest in the Cambay Field, with its partner GSPC holding the remaining participating interest. For a while now, GSPC has not been paying its way which has led to delays in the development of this field. During the last quarter, Oilex issued an Event of Default (EoD) Notice to GSPC for cash calls amounting to US$3.05 million. As at 30 June 2018, the gross unpaid cash calls outstanding from GSPC totalled US$5.76 million The company has also maintained a dialogue with GSPC and indeed may consider issuing further such notices.  No payments were made by GSPC during the last quarter, although since 30 June 2018, GSPC has paid the company US$172,000 towards outstanding cash calls.  

On 29 July 2018, as the EoD Notice had not been remedied within the required 60 days, the company exercised its option and accordingly, GSPC is deemed to have transferred all of its rights, title and beneficial interests in the Cambay project. The company has formally requested that the Directorate General of Hydrocarbons transfer GSPC’s participating interest in the Cambay PSC to Oilex. This might not be plain sailing and so it may be necessary for Oilex to consider other remedial strategies. However, this move does look as though it will ultimately open the way for the company to not only to gain an improved position in this project, but also be able to accelerate the inevitable development opportunities that exist in this well-known field.

There is no doubt that Cambay is a vast field with tremendous potential and looking ahead we are positive that should the company retain full interest in the fields that this would allow for a scenario to unfurl where a well-financed new partner could enter the project via a farm-in in deal and provide the funding required to make the most of the opportunity here. Present developments look likely to accelerate such a scenario.

Current production gives little insight into the real potential of this licence area. During the previous quarter gas production at the Cambay Field cycled from C-77H to C-73 as part of the reservoir management. Production during the current quarter averaged 102.4 mscfd with 6.2 bopd oil and associated liquids (23.8 boepd which is 10.7 boped net to Oilex). Until the default is remedied, GSPC does not have any rights to its share of production. Gas production continues from the C-73 well at the Cambay Field. As at 30 June 2018 the joint venture had 2,113 barrels of oil (gross) on hand and most has been sold with proceeds expected shortly.

Oilex continues to advance preparations for the work programme, which includes the drilling of two vertical wells at the Cambay Field. Once the EoD has been resolved and the revised work programme, along with the budget, has been approved and the necessary funding is in place, the company will start to order the long lead time items. The priority will be the test the drilling and stimulation recommendations from Baker Hughes-GE in the EP-IV zone. Success here will pave the way for a larger drilling programme with the aim of assembling sufficient production volumes to connect to the high-pressure pipelines which will provide greater offtake stability as well as higher gas prices.

Oilex also holds a 40% equity stake in the Bhandut Field, with GSPC holding the rest. Drilling in the past at this field has intersected a number of hydrocarbon zones. Some of these zones have been produced from and are now shut-in. In April 2018, the company received news that the Ministry of Petroleum and Natural Gas approved the proposal to grant a 10-year extension for the Bhandut PSC.

Industry in India relies on expensive imported LNG. Oilex is just 15 kilometres away from a major high-pressure pipeline taking re-gassed LNG from the port to Delhi and Mumbai, so is very well placed to benefit from these premium prices. We initiated coverage of Oilex in November 2017 with the share price at 0.18p and highlighted that due to legacy problems the stock was trading at a shell company valuation. We reiterate this observation and accordingly our Buy stance.


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