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Friday, December 28, 2007

Selan Oil Exploration: Soaked in Crude

Selan Oil Exploration
BSE 530075

FY08 is likely to turn out to be a year of massive growth for Selan Oil Exploration, with Crude Oil production likely to commence from the Ognaj and Karjisan on-shore fields in Gujarat.
Selan is already operating the Bakrol, Indrora and Lohar on-shore oil fields in the Gandhinagar district of Gujarat. With production commencing from all the 5 on-shore fields in FY08, there will be a massive volume increase in Crude Oil production for Selan.

Logistics have been sorted out
Recent agreements have been signed with the Indian Oil Corporation to uplift the existing and additional production at the international rates for Crude Oil, which has been a sore point in the past. The IOC and the State of Gujarat have also agreed to refund the levies on account of Sales Tax and surcharge on Sales Tax.

Strong Institutional Interest
Merrill Lynch Espana SA is one of the biggest institutional shareholders in the company with a stake close to 8 per cent.

Higher Production in FY08
Selan's Crude Oil Production is set to rise to 140,000 barrels during FY08. This quantity is double the figure recorded over the past three years and indicates that Selan Oil is ready to scale up its business operations.

Gross Under-Valuation
Various estimates place Selan's Crude Oil Reserves at 45 mn barrels or worth roughly Rs 13000 crore at the current market price of $ 71 per barrel and a currency conversion rate of Rs 40 to a US Dollar. As against this the current market cap of Selan Oil is Rs 154 crore, underlining the massive under-valuation of the Selan stock.

NELP is beneficial to new oil field operators
More importantly, private oil field operators are not subjected to subsidy sharing beyond the Oil equity due to the GOI, and hence stocks like Selan do not carry operative risks like other E&P operators like Ongc.

Background
Selan Exploration Technology Limited (SELAN) is a private sector listed company, incorporated in 1985, engaged in oil exploration and production since 1992. The Promoters and Management have extensive experience and domain knowledge in the field of Petroleum Exploration, Development and Production as well as in the field of Geophysical Data Acquisition, Processing and Interpretation.

Following the move by the Government of India in 1992 in opening up the oil sector for private initiative in exploration and production of Hydrocarbons, SELAN was amongst the first private sector companies to have obtained rights to develop three discovered oilfields situated in the state of Gujarat namely Bakrol, Indrora and Lohar, all with proven oil and gas reserves. SELAN was subsequently awarded two more fields in Gujarat namely Ognaj Oilfield and Karjisan Gas field. All the oil and gas blocks have a well laid out infrastructure. Hence these blocks are easily accessible and are in close proximity to the Government's crude gathering station as well as are in close proximity to a large industrial town. The various seismic and reserves assessment studies have established substantial amounts of oil and gas reserves in these blocks.
SELAN thus has significant oil and gas assets in its control which require developmental work and for the purposes it would require substantial amounts of Capital investment to augment its development and growth objectives.

SELAN has a Development Plan for drilling of additional wells in these blocks in the next 3 to 5 years. The Plan is intended to be executed in a phased manner and would involve large capital expenditures, to be funded through a combination of external borrowings and internal accruals.
The proposed external borrowings shall be drawn in various stages of completion of each phase. This approach offers a view to judiciously monitor the debt.

With assured offtake of the entire oil and gas production from these blocks by the Government, as per the terms of the Production Sharing Contract (PSC) there is zero marketing risk associated with this project. Ministry of Petroleum and Natural Gas (MoPNG) and Selan Exploration Technology Ltd. (SELAN) had signed a Production Sharing Contract (PSC) for the Karjisan gas field, located in Gujarat, on 16 February 2004. MoPNG, vide their letter dated 9 November 2005, have also Granted the Petroleum Exploration License (PEL) to SELAN for the Karjisan gas field.

Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.

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