Recommendation : BUY
January 27, 2011.
Remarkable points from Annual Report 2009-10During this Financial Year, the Selan Exploration Technology Limited has not undertaken any new drilling activities. However, 3D seismic data acquisition, processing and interpretation (API) activity in Bakrol and Indrora oilfields is underway. This shall give us a fair idea of the locations in which drilling campaign can be started in the second half of the current fiscal year.
The aggregate production from Selan Exploration Technology Limited fields has been 238,140 barrels in 2009-10 as compared to 282,745 barrels in 2008-09.
We are also pleased to inform you that the Selan Exploration Technology Limited has commenced commercial sale of Associated Natural Gas, though on a small scale, w.e.f. F.Y. 2009-10.
The developmental activities, alongwith, maybe lower crude oil prices and the natural depletion in production from existing wells will temporarily result in somewhat lower levels of production and profits during 2010-11. However, Selan Exploration Technology Limited cash reserves and cash generation have made it possible for us to plan / undertake and generally complete these Seismic and testing activities in a short period of time.
As a result, we now believe that the Selan Exploration Technology Limited will shortly be able to establish significant / additional levels of proven and recoverable reserves in our oilfields and hopefully this, in turn, will lead to Selan Exploration Technology Limited emerging with significant oil and gas volume growth within the next one to two years.
Production Sharing Contracts (PSCs) with the Government of India were signed by SELAN in 1995 for Bakrol, Indrora and Lohar oilfields. Further, the Selan Exploration Technology Limited was also awarded Contracts for the Karjisan Gasfield and the Ognaj Oilfield with the Ministry of Petroleum and Natural Gas (MoPNG) in 2004.
A recent notification from Ministry of Environment and Forests (MoEF) states that any new drilling activity requires its prior clearances. The approval process at MoEF also requires considerable time and effort.
The number of employees of the Selan Exploration Technology Limited are less than 30. People are mostly employed on contractual basis which, given the nature of the Industry, is the right approach in view of the management.
Financial Analysis
Debt/Equity of Selan Exploration Technology Limited as of now has increased to 0.188 vs 0.103 as in March 2010 quarter, indicating an almost debt-free company. Reserves and Surplus have increased by 12% at 143.07 crores in the September quarter from 128.09 crores in the March quarter this year. Capital Employed has increased by 18% to 226.47 crores in September quarter from 191.93 crores in March quarter due to increasing Working Capital.
Financial Analysis
Debt/Equity of Selan Exploration Technology Limited as of now has increased to 0.188 vs 0.103 as in March 2010 quarter, indicating an almost debt-free company. Reserves and Surplus have increased by 12% at 143.07 crores in the September quarter from 128.09 crores in the March quarter this year. Capital Employed has increased by 18% to 226.47 crores in September quarter from 191.93 crores in March quarter due to increasing Working Capital.
Income from Operations has reduced by 6% to 18.13 crores in the September quarter from 19.3 crores in the corresponding quarter last year. Operating Profit Margins for the September quarter this year is at 88% as compared to 89% for the same quarter last year. The breakdown of Quarterly Financial Statements is given below.
If we compare things annually, Income from Operations in 2010 reduced by 29% to 70.92 crores from 99.91 crores in 2009. Operating Profit Margins were same at 86% for the financial year ending March 2010 as compared to 88% for the financial year ending March 2009. The breakdown of Annual Financial Statements is given below.
Return over Capital Employed (ROCE) for the current year ending six months is coming out to be 32% as compared to an ROCE of 56% in the whole financial year of 2009-10.
Cash Conversion Cycle (CCC) for the current year ending six months is coming out to be -537 days as compared to -667 days for the whole financial year ending March 2010, which is excellent.
Total Assets per Share of the company is coming out to be Rs. 134. Earning per Share of the company for the past four quarters is coming out to be Rs. 20.52. Current Price of the scrip is Rs. 360. Trailing P/E of the company is coming out to be 17.54. The Proven and Probable (2P) Reserves of Bakrol Oilfield alone are 73 lakh barrels as per the Annual Report of 2008-09. At $70 or Rs. 2800 ($1 = Rs. 40), the value of the estimated oil comes out to be Rs. 2, 044 crores, which comes out to be Rs. 1209 per share. And, this is about only one field of Bakrol. The other five are still virgin and the management has stated that Indrora is their biggest field. In view of these above stated arguments, Equity Section issues a BUY rating on Selan Exploration Technology Limited.
Disclaimer : Equity Section holds this scrip. Selan Exploration Technology Limited is a part of Equity Section WatchList.
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