Oil and Gas Development Company Limited

Oil and Gas Development Comp-any Limited (PSX: OGDC) is the largest E&P company in the country with operations including exploration, drilling operation services, production, reservoir management, and engineering support. It has the most extensive exploration acreage in Pakistan, covering over 40 percent of the country’s total acreage awarded with net hydrocarbons of oil and gas.

OGDC historical performance

OGDC, as the leading oil and gas exploration and production company, has maintained profitability despite challenges like production declines amid depleting reserves.

The firm’s revenues grew by 27 percent year-on-year, with a 57 percent increase in net profit. This was driven by higher average crude oil and gas prices, while production levels for crude oil and gas remained flat, and LPG production saw a modest increase. The company drilled 16 wells and reported three new discoveries. Additional factors bolstering profitability included favorable exchange rates, increased other income, profit contributions from associates, and reduced exploration expenses. However, rising operating expenses, particularly amortization, partially impacted profitability.

FY20 was marked by a downturn across the E&P sector due to plummeting oil prices and COVID-19 disruptions. OGDC’s net profit fell by 15 percent, primarily in the latter half of the year. Revenues dropped by 6 percent due to lower crude oil prices and production levels, with realized crude oil and LPG prices down by approximately 20 percent and 11 percent, respectively. Production declined by around 12 percent for both oil and gas, with LPG production down 11 percent. Operating expenses and increased exploration costs, including significant dry well expenditures, further weighed on profitability.

The E&P sector rebounded in FY21, though gas production continued to decline (down 2.6 percent), while OGDC’s crude oil production grew by 2.3 percent. Revenue growth of 2.65 percent was supported by higher natural gas prices and LPG production volumes. Earnings rose by 9.3 percent due to a 5 percent drop in exploration expenses, with fewer dry wells than in FY20. Profitability was partially offset by lower other income due to exchange losses, reduced interest income, and increased amortization and repair costs.

OGDC’s revenues surged by 40 percent in FY22, fueled by a 71 percent rise in oil prices from rebounding global demand and a 10 percent depreciation of the domestic currency. Average realized prices for crude oil and gas rose by 62 percent and 14 percent, respectively. However, crude oil and gas production fell by 4 percent and 5 percent, respectively. Exploration costs dropped by 10 percent, attributed to a lower number of dry wells. OGDC spud 13 wells made 7 new discoveries and added 10 wells to production. Profit before tax rose by 80 percent, but net profit increased by 46 percent due to the imposition of a Super Tax.

OGDC’s earnings rose sharply by 68 percent, driven by a 23 percent topline increase amid a 28 percent PKR depreciation against the USD. Exploration costs increased by 22 percent due to higher dry well expenses, while other income doubled due to significant exchange gains.

FY24 saw OGDC achieve 12 percent revenue growth despite a 4.3 percent drop in realized crude prices and a 6 percent decline in gas production, attributed to lower intake from major fields. The company’s profitability declined by 7 percent year-on-year, though gross profit grew by 5 percent, offset by higher operating expenses from increased rent, taxes, and asset amortization. Exploration costs dropped 34 percent due to reduced dry well expenditures. OGDC spud 13 wells and made five new discoveries. Non-operating income fell by 73 percent due to exchange losses and fewer one-off gains. The net profit margin was 45 percent, down from 54 percent in FY23.

OGDC in 1QFY25

An OGDC posted a Rs 41 billion profit after tax in 1QFY25, down 16 percent year-over-year, primarily due to lower oil prices, PKR appreciation, and a higher tax rate. Revenue fell 12 percent as oil production dropped 3 percent and gas 8 percent, impacted by natural field declines and intake constraints from SNGPL. Average realized oil prices were down by over 7 percent.

Operating and administrative costs dropped 6 percent and 17 percent respectively, but exploration expenses surged 46 percent due to a dry well. Other income rose 58 percent from customer late-payment surcharges and amortization benefits, cushioning the decline.

The gross profit margin fell from 65 percent to 62 percent, and the net profit margin from 41 percent to 39 percent. The E&P sector faces challenges from aging fields, system constraints, and demand fluctuations. Nonetheless, OGDC is focused on exploration growth and future projects like Bettani Field Development and Reko Diq. An interim dividend of Rs 3 per share was declared for 1QFY25.