The OGDC managers seem to have a strong belief in the old school thought of a penny today is worth more than what it is worth tomorrow. Not everybody in the market expected the company to book the gains from Qadirpur wellhead price revisions this early. But they did and did it completely, booking the one-time as well as the retrospective gains - long overdue since FY08.
The fact that Qadirpur wellhead price revision was a post balance sheet event and that the other industry giant PPL did not book the gains during the second quarter either, made many believe that OGDC would follow suit - but it didn and made the analysts forecasts look ridiculously off.
The substantial Rs8.7 billion booked on account of Qadirpur revision strengthened the top line despite a slide in production volumes and realized prices.
OGDC went about the exploration activities aggressively, spudding eight wells, but it also hit them back hard as three exploration blocks were declared dry and were surrendered. Two of these were declared dry in the dying days of 2009, which led many to believe that the company would continue with its usual practice of booking the costs in the later quarters.
But, the company seems really focused on booking it now rather than later, which queered the bottom line as exploration costs during the second quarter increased threefold.
The announcement of Rs1.5/share as interim dividend also highlights something that OGDC does not deem ideal. The company has shelved the payout ratio for the second consecutive quarter as the menace of circular debt continues to be the major cause of concern.
Despite receiving Rs8.5 billion from the TFC issued for the very purpose of clearing the circular debt, Rs42 billion still reflect on the circular debt account, due to be received by the refineries and gas companies.
The progress on this front has been painfully slow, which will not only hamper the firms own performance but will also reduce the amount of dividends to be received by the government from OGDC.
There could be more adjustments, albeit not necessarily substantial, in the companys financials once the final wellhead price and discount table are notified. The focus would again be shifted to the all important production volumes that look in good shape and are expected to increase as the firm has successfully drilled a number of wells recently.
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OGDC P&L
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Rs (mn) 1HFY10 1HFY09 % chg 2QFY10 2QFY09 % chg
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Sales 72,633 71,941 1% 40,808 30,557 34%
Royalty 8,402 8,246 2% 4,788 3,283 46%
Operating expenses 10,793 10,656 1% 5,571 5,592 0%
Gross profits 52,601 52,255 1% 30,060 21,367 41%
Gross margins 72% 73% 0% 74% 70% 5%
Other income 1,207 3,082 -61% 408 892 -54%
Exploration expenditure 4,722 3,502 35% 3,495 1,182 196%
PAT 28,493 31,781 -10% 16,428 12,802 28%
EPS (Rs) 6.62 7.39 -10% 3.82 2.98 28%
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Source: KSE announcement
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