OGDCL struggles in FY16

After enjoying high oil price era, current times are stinging for oil and gas exploration and production companies. The countrys largest E&P company, Oil and Gas Development Company Limited (PSX: OGDCL) continued with its second year trend of falling revenues. The E&P giants top line stood at Rs162.87 billion- lowest in at least 6 years.

OGDCL's top line drop of over 22 percent year-on-year in FY16 was due to persisting low oil prices and falling volumes; the daily volumetric oil and gas production remained flat. Its average realised prices recorded for crude oil and gas were $39.07 per barrel and Rs253.77 per million cubic feet - a fall of 38 percent and 7 percent year-on-year, respectively. OGDCL has struggled with both crude oil and gas production for some time now on account of depleting old fields. Annual oil and gas production declined by one percent and five percent respectively in FY16, whereas the sales break-up shows that the value of crude oil sales was down by 37 percent year-on-year in FY16, and natural gas sales were down by 10 percent year-on-year. However, some support to the revenues came from increase in average exchange rate from Rs/$104.56 in FY15 to Rs/$102.14 in FY16.

The downtick of 31 percent year-on-year in FY16 earnings was thus largely due to the decline in top line, while the role of exaggerated exploration and prospecting expenditure cannot be denied as well. Reduced interest income on investment and bank deposits coupled with increased exploration and prospecting expenditure further strained OGDC's earnings for FY16. Where the cost of dry wells remained flat, the key increase in FY16 for OGDCL was seen in prospecting expenditure that increased by 42 percent year-on-year.

Company's exploratory efforts yielded six new oil and gas discoveries; while 26wells were spudded, comprising of 12 exploratory/appraisal and 14 development wells during the year.