Oil and Gas: OIL AND GAS DEVELOPMENT COMPANY LIMITED - Analysis of Financial Statements June 2003 to December 2006
The OGDCL is the largest E&P company of Pakistan. As explained through graphs, the company owns 32.6% of the country's total oil and gas reserves (31.6% of natural gas and 48.3% of oil reserves).
The Government of Pakistan had signed an agreement with USSR on 4th March 1961 to revive exploration in energy sector of the country. The agreement allowed Pakistan to invest 27 million rubles for finance of equipment and services of the Soviet experts for exploration.
The OGDCL was incorporated on 20th September 1961 under an ordinance, with the prime responsibility to undertake an organised and systematic exploratory plan to promote Pakistan's oil and gas prospects.
At initial stage, the GOP had arranged its financial resources as the company lacked the ways and means to raise the risk capital. In July 1989, the company progressed as a result of major oil and gas discoveries the government off-loaded the company from the Federal Budget and allowed it to manage its activities with self-generated funds. The 1989-90 was the company's first year of self-financing.
It is a state-owned company, with the GoP holding majority of shares. In the first half of FY07, the government divested the 10% shares of the company by listing Global Depository Shares in the London Stock Exchange. In January 2007, 0.5% shares were again divested, bringing down the government's holdings to 85.02% of total paid up share capital. The free-float of the company in the equity markets stood at 14.5% at the close of the FY06.
The company is following an aggressive growth and exploration strategy. Its exploration acreage consists of 40 exploration licenses covering an area of 75,905 sq kms, constitutes 37% of the total area granted to all E&P companies in the country. Out of these 40 exploration licenses, 16 were acquired during the FY06.
During the FY07, the company was the market leader in terms of discoveries, as it made 8 out of a total of 12 discoveries in the oil and gas sector. The major oil discovery made by the company was in Nashpa block and that of gas was in the Tando Allah Yar block. Other discoveries during the FY07 and the last quarter of FY06 include Chanda-2, Kunnar-1 and Mela-1, Nim West-1 etc. These discoveries are expected to enhance production by 5,895 barrels of crude oil and 150 barrels of condensate after development. Various exploration projects are still under implementation.
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Total Oil & Gas Production Statistics (Daily Average)
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FY'07 FY'06 Chg (%)
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Oil (bpd) 67,415 65,577 2.8
Natural Gas (mmcf/d) 3,872 3,836 0.9
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Oil Production (Daily Average)
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Fy'07 (bpd) FY'06 (bpd) Chg (%)
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OGDC 44,167 39,494 11.8
POL 6,001 7,190 -16.5
PPL 2,830 1,789 58.2
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Calculations based on adding the company's JV interests in other fields and subtracting JV interests of other companies from own fields.
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Gas Production (Daily Average)
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FY'07 (mmcfd) FY'06 (mmcfd) Chg(%)
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OGDC 977 976 0.1
POL 46 47 -2.5
PPL 991 1,009 -1.8
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Calculations based on adding the company's JV interests in other fields and subtracting JV interests of other companies from own fields.
COURTESY: fnetrade.com
Oil and Gas Production Figures FY07 v/s FY06
As already mentioned, OGDCL is the largest E&P company in the country. The company continued to lead the market in FY06, accounting for 27.2% of total oil and gas production, producing 48% of the total crude oil and 22% of total gas in the country. It maintained its stance in the first 9 months of FY07, accounting for 61.7% of total average daily production in the country.
The profitability position of OGDCL has remained steady over the last few years especially when assessed in terms of the gross and net profit margins. The returns on equity and assets also registered a positive trend up to FY06 and the growing sales figures for the HY07 suggest a continuation of the trend in the FY07. The company has maintained higher than average profit margins and returns for all five years.
Sales revenue increased by 31% in the FY06. Rising oil and gas prices and a slight increase in production contributed to this change. The net profit increased by 39% during the FY06. An 86% increase in other income because of an increase in interest rates on short term investments played its part in raising profits.
The HY07 saw a 15.2% increase in sales revenue, due to higher crude oil and gas prices as well as higher sales volumes of crude oil and LPG. However an 18.9% increase in expenses partially off set the effect of higher sales revenue, so that profit before tax increased by only 8.3%. This increase in expenses was a combined result of larger exploration write-offs due to heightened exploration activities, greater amortization of development and production assets, increased share in expenditures in non-operated joint ventures, overhaul and repairs of plants and fields etc. Nevertheless, EPS grew by 13.8% compared to the same period last year.
The OGDCL has a strong standing in terms of liquidity management. The current ratio fell sharply during the FY05 when trade and other payables increased by more than 200%. The HY07 was another period of declining liquidity, due to an increase in trade and other payables. The declines notwithstanding, the company has performed better than its competitors in all years under consideration.
The company's operating cycle (days) is longer than that of the average industry because of a longer inventory turnover (days). However OGDCL is more efficient in recovering receivables. Both inventory turnover and DSO have been on increasing trend since FY05. The total assets turnover and sales to equity figures improved during the FY06 and the trend is likely to continue on the back of higher sales revenue during the period.
The OGDCL has a lower level of debt financing than the average industry as suggested by the lower debt ratios. The debt level declined in the FY06 but jumped up in the proceeding year, largely as a result of an increase in trade payables and a slight decrease in equity due to declining revenue reserves.
The company lags behind its competitors in terms of EPS, however the trend is positive. The EPS for the HY07 at Rs 5.37 was higher than Rs 4.72 for the HY06. Hence the increasing trend has persisted for the HY07. The P/E registered a jump in the HY07. In terms of DPS, OGDC managed to catch up with the industry in FY05 and has fared better than the average in the two subsequent years. The rising trend continued in HY07 with an interim dividend of Rs 3.5 against Rs 3.0 in the corresponding period last year.
The Oil and Gas Regulatory Authority (Ogra), in August 2006, revised down the well head gas price of Qadirpur gas field by 30.5%. The field accounted for 37.5% of OGDCL's total gas production in FY06. The downward price revision would hit the company's profits in future as its overall effective well head price will come down considerably.
The Petroleum Policy 2007 was announced in the second half of FY07, which removed $36 cap from gas pricing. Moreover, the gas price per unit after applying the necessary premiums comes out to be higher than that under the petroleum policy 2001 reflecting a growth of 38.5%. OGDC is leading the industry in terms of exploration and discoveries and therefore expected to be a major beneficiary of the policy due to its aggressive exploration activities. However this aggressive exploration strategy and the heavy expenditure on the same may also reduce the profits of the company in the coming years.
Under the new petroleum policy, companies, which could previously sell only to the government and its entities, are now free to sell their produce to third parties but would have to pay a windfall levy of 50% of profit to the government. Besides this, they can also export gas, crude oil and condensate as long as domestic supply is sufficient to meet demand for at least 15 years. This new policy is applicable at a 20% discount to the companies, which are currently in the exploration phase or have already applied for concession licenses. In the last, the companies are required to sell their production through a 25-km from the field gate and then get a transportation tariff for participating in pipeline development beyond obligatory 25-km.
The new policy holds incentives for the E&P companies, especially the companies like OGDC, which is pursuing aggressive exploration activities. The policy will lead to a 6-8% increase in the oil and gas production prices on new discoveries made by the exploration and development companies. Hence OGDC is likely to benefit greatly from the new policy, which will broaden the horizons for the company.
Courtesy: Economics and Finance Department, Institute of Business Administration, Karachi. Disclaimer: No reliance should be placed on the [above information] by any one for making any financial, investment and business decision.
The [above information] is general in nature and has not been prepared for any specific decision making process. [The newspaper] has not independently verified all of the [above information] and has relied on sources that have been deemed reliable in the past. Accordingly, the newspaper or any its staff or sources of information do not bear any liability or responsibility of any consequences for decisions or actions based on the [above information].
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OIL AND GAS DEVELOPMENT CORPORATION LIMITED
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BALANCE SHEET (Rs in '000) FY04 FY05 FY06 Dec-06
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Equity 76,047,654 83,209,982 94,770,277 94,227,790
Total Non Current Liabilities 15,580,018 17,835,717 15,652,992 16,458,025
Total Current Liabilities 4,361,060 13,533,234 10,891,441 17,216,403
Total Liabilities 19,941,078 31,368,951 26,544,433 33,674,428
Fixed Capital Expenditure 39,716,082 43,250,579 44,457,959 47,286,661
Total Non Current Assets 42,899,033 47,467,795 48,637,339 51,244,452
Current Assets 53,089,699 67,111,138 72,677,371 76,657,766
Total Assets 95,988,732 114,578,933 121,314,710 127,902,218
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INCOME STATEMENT (Rs in '000) FY04 FY05 FY06 Dec-06
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Sales Less Govt. Levies 51,326,273 73,710,101 96,755,382 49,526,162
Royalty 5,570,218 8,109,632 10,872,443 5,458,230
Gross Profit 45,756,055 65,600,469 85,882,939 44,067,932
Operating Expenses 10,124,678 12,023,734 15,045,654 7,918,789
Transportation Charges 548,919 760,092 942,163 511,960
General And
Administration Expenses 838,818 823,305 1,071,979 422,566
Operating Profit 30,845,733 49,322,078 65,142,436 31,349,833
Other Income 1,314,156 2,284,104 4,247,881 2,197,919
Financial Charges 38,468 5,955 9,963 221,773
Profit Before Taxation 30,515,350 49,020,216 65,911,337 31,659,680
Provision For Taxation 8,100,889 16,052,316 19,943,604 8,547,060
Profit After Taxation 22,414,461 32,967,900 45,967,733 23,112,620
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PROFITABILITY FY04 FY05 FY06 Dec-06
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Gross Profit Margin 89.15% 89.00% 88.76% 88.98%
Profit Margin 43.67% 44.73% 47.51% 46.67%
Return On Asset 23.35% 28.77% 37.89% 18.07%
Return On Common Equity 29.47% 39.62% 48.50% 24.53%
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LIQUIDITY RATIO FY04 FY05 FY06 DEC-06
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Current Ratio 12.17 4.96 6.67 4.45
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ASSET MANAGEMENT FY04 FY05 FY06 Dec-06
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Inventory Turnover 56.71 37.17 47.98 59.41
Day Sales Outstanding* 92.51 90.49 91.15 108.57
Operating Cycle 149.23 127.66 139.13 167.99
Total Asset Turnover 0.53 0.64 0.80 0.39
Sales/Equity 0.67 0.89 1.02 0.53
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DEBT MANAGEMENT FY04 FY05 FY06 Dec-06
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Debt To Asset(%) 20.77% 27.38% 21.88% 26.33%
Debt/Equity(%) 26.22% 37.70% 28.01% 35.74%
Times Interest Earned 836.02 8666.03 6964.80 151.27
Long Term Debt To Equity(%) 20.49% 21.43% 16.52% 17.47%
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MARKET VALUE FY04 FY05 FY06 Dec-06
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Earning Per Share 5.21 7.67 10.69 5.37
Price Earning Ratio 12.38 13.73 12.79 21.33
Dividend Per Share 4.00 7.50 9.00 3.50
Book Value 17.68 19.35 22.03 21.91
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COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi.
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