OGDCL in FY20 - a slow year

FY20 hs been a slow year for the oil and gas exploration and production sector where crashing oil prices along with COVID-19 had key impact on the sector’s financial performance. Oil and Gas Development Company Limited (PSX: OGDCL) also saw its bottomline being impacted as FY20 earnings slipped by 15 percent year-on-year, where most of the decline came from 2HFY20.

The squeeze in earnings started from the top as OGDCL’s revenues decreased by 6 percent year-on-year in FY20. The decline was both due to falling crude oil prices and production levels. Realized prices of crude oil witnessed a drop of around 20 percent to $46.76 per barrels whereas LPG realized prices also fell by 11 percent year-on-year to Rs63,997 per ton in FY20. Realized gas prices, however, increased by 16.5 percent to Rs.393.32 per mcf. Production numbers were also subdued as COVID-19 left many fields such as Nashpa, Mela and KAPDTAY in partial shutdown mode. Oil and gas production thus witnessed decline of around 12 percent each in FY20, while LPG production fell by 11 percent.

Despite decline in revenues, the company incurred an increase in operating expenses, which aided the decline in gross profits. Absence of exchange gains restricted other income growth and increase in all expenses including exploration, general administration, and finance cost also impacted the bottomline. Growth in exploration expenses was due to significant cost of dry and abandoned wells during the year; 8 wells were declared dry and abandoned in FY20 versus only two in FY19. Also, the exploration expenses were high as 25 wells were spud versus 16 in FY19 where 5 discoveries were made during the year.

Hoping that the worst is over in terms of COIVD-19, OGDCL may see a return to growth, though oil price volatility will remain the key risk. The E&P giant plans to drill 45 wells (during FY21, with an estimated CAPEX of Rs 55 billion. The company is also looking into evaluating Eni Pakistan Limited’s oil and gas portfolio, which is planning to sell its assets in the country.