OGDC – tax reversal lifts earnings

The largest E&P in the country announced its financial performance for 1HFY24 recently where earnings were seen growing by 30 percent year-on-year. However, the rise in earnings primarily stemmed from tax reversal of around Rs28 billion that the company in its analyst briefing highlighted was due to the favorable verdict by the SC related to depletion allowance.

A look at the topline of the company shows that the revenue growth was around 16 percent year-on-year in 1HFY24, while that in 2QFY24 was 19 percent. The growth was led by the currency devaluation of 21-22 percent in 1HFY24 and 2QFY24. Also, the average realized price of gas increased during the period by 25 percent year-on-year. However, the average realized price of oil fell by 11 percent, oil production remained flat and gas production fell by over 7 percent year-on-year during 1HFY24. In 2QFY24, oil and gas production fell by 13 and 3 percent year-on-year, respectively.

On the expense side, OGDC incurred higher operating expenses majorly due to the costs related to the lease expiry of three major fields. However, exploration and prospecting expenditure was lower due to the lower number of dry wells during the period vis-a-vis last year. The growth in finance income in 1HFY24 supported to bottomline – coming from exchange gains.

Despite single digit growth in pre-tax earnings, the prospects for growth are there for the company in the second half of the fiscal year. OGDC raised its capex requirements for the ongoing year with the recent energy reforms in the sector. OGDC incurred capex of Rs20 billion during the first half of FY24 and has announced further plans of Rs30 – 35 billion during the rest of the year. The E&P giant will further benefit from the recent gas price hike, and it is also expected to begin drilling as part of the consortium in Abu Dhabi offshore block with four wells expected by Mar-24. Alongside the result, the company announced a cash dividend of Rs50 per share in 2QFY24 taking the 1HFY24 dividend to Rs4.10 per share.