Oil and Gas Development Company Limited (OGDC) is the largest oil and gas exploration and production (E&P) company of the country. Apart from the three stock exchanges of the country, its global depository shares are listed on London Stock Exchange. Government of Pakistan has the largest shareholding of 74.97 percent in the company.
Covering around 23 percent of total exploration acreage, OGDC has a portfolio of 34 exploration licenses. It is largely based on recoverable hydrocarbon reserves with 48 percent of oil reserves and 37 percent of gas reserves. Before 1997, OGDC was a statutory corporation known as Oil and Gas Development Corporation. It was later in October 1997 that the company was converted into a public limited company.
The company is engaged in various upstream operations that include exploration, drilling, and production. It is also involved in the purification process of gas where it has various plants to remove liquid hydrocarbons and objectionable impurities from natural gas before the gas is supplied to the buyer. OGDC has 77 development and production Leases (D&P) of which 45 are 100 percent owned and operated fields while 32 are non-operated fields. The company has presence in all the four provinces.
OPERATIONAL HIGHLIGHTS During 1HFY13, OGDC delivered stable operating performance. The company was able to increase its daily average barrels of crude oil produced by a healthy nine percent to 39,245 compare to 1HFY12. Unlike the stagnant industry-wide gas production, OGDC's production jumped by six percent YoY to 1,073mmcf per day, on working interest basis.
After years of slowdown, average LPG production also increased from 163 million tons in 1HFY12 to 264 million tons per day in 1HFY13 due to the production flows from the new Kunnar Pasahki Deep Tando Allah Yar. As at December 31, 2012, Oil and Gas Development Company contributed around 24 percent natural gas and 53 percent crude oil to the overall country's hydrocarbon production.
Besides nine ongoing wells from the previous financial year, OGDC spudded 11 new wells during the six months period of FY13. These include two exploratory wells, one appraisal well and eight development wells. A landmark of the period has been the E&P company's ability to complete a phase of Sinjhoro Development Project which is producing 1000bpd of oil and is also supplying 10mmcfd of gas to SSGC.
SNAPSHOT FY12 First the golden jubilee and then the delightful profits, FY12 proved to be joyous for the largest E&P firm. In addition to largest portfolio of hydrocarbon reserves, OGDC's contribution towards total oil and gas production in the country as at June 30, FY12 stood at 27 percent and 58 percent respectively.
During FY12, the top line of the company propelled by a healthy 27 percent year-on-year on the back of higher realised prices of oil and gas, as well as production flows. The bottom line of the company augmented on account of a two-fold jump in the other income and one-off charges besides the top line growth.
FINANCIAL PERFORMANCE 1HFY13 Judging from the financial results for 1HFY13, OGDC clearly stands at a fine midway with the growth engines of the E&P giant roaring. The company displayed its gleaming performance for the first half of FY13 where the top line stretched by 25 percent YoY to Rs 111 billion. The improvement in the revenues came not only from the improved production of the hydrocarbons but also the increased realised prices of some.
The volumetric growth of OGDC corresponds to a sizable jump of 9.3 percent in oil production primarily owing to the production flows from Nashpa, Kunnar, Tando Alam to name a few. A reasonable growth of 5.5 percent in the gas flows during 1HFY13 poured in from fields like Kunnar, Mela and Nashpa.
During the period under review, the average realised prices of crude oil sold remained flat at 82.78 dollars a barrel against $82.03 per barrel in 1HFY12. On the other hand, average net realised prices of gas that did the trick for an up tick in the revenues, increased by almost 20 percent from Rs 263.83 per mmcf compared to Rs 220.13 per mmcf in 1HFY12.
The net earnings of OGDC expanded by 18 percent YoY in 1HFY13. Besides the revenue lift, the bottom line of the exploration and production player was supported by a 48 percent YoY rise in other income primarily due to the TFC issue during the first quarter of FY13. Interest income of approximately Rs 2 billion on the company's TFC investment is a hefty addition to the company's earnings.
Some contribution was also made by the rupee depreciation of around eight percent during 1HFY13. However, the strong performance was partly overshadowed by higher exploration expenditure which propelled by more than three times during the aforementioned period on account of higher exploration write-offs in the second quarter particularly.
OUTLOOK With half the year remaining, the prospects for the E&P Company are perked up. For one, the recent rebound in the international crude oil prices is likely to bloat earnings in the coming quarter. Besides, prospects for production flows are sanguine and will likely lift the top line come the close of FY13. The announcement of an interim cash dividend of Rs 2 per share will bode well for the scrip in addition to the interim dividend of Rs 1.75 per share announced during the year earlier.
Moreover, ECC has approved to increase the cap on Qadirpur gas price from $2.5618 per mmbtu to $3.0116 per mmbtu which will definitely have positive impact on the company's financial performance and ongoing projects for the remaining FY13. Also, the E&P giant has a gas supply agreement with the fertiliser producers which represents a step forward in the gas supply issue. OGDC will benefit from high production prospects.
And with the TFC issue worth Rs 82 billion to somewhat settle the circular debt and with OGDC as the subscriber, the E&P Company will be able to convert the non-earning and assets into earning ones which would likely increase earning sentiment for FY13. With energy and power deficit at its all time high, the industry is laden with challenge like depleting reserves, stalled production and inter-corporate circular debt crisis. However, FY13 is anticipating increased exploration and accretion of production. Where the growth in FY12 was mainly driven by higher international crude prices, FY13 might bring on more oil and gas to the energy starved land.
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OGDCL
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mn Rs 1HFY13 1HFY12 YoY
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Sales 110,626 88,680 25%
Gross profit 78,952 62,126 27%
Exploration expense 5,515 1,781 210%
PAT 49,227 41,573 18%
EPS (Rs) 11.45 9.67 18%
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1HFY13 1HFY12
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Production
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Crude oil bpod 39,245 35,897
Gas mmcfd 1,073 1,017
LPG Mtons/d 264 163
Sulphur Mtons/d 49 69
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Profitability
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Gross margins % 71.4 70.0
Net margins % 44.5 46.9
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Liquidity
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Current ratio times 4.30 5.16
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Efficiency
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Fixed asset turnover times 2.49 2.28
Total asset turnover times 0.29 0.29
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Source: Company accounts
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