Oil and Gas Development Company Limited (KSE: OGDCL) is the largest E&P Company in Pakistan, in terms of market capitalisation, production, exploration acreage and profitability. The E&P firm has operating for more than 50 years in Pakistan, currently having 62 blocks, of which 29 were awarded just last year. The company is primarily engaged in various upstream operations that include exploration, drilling, and production of oil and gas.
OGDCL, was listed on all three stock exchanges of the country in 2003 and its Global Depository Shares (GDS) were issued on London Stock Exchange in December 2006. It holds the largest portfolio of recoverable hydrocarbon reserves of Pakistan, at 61 percent of oil and 36 percent of gas, respectively, as at 30th June 2016. It contributed 28 percent of the country's total natural gas production and 47 percent of its total oil production during the month of August 2016, as per the company's result annexure. Currently all production volumes come from onshore areas of Pakistan, however, OGDCL also has working interests in Pakistan's offshore exploration blocks.
FY14 snapshot FY14 was a good year for OGDCL. Its efforts to boost oil and gas production resulted in increase of 5.9 percent in gas production and 3.1 percent in crude oil production year-on-year in FY14. OGDCL's bottomline for the fiscal year 2014 increased by 36 percent year-on-year due to growth in revenues and higher other income. Growth in other income came from an increase in return on investments and bank deposits which resulted in the firm's improved financial performance.
OGDCL in FY15 In short, OGDCL was marred by low oil prices in fiscal year 2015. FY15was a weak year for the oil and gas exploration and production companies as oil prices remained stunted. OGDCL bears a very strong sensitivity to every $5 per barrel change crude oil price. This sensitivity is greater when the share of crude oil in revenues in greater. The firm witnessed 18 percent year-on-year decline in its net revenues in FY15, which remained the key reason for the decline in the firm's profitability during the period.
Average net realised price of crude oil sold during FY15 was $63.29 per barrel as compared to $87.71 per barrel in FY14. At the same time, average net realised natural gas prices declined during the period from Rs 272.61 per million cubic feet to Rs 282.95 per million cubic feet. As a result, the gross margins shrunk from 68.5 percent in FY14 to 652.7 percent in FY15. On the production volumes side, oil volumes remained muted at 40,818 barrels per day, while the natural gas production skidded by three percent year-on-year to 1,143 million cubic feet per day in FY15 for OGDCL.
Its earnings decreased by over 30 percent year-on-year. The firm's enhanced geophysical survey combined with higher operating expenses due to increase in depreciation on property, plant and equipment, impairment on development and production assets, joint venture expenses and increase in repairs and maintenance resulted in higher overall exploration and production expenses. During the year, the firm's exploration and prospecting activity included spudding of 25 well, which includes 14 exploratory/appraisal and 11 development wells in FY15. Its efforts yielded four new oil and gas discoveries.
OGDCL in FY16 OGDCL continued to struggle in FY16 due to prevailing lower crude oil prices. The E&P giant's topline stood at Rs 162.87 billion- lowest in at least 6 years with a drop of over 22 percent year-on-year. The decline in revenues was due to persisting low oil prices and falling volumes; the daily volumetric oil and gas production remained flat.
Average realised prices recorded for crude oil and gas were $39.07 per barrel and Rs 253.77 per million cubic feet - a fall of 38 percent and 7 percent year-on-year, respectively. The firm's 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.
Lower earnings in FY16 earnings was thus largely came primarily from to the decline in topline, while the role of exaggerated exploration and prospecting expenditure cannot be denied either. 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 namely; while 26wells were spudded, comprising of 12 exploratory/appraisal and 14 development wells during the year.
OGDCL 1QFY17 OGDCL began FY17 on lukewarm note. The firm saw a shrink of 11 percent year-on-year in its revenues in 1QFY17 year-on-year. However, the decline was less than what was being anticipated due to better oil production by the firm.
Average net realised price of crude oil sold was $46.57 per barrel in the period, down by around 45 percent. Average net realized price of natural gas sold was Rs 264.20 per mcf, a decline of around six percent. The downtick of 20 percent year-on-year in 1QFY17 earnings was thus largely due to the decline in topline and a spike in exploration and production costs. Company's exploratory efforts yielded 2 new oil and gas discoveries namely; while 4 new including two exploratory/ appraisal and two development wells were spudded during the first quarter.
Outlook The revival of the exploration and production sector hinges on the recovery in crude oil prices. Same is the case for OGDCL. The company recently achieved the highest ever crude oil production of 48,767 barrels a day and over one billion cubic feet per day (BCFD) of gas. Where the firm has seen stagnation in the production in flows in the last five years, the production is likely to get a boost with completion of the ongoing projects.
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Oil and Gas Development Company Limited
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FY12 FY13 FY14 FY15 FY16
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Profitability
GP margin (RHS) % 70 71 69 63 54
NP margin (LHS) % 49 41 48 41 37
ROCE % 42 32 35 21 13
Liquidity
Current ratio times 6.67 2.30 4.04 3.55 4.32
Quick ratio times 8.21 2.30 3.65 3.27 4.01
Cash to current liabilities times 1.73 0.73 0.84 0.37 0.33
Activity / Turnover
Debtor Turnover Days 200 158 111 192 261
Total Assets Turnover % 66 59 56 40 28
Investment
EPS Rs 22.53 21.22 28.81 20.29 13.94
P/E ratio times 7.12 10.78 9.07 8.84 9.9
Dividend yield % 5 4 4 4 4
Dividend payout % 32 39 32 38 37
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Source: Company accounts
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Pattern of Shareholding at OGDCL
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Shares held %
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Government of Pakistan 2,902,148,181 67.48
OGDCL - Employees Empowerment Trust 432,189,039 10.05
Privatisation Commission of Pakistan,
Ministry of Privatisation and Investment 322,460,900 7.5
Mutual Funds 44,944,633 1.04
Directors and their spouse & Minor Children 2,353 0
Public Sector Companies and Corporations 21,275,944 0.49
Banks, Development Finance Institutions,
Non-Banking Finance Companies, Insurance
Companies, Takaful Companies and Modarabas 25,268,684 0.59
General Public - Local 50,999,231 1.19
General Public - Foreign 463,313,350 10.77
Others 38,326,085 0.89
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