After strong earnings in FY24, Oil & Gas Development Company Limited (PSX: OGDC) posted a profit after tax of Rs 41 billion for the first quarter of FY25, marking a 16 percent year-over-year decline. This decrease was driven primarily by reduced international oil prices, PKR appreciation against the USD, and a higher effective tax rate compared to 1QFY24.

OGDC’s revenue for the quarter dropped by 12 percent year-over-year due to decreased production and weaker average oil prices. Crude oil production fell by 3 percent year-over-year, while gas production saw an 8 percent decline. This production decrease was attributed to natural field depletion and limited intake from certain fields by SNGPL due to system constraints. Additionally, the average realized oil price was over 7 percent lower during the period.

On the expense side, operating and administrative expenses fell by 6 percent and 17 percent year-over-year, respectively, while exploration costs rose sharply by 46 percent due to a dry well. However, the company’s bottom line benefited from a 58 percent increase in other income, primarily due to late payment surcharges from customers and amortization of fair value loss on TFCs.

Overall, the gross profit margin declined from 65 percent in 1QFY24 to 62 percent, and the net profit margin dropped from 41 percent to 39 percent due to higher exploration costs and taxes.

The E&P sector is facing challenges from aging fields, system constraints, and reduced demand from power companies, impacting gas production. The sector’s outlook is further influenced by fluctuating oil prices, PKR volatility, and tax impacts. However, OGDC remains optimistic about its exploration-driven growth strategy and future projects like the Bettani Field Development and the Reko Diq Mining Project. The company declared a first interim cash dividend of Rs 3 per share for 1QFY25.