OGDC earnings fall on lower revenues, other incomes

The countrys largest oil and gas exploration firm - OGDC -- took a battering on its profitability in the first quarter fiscal year 2010 as oil production fell amid decrease in realised oil and gas prices and massive decline in the other income account.
Topline deteriorated by 30 percent owing 6 percent year-on-year decline in oil production as output from many important fields witnessed a sharp fall. Fields such as Dhodak and Sono produced 43 and 36 percent lower during the quarter, which offset the impact of slight increase in gas production. Gas output was up by 2 percent to 983 mmcfd mainly due to better contributions from Uch and Dakhni fields.
The revenues were also hit by sharp decrease in energy prices (in dollar terms) as the net realised prices of average Arab Light crude oil slumped by 37 percent and while that of average gas wellhead dipped by 4 percent year-on-year. Albeit, the 12 percent currency depreciation weathered some of the impact - reducing the decline in net realised average prices to 28 percent.
Exploration costs, nearly halved on year-on-year basis, rescued OGDCs bottom line, partly on account of lower seismic activity during the quarter and partly because no new well was declared dry this quarter as against two dry hits in the same quarter last year.
Another major blow to OGDCs profitability came from the massive slide of 74 percent in non-core earnings. The balance sheet numbers reveal a 29 percent year-on-year decline in average cash balances and TDRs. This coupled with the relatively low interest rate on TDRs also squeezed the other income.
The firm seems to be in fine health as international oil prices are likely to witness a stable trend going forward. And although, the currency is currently relatively stable against the US dollar, Pakistans economic indicators are still to confirm any significant improvement in rupees value in the foreseeable future - a trend that bodes well for the company.
Yet, the recent reduction in wellhead gas prices will pose a stiff challenge to its revenues in the quarters ahead. OGDC has been spot on target in achieving its exploration goals and has, in fact, gone beyond its targets more often than not.
It is yet unknown how much did OGDC receive from the TFCs issued to clear out the circular debt but the latest numbers reveal that the firms circular debt portion of trade debts has mounted to Rs 32.7 billion and the management believes that sorting out the issue at the earliest is vital for ensuring smooth exploration, development and production activities.

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OGDC P&L

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RS (MN)                  1QFY10   1QFY09   % CHG

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Sales                    31,826   45,717    -30%

Royalty                   3,615    5,516    -34%

Operating expenses        5,222   10,694    -51%

Gross profits            22,989   29,506    -22%

Gross margins               72%      65%     12%

Other income                799    3,036    -74%

Exploration expenditure   1,226    2,320    -47%

PAT                      12,066   18,980    -36%

EPS (Rs)                   2.81     4.41    -36%

DPS (Rs)                   1.00     2.00       -

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Source: KSE announcement