Ever since the interim financial results announcement of 10MFY11 in compliance to the firms exchangeable bonds offering, OGDCs share price has lost 15 percent in just a months time. Admittedly, it was a one-off retrospective revision of Rs15.2 billion on account of oil discount adjustment on Kunnar field that impeded the companys revenue during the final quarter of CY11.
The Kunnar field crude oil price was previously linked to the Badin-II field pricing, which has a zero-rated discount. This, however, was subject to adjustment on completion of the oil sale purchase agreement - and the ministry has now linked the price with that of Badin-I, which carries discount, hence leading to reversal in prior periods revenue.
Moreover, a massive increase in amortisation of development and production assets due to reclassification in reserve evaluation had an impact of Rs800 million on the companys profitability - which is why overall profits increased by single digit percentage.
Apart from these negative developments, the company did well on the production front and also cashed in the rising global oil prices during the period. The firms net gas production increased by nearly four percent year-on-year, while oil production flows fell by 1.8 percent over the same period.
The company primarily rode on higher realised oil and gas prices, as the global oil prices steadily inched up during FY11. The realised prices for gas and oil increased by 29 percent and 17 percent year-on-year respectively, supporting the top line growth.
On the operational front, OGDC spudded 21 wells, falling short of its annual target, yet it managed two new oil/gas condensate discoveries. The company carried extensive seismic activities during the period acquiring 1500 sq km and 600 km of 2D and 3D seismic data receptively.
OGDC gave hints of its future plans, indicating that it would start production flow from Kunnar Pashaki Deep - Tando Allah Yar by October 2011, which would certainly give a considerable lift to the revenue flows as well. Moreover, Sinjhoro development project is also expected to start production flows from January 2012 and the company feels it is on track to achieve the target.
Progress on Qadirpur and Mela fields is also satisfactory and all signs seem to point towards a fattened volumetric growth in the future. The oil prices may recede from the highs of FY11 but the wellhead gas prices during the 1HFY12 would give a boost to the top line.
The circular debt continues to linger but the severity has lessened to some extent as the company received payments during 2HFY11. OGDC still finds itself in litigation on a number of fields which is hindering its growth and it is one of the concerns amongst the investors - no wonder despite a massive slump in share price, the analysts have not yet upgraded the scrip to buy.
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Oil & Gas Development Corporation
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(Rs mn) FY11 FY10 Chg
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Sales 155,631 142,572 9%
Operating expenses 32,998 23,728 39%
Gross profit 102,728 100,623 2%
Gross margins 66% 71% -6%
Other income 3,304 3,300 0%
Exploration expenditure 6,622 7,902 -16%
PAT 63,527 59,177 7%
EPS (Rs) 14.77 13.76
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Source: KSE notice.
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