Higher exploration costs dent OGDCLs profits

Oil and Gas Development Company may have witnessed a drop in net profits in FY13. But the announcement of its annual financial results yesterday, shows that the E&P giant clearly stands at a point where its growth engines are roaring.
During FY13, OGDCs gas production remained more or less static compared to FY12 from both its operated and non-operated fields, which was much in line with total gas production of the country that dropped almost four percent year-on-year to 4 billion cubic feet per day in FY13.
What helped save the day was crude oil production which increased by more than seven percent year-on-year--compared to more than 14 percent year-in-year growth in total crude oil production of the country.
However, the impact of volumetric growth in crude production on OGDCLs topline was diluted by lower average crude oil prices. Average net realized price of crude oil sold during FY13 was $83.40 per barrel against $84.91 per barrel during FY12.
Aside from lower gas production volumes and lower international crude oil prices, the firms bottomline, which contracted by six percent year-on-year during FY13, also sustained pressures from exacerbated levels of exploration expenditure and effective tax rate.
The Companys notice released to shareholders said its exploration cost almost quadrupled in FY13 on account of increase in geological surveys and ten wells declared dry and /or abandoned during the year. But the rise in exploration cost was partially offset by a sizable jump in other income, stemming from interest on investment in TFCs and rupee depreciation.
Given OGDCLs annual exploration and prospecting expenditure, it would not be too optimistic to foresee dynamic volumetric growth in FY14--something which has also been keeping the market upbeat about the stock lately. Moreover, timely power sector reforms after the recent injection in the energy sector should bode well for further drilling activity and hence investors interest.

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Oil and Gas Development Company (OGDC)

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Rs(mn)                       FY13        FY12         YoY

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Sales                     223,365     197,839         13%

Gross profit              157,666     138,306         14%

Other income               15,694       9,660         62%

Exploration expense        14,980       4,048        270%

PAT                        90,777      96,177         -6%

EPS (Rs/share)              21.11       22.53         -6%

Gross margin                70.6%       69.9%

Net margin                  40.6%       48.6%

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