OGDCL 1QFY21 – slow or improving?

There are two ways to look at Oil and Gas Development Company’s (PSX: OGDCL) financial performance for 1QFY21: compared to 1QFY19, earnings and revenues have slipped; but sequentially, the quarter portrays improvement.

Though OGDCL’s earnings declined year-on-year during the period under analysis, COVID-19 has made sequential analysis of the financial performance more meaningful as countries have gone and come out of lockdowns and related restrictions. As such, OGDCL’s financial performance for 1QFY21 versus the last quarter of FY20 (4QFY20) has seen significant rebound in earnings as well as sales – (43%and 28% QoQ), which means that the coming quarters are likely to be better than at least the last quarter of FY20 that really bogged down the company’s performance in FY20.

And now the year-on-year performance. After a slow year (read FY20), OGDCL announced its financial performance for the first quarter of FY21 and it can be termed as another slow period for the E&P giant’s earnings. Overall, the company’s earnings for 1QFY21 were seen slipping by 14 percent year-on-year, starting with a 10 percent year-on-year decline in the topline.

OGDCL’s revenues for the quarter were affected by decline in volumes for gas and oil versus those in similar period last year. During the period, the demand and price of crude oil remained suppressed as the coronavirus pandemic is far from over globally. Average realized prices of crude oil during the quarter were down by over 26 percent. While the output of oil and gas was also affected by natural decline in key field as well as annual turnaround and non-revival/partial revival of wells post COVID shut it asper the company’s directors. At the same time, gas production was further hampered by lower offtake from the power sector resulting in lower flows. The quarter recorded a 5.8 percent 3.6 and percent decline in average daily oil and gas production respectively, on a year-on-year basis.

Besides a decline in revenue, higher operating expenses dragged down the gross margins. However, the company also witnessed a decline in exploration and prospecting expenditure due to reduction in cost of dry and abandoned wells – despite three dry wells declared during the quarter. During 1QFY21 OGDCL made two oil and gas discoveries having expected cumulative daily production potential of 11 mmcf of gas and 137 barrels of oil as per the company’s directors. Lower exploration charges as well as higher other income offered some support to the falling earnings. OGDCL also announced Rs2 per share dividend for 1QFY21.