OGDCL – improved production in FY23?

Oil and Gas Development Company Limited (PSX: OGDCL) - the largest oil and gas exploration and production company – announced its financial performance for FY22 last week where the company posted significant rise in revenues for FY23 and corresponding growth inearnings for the year. the company’s revenues increased by 40 percent year-on-year in FY22 which was due to 71 percent year-on-year surge in oil prices with the resumption of oil demand internationally, and domestic currency depreciation of 10percent year-on-year. Average realized prices of crude oil and natural gas increased by 62 percent and 14 percent year-on-year, respectively. However on the production side, OGDCL’s crude oil and gas production dipped by 4 and 5 percent year-on-year respectively in FY22.

OGDCL witnessed a 10 percent year-on-year decline in exploration and prospecting expenditure and the company’s announcement at the PSX highlights that this was due to five dry wells incurred during the year compared to eight dry wells reported in FY21. During FY22 the company spud 7 exploratory/appraisal and 6 development wells. Meanwhile, the company’s exploratory efforts resulted in 7 new oil and gas discoveries. Also, OGDCL injected 10 wells into the production system in FY22.

Apart from the rise in topline, the growth in OGDCL’s bottomline was also due to increase in other income coming from hefty exchange gains from currency depreciation.The company’s earnings before tax jumped by 80 percent year-on-year in FY22; however, PAT stood at a gain of 46 percent for the year due to imposition of Super Tax in FY22.

Declining production has been a key concern for the E&P sector. This is primarily due to falling reserves and small oil and gas finds. However, OGDCL’s reserve replacement ration in FY22 stood at 10 year high at around 114 percent due to the prospects from Wali-1 that has estimated reserves of over 50 million of Barrel Oil Equivalent (BOE). Though these are not proven reserves, OGDCL will start production form Wali Block in January 2023, which will help in estimation of proven reserves. The company is aiming to keep its reserve replacement ratio toover100 percent in the coming years. The company is expected to start drilling of the overseas block in Abu Dhabi in 1QFY23, and it is also starting exploration activities in North Balochistan and North KPK to arrest the depletion of reserves.