OGDC – bottomline stands tall

The profitability of the Oil and Gas Development Company Limited (PSX: OGDC) increased by 38 percent year-on-year in 1HFY23. The growth in earnings for the E&P Company came from the rise in its topline, rise in other income, and a decline in exploration and prospecting expenditure. OGDC’s revenues increased by 34 percent year-on-year during the six-month period, which was driven by higher hydrocarbon prices while the volumetric sales declined. Average realized prices of crude oil and natural gas increased by 24 percent and 41 percent year-on-year, respectively, during the period. Rise in average exchange rate from Rs169.98 per USD to Rs223.85 per USD also lent strength to the financials.OGDC’s volumetric sales continued the declining trend in the industry: oil production fell by 10 percent and gas production was down by 7 percent year-on-year, during 1HFY23.

The company also witnessed a slight decline in exploration and prospecting expenditure due to the higher cost of dry well during 1HFY22. Meanwhile, other income in 1HFY23 surged by 31 percent year-on-year due to exchange gain on and higher interest income.

A comparison of the first and the second quarter,however, shows that OGDC’s financial performance was weaker in the second quarter of FY23 compared to the first. The QoQ weaker performance is visible in topline decline and the bottomline, and a significant surge in the E&P expenditure. The net sales for OGDC in 2QFY23 fell by 8 percent quarter-on-quarter due to declining crude oil prices as well as production. Earnings fell by 22 percent due to drop in topline and higher E&P costs.

The oil and gas exploration and production companies had good earnings growth in FY22 due to currency depreciation and rising crude oil prices. 1HFY23 performance is alsodriven by higher oil prices and currency depreciation. A key concern for the E&Pcompanies have been the declining production. However, that OGDC has discovered oil reserves of about 10 percent of its current oil production as per a research note by Optimus will help the E&P giant maintain its production amid declining output.