OGDCL paddling through

The global oil and gas exploration and production sector is set to witness a fall off around $1 trillion in revenues in 2020 - so says a Norwegian consultancy firm as the coronavirus pandemic and ensuing lockdowns cripple demand and force countries to slash spending and cancel capex. Not only that; the price of Brent crude oil is down by over 60 percent to its lowest in at least 20 years.

Against the dreadful backdrop, the E&P companies at home are also feeling the pinch. In its recently announced financial performance, the country’s largest E&P firm, the Oil and Gas Development Company Limited (PSX: OGDCL) announced a slight decline in its earnings for 9MFY20 (2 percent YoY).

Due to the ongoing lockdown in the country and the shutdown of refineries, OGDCL reportedly had to choke down some key wells amid lower demand. The company’s revenues grew by 3 percent year-on-year in 9MFY20, while they remained flat in 3QFY20. Exchange rate and higher average realized price of gas supported the revenues. However, key factors for slow growth in topline were plunge in international oil price and lower hydrocarbon production due to reduction in demand specifically because of COVID-19 pandemic. These challenges in production were in addition to the natural decline of fields. The decline in production was partially mitigated by injection of 9 new operated wells in the production system. OGDCL’s crude oil and gas production was down by 6.9 and 8.2 percent year-on-year in 9MFY20.

Another major factor for restriction in the bottomline growth was over a 100 percent increase in its exploration and prospecting expenditure. In 9MFY20, OGDCL spud 16 wells against 11 in 9MFY19, and it also completed the drilling and testing of 13 wells pertaining to previous fiscal years. The company also declared 6 wells dry against 1 in 9MFY19.

FY20 will not be a growth year for E&Ps as well as the virus is just peaking in the country which will weigh heavy on demand for oil and gas, while the outlook for plummeting oil prices is bleaker than ever.