Following a 15 percent jump in nine-month net earnings, one would have expected OGDCs stock price to rise sharply yesterday. But when reality doesn meet expectations, its hard to please investors.
Not only were OGDCs results slightly less than consensus expectations; a rather disappointing interim dividend of Rs1.5/share also dampened sentiments of a market that already sees the firms stock as fairly valued at current levels.
Recall that the oil and gas giant had held back the dividend announcement in the previous quarter due to the mounting circular debt, which was putting pressure on the future cash requirements of the firm. The detailed accounts are yet to be made public, but there is every reason to believe that the companys receivables have not cooled off from Rs108 billion at the end of 1HFY11.
A sharp decline in the exploration expenditure also, to an extent, mirrors the circular debt problem that the company faces. Although, non-declaration of any dry well during the period helped reduce the exploration cost to some degree; much of it was due to muted seismic activities on the drilling and exploration front.
The higher capex requirement in the near future also seems to have influenced the decision to chop dividends. OGDC has been way off target in achieving the full-year exploration targets, which suggests that if it is to stay on track to achieve targets, it will have to incur high capex in the remaining period.
On the bright side, the top line improved in double digits, primarily led by higher realised crude oil and gas wellhead prices. The upward revision in Qadirpur and Bobi fields and the ever rising international crude prices helped the company achieve a strong top line. The wellhead prices are believed to have increased by 24 percent, whereas the realised oil prices inched up by 18 percent.
For the less optimistic, however, the growth in top line is largely inorganic - as production volumes stayed on the downside. Oil production is believed to have declined by 7 percent during the quarter, whereas gas production remained flat.
The numbers so far, look impressive, but OGDC cannot expect oil prices to stay favourable for them forever and the exploration activities have to gather pace for a sustainable improved performance, going forward. The security situation is also playing its part in keeping OGDC shy of aggressively pursuing exploration activities.
No wonder, the once lue-eyed scrip fails to find a place in many of the op pick calls.
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OGDC P&L
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(Rs mn) 9MFY11 9MFY10 chg 3QFY11 3QFY10 chg
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Sales 122,266 108,593 13% 41,176 35,959 15%
Operating expenses 20,206 16,038 26% 7,414 5,245 41%
Gross profits 86,221 78,837 9% 28,199 26,236 7%
Gross margins 71% 73% -3% 68% 73% -6%
Other income 1,519 2,309 -34% 600 1,103 -46%
Exploration expenditure 4,205 6,136 -31% 669 1,414 -53%
PAT 49,185 42,609 15% 17,586 14,116 25%
EPS (Rs) 11.44 9.91 4.09 3.28
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Source: KSE notice