Oil and Gas Development Company Limited (OGDCL) is the largest oil and gas exploration and production company of Pakistan and apart from the three stock exchanges, the company is also listed on London Stock Exchange in form of global depository shares. The Government of Pakistan has the largest shareholding of 74.97 percent in the company.
Covering around 22 percent of total exploration acreage, it is largest company based on recoverable hydrocarbon reserves with 48 percent of oil reserves and 37 percent of gas reserves. Before 1997, OGDCL was a statutory corporation known as Oil and Gas Development Corporation. Later in October 1997; the company was converted into a public limited company.
The company is engaged in various upstream operations that include exploration, drilling, and production. It is also involved in the purification process of gas where it has various plants to remove liquid hydrocarbons and objectionable impurities from natural gas before the gas is supplied to the buyer.
The company remains the largest oil and gas company in the country. It has 77 development and production leases (D&P) of which 45 are 100 percent owned and operated fields while 32 are non operated fields. The company has presence in all the four provinces.
Operational Highlights
During the year, the company made two oil and gas discoveries. During FY11, crude oil production averaged 37,370 bopd reporting a decline in production of almost two percent versus FY10. On the other hand, gas production netted 1,103 mmcfd, posting an increase of almost four percent compared to FY10.
The company had a weaker production of LPG during the year, mainly due to a decline in production from non-operated fields. LPG production has slipped by more than three percent during FY11. The company also produces low quantities of sulfur, increasing from 70 metric tonnes per day to 73 metric tonnes per day during FY11.
Drilling activities were affected by a fragile law and order situation in Balochistan and KPK. In total, 21 wells were spudded during the year, 10 exploratory wells versus 15 of FY10, and 11 development wells in both FY11 and FY10.
As at June 30, FY11 the company was operating in 34 exploration blocks including three offshore blocks, covering an area of 61,084 square kilometers. This included 22 blocks with 100 percent share and 12 blocks operated as joint ventures.
In all, the company contributed 56 percent of the total oil production and 22 percent of natural gas production in Pakistan as of June 30, FY11.
Performance FY11 The sales of the company increased to Rs 156 billion during FY11, going up by more than nine percent over FY10 sales revenue. This was primarily because of higher net average oil prices during the year. The net realised prices of crude oil and gas averaged 72 dollars a barrel and Rs 214 per mcf respectively.
Gross profit margins declined from 71 percent in FY10 to 66 percent in FY11 due to hike in prices inputs. Cost of sales surged by more than 26 percent. These increased costs include cost of transportation up by 46 percent and operating expenses up by 38 percent compared to similar period last year.
The company was able to maintain its net profit margin, though it dipped by 100 basis points during FY11 versus FY10. This is explained by a sharp decline of around 16 percent in exploration and prospecting expenditure. The profitability of the company was also affected positively by the revision in Bobi field gas prices. However, the impediments that the company faced with respect to the revision in the Kunnar crude prices and curtailment in crude oil and LPG production during the year. Moreover, the company had to face the adverse impact of floors and amortisation of its development assets.
In FY11, the company declared a dividend of Rs 5.5 per share, similar to FY10. However, it is very apparent that in the midst of increasing earnings per share over a period of five years, the company is investing in capital expenditure. Another reason for reduction in cash dividends is the mounting circular debt.
Performance 1QFY12 Despite rains and floods in the southern region of Sindh that affected oil and gas production, depletion of oil and gas reserves, and unfavourable security situation in various parts of the country; the company was able to post optimal performance during the quarter completed on September 30, FY12.
The company during 1QFY12 remained profitable and increased its top line by more than 13 percent versus the corresponding period in FY11. The bottom line improved during the quarter by almost 29 percent in comparison with 1QFY11. The average net realised price of crude oil sold was 82.78 dollars per barrel against 61.92 dollars per barrel during the corresponding period of FY11.
Liquidity and Operational Efficiency The company has been able to maintain an impressive liquidity position to meet commitments of important development projects. The current ratio improved from 3.5 in FY10 to 6.8 in FY11. Being a highly affected entity in the circular debt crisis where it does not have the option to pass on the burden to any other sector as it lies towards the extreme of the oil and gas chain, OGDCL was able to reduce its liabilities and trade debts.
Future Projects and Outlook The company aims at reducing the country's demand and supply gap though expeditious development of not only the dormant fields but also taking steps to increase discoveries in its operating area. The company has undertaken six development projects that would bring around 500 mmcfd of gas and 8,500 bopd of crude oil. These projects include Sinjhoro, Kunnar Pasahki Deep Tando Allah Yar, Uch-II, Dakhni Expansion, Jhal Magsi and Qadirpur Compression.
Moreover, the company plans to invest in Nashpa/Mela project to increase LPG production in the country to be completed in 2013. The E&P sector remains one of the most lucrative businesses in the country. However, the ripple effect of circular debt and falling FDI in the country will continue to pose serious challenges to government owned upstream companies. This means a cut down in oil and gas exploration and development activities as well as reduced cash dividends to the shareholders.
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OGDC
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FY07 F08 FY09 FY10 FY11
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Net sales Rs bn 101 126 131 143 156
Gross profit Rs bn 70 88 91 101 103
Other revenue Rs bn 4 4 3 3 3
PAT Rs bn 45 44 56 59 64
Profitability Ratios
GP margin % 69 69 70 71 66
NP margin % 45 35 42 42 41
ROCE % 43 41 47 42 35
Liquidity Ratios
Current ratio times 6.7 3.7 4.0 3.5 6.9
Quick ratio times 5.4 2.9 3.3 3.0 6.2
Cash to current liabilitietimes 2.1 0.9 0.4 0.5 2.4
Activity Ratios
Debtor Turnover Days 95 100 135 178 189
Total Assets Turnover % 76 87 79 70 63
Investment Ratios
EPS Rs 10.5 10.3 12.9 13.8 14.8
P/E ratio times 11.4 12.1 6.1 10.3 10.4
Dividend yield % 8 8 10 4 4
Dividend payout % 86 92 64 40 37
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Source: Company accounts
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