Morning Call about Oil & Gas Development Company – Arif Habib Limited

Morning Call about Oil & Gas Development Company – Arif Habib Limited

Karachi: OGDC recorded 7% YoY rise in profitability

OGDC record 7% YoY rise in earnings in FY11

Oil & Gas Development Company Limited (OGDC) declared Profit after Tax (PAT) of PKR 63.5bn (EPS: PKR 14.77) in FY11, a rise of 7% YoY.

According to Arif Habib Limited, this is due to combination of higher realized prices of both oil and gas coupled with rise in gas production. In 4QFY11, the company recorded a contraction of 18% QoQ in its net earnings to PKR 14.3bn (EPS: 3.33). This is due to higher operating expenses and downward retrospective adjustment in revenues to the tune of PKR 15.3bn. The company declared final dividend of PKR 2.50/share taking full year cash payout to PKR 5.50/share.

 

Financial Highlights FY11A FY10A YoY
Net sales 155,631 142,572 9%
Royalty (17,704) (16,729) 6%
Operating expenses (32,998) (23,728) 39%
Other income 3,382 3,364 1%
Exploration cost (6,622) (7,902) -16%
Profit before taxation 90,982 88,553 3%
Taxation (27,455) (29,376) -7%
Profit after taxation 63,527 59,177 7%
EPS 14.77 13.76
Source: Company Accounts

 

 

Net revenues exhibit a growth of 9% YoY in FY11

Despite the downward pricing adjustment in Kunnar field retrospectively from January 2007 of PKR 15.3bn, the Company was able to record a top line growth of 9% YoY to PKR 155bn in FY11. The rise in net sales was due to 17% YoY and 15% YoY higher oil and gas prices, respectively. During the period, gas production increased by 4% to 1,013mmcfd, whereas oil production dipped by 2% to 37,370 bopd. Oil production decline mainly stemmed from Mela, Chanda and Kunnar fields. Moreover, retrospective gas price revision from January 2007 of Bobi field has led to increase in topline by PKR 2.8bn.

Higher amortization expenses increase operating expenses

Operating expenses in FY11 witnessed an increase of 39% YoY to PKR 33bn on account of amortization of development and production asset to the tune of PKR 12bn contrast to PKR 6.5bn reported same period last year.

Other income stayed flat YoY

Other income of the company remained flat at PKR 3,382bn in FY11. This is due higher average cash balance despite FX losses. During the year interest income recorded an increase of 69% to PKR 2.7bn compared to PKR 1.6bn witnessed corresponding period last year The Company’s trade debts have declined marginally by 6% YoY to PKR 78bn.

Exploration expense contracted by 25% to PKR 6.6bn

Exploration and prospecting expenditure declined by 16% to PKR 6.6bn contrast to PKR 7.9bn recorded corresponding period last year due to slower drilling activity this year. In FY11 the company spudded 21 wells contrast to 26 wells last year.

Update on key development projects

With regards to its development projects, the management in its recent conference call highlighted revised timelines for its key development projects.

Sinjhoro field will be completed in two phases. The first phase will be completed by January 2012 and second phase would be completed by April 2012.The project is expected to enhance OGDC’s production by 3,000-3,500bpd oil and 25- 30mmcfd gas.

For its KPD/TAY project, the expected completion timeline of the project is now August 2013 from earlier estimated date of September 2012 and the management anticipates production of 4,400bpd oil and 284mmcfd of gas to be added post the completion. In the first phase, which is expected to be completed by October 2011, the field will produce 100mmcfd of gas and 1,000 bopd.

On Dakhni expansion project the estimated production rise is 720bopd and 12mmcfd of gas. OGDCL has successfully installed Fourteen (14) reciprocating gas compressors at Qadirpur Gas field to maintain the production plateau of 550- 600 MMcfd of gas. Performance test shall be carried out by end of September 2011. The Qadirpur field is going through ATA from August 28, 2011 for a period of one month.

Recommendation

At last closing price of PKR 127.1/share, the scrip is trading at a discount of 12.7% to Arif Habib Limited’s Dec’11 DCF based target price of PKR 143.2/share. Arif Habib Limited hence recommends a BUY. Furthermore, the company is trading at a prospective PER and dividend yield of 7.22x and 5.1% based on Arif Habib Limited’s FY11 earnings projections.

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