OIL AND GAS DEVELOPMENT CORPORATION LIMITED-(OGDCL)

MULAZIM ALI KHOKHAR
RESEARCH ANALYST

Feb 11 - 17, 2008

COMPANY PROFILE

The Company's principal activity is to explore, develop, produce and sell oil and gas resources and related activities like drilling and equipment services. The Company manufactures Liquefied Petroleum Gas (LPG), Solvent Oil and Sulphur. She is the largest Exploration and Production (E&P) company with 42 exploration licenses in Paksitan.

The OGDCL is Rs.142bn company with share capital of Rs.43bn. Out of her 4.3mn shares 3.7mn shares (about 86% of total outstanding shares) are closely held shares. She was the first Pakistani E&P Company listed at London Stock Exchange. Government of Pakistan divested 9.5% of the total shares of the company through GDRs at London Stock Exchange.

EXPLORATION AND PRODUCTION

It contributes 24% of the country's total natural gas production and 61% of its oil production as at 30th June 2007 on net basis. It holds the largest portfolio of the recoverable hydrocarbon reserves of Pakistan which amount to 32% of gas and 30% of oil.

OGDCL's production in the last quarter increased, by 15.7% as compared to the same period last year, to stand at net crude oil of about 44,801 barrels per day and net gas produced at 926 MMcf per day with an increase of 13.9% higher to Corresponding period last year. Her net LPG production was 364 tons per day (increase of 15.2% compared to corresponding period last year) and net Sulphur production was 69 tons per day increase of 30% compared to corresponding period last year.

FINANCIAL PERFORMANCE

Company's earnings per share have maintained the same level of Rs.2.87 per share as compared to corresponding period last year while it has been increasing at a 5 year CAGR of about 22%. The main reason of no increase in EPS are the high inflating sales and exploration expenses largely due to payment of Rs.1.139bn as royalty related to prior years pertaining to condensate and LPG from Dhodak and Dakhni fields.

Her net sales registered an increase of 9.8% to mark Rs.27.8bn as compared to Rs.25.3bn for 1st quarter last year while it has been witnessing a 5 year CAGR of 14%. Her operating expenses also surged 13.8% to reach Rs.3.758bn compared with Rs.3.301bn during same period last year. The chief grounds of operating expenditure surge were the capitalization of new well and assets and an increase in production and exploration and prospecting expenses by Rs.162mn and the royalty expenses mentioned above.

Her net cash from operating activities have hiked by 5.12% marking Rs.13.154bn as compared to Rs.12.513bn for the same period last year(see table#1). Net cash used in investing activities decreased by Rs.1.479bn and net cash utilized in investing and financing activities resulted in net cash increase of Rs 8.536 billion

DUPONT ANALYSIS

Overall the company's return on equity has increased to 13.8% with a net surge of 3.13% as compared to 13.55% ROE last year.

But when we conduct a further DuPont analysis we come across some realities about the overall performance related to its operations, and assets and equity utilization.

The table#2 clearly affirms that OGDCL's operational performance has declined by 4.3% while its leverage factor utilization has contributed 24.26% more to its earnings. The assets turnover remained more or less similar to that of first quarter last year. The reasons of the worse operational performance have been mentioned above with main cause of royalty increase of about Rs.1.23bn. Overall her performance is better in the industry and has brighter future ahead with high achievements in the exploration fields.

EMPLOYEE PERFORMANCE

Sales per employee are increasing at 5 year CAGR of 10.2%. Currently the company is employing about 11000 employees and her sales per employee stands at Rs.8.2mn in FY07 while it stood at Rs.5.7mn per employee in FY06. This marked a net increase of about Rs.2.5mn per employee hike in the last year. This year the performance may witness new hikes due to hiking oil and gas prices in the country.

FUTURE OUTLOOK

With hiking demand of energy (gas and oil) in the winter seasons and subsequent inflating oil and gas prices, it is expected that she will announce higher profits for 2nd and 3rd Qs FY08, and the same can be inferred for the long term vision.

The company is involved in higher increased activities in exploration and production activities, which will bring the higher sales and margin with resultant increase in the profits.

Table 1

QUARTERLY PERFORMANCE

1QFY07

1QFY08

% CHANGE

 

Rs. in '000

Net Sales

25,295,635

27,768,732

9.78%

Profit before Taxation

17,461,812

17,195,528

-1.52%

Profit after Taxation

12,327,803

12,236,860

-0.74%

Earnings per Share - Rs

2.87

2.87

0.00%

Net Cash from Operating activities

12,513,476

13,153,683

5.12%


TABLE 2

DUPONT ANALYSIS

1QFY07

1QFY08

1QFY07

1QFY08

% CHANGE

Profit Margin (NI/Sales)

.

.

48.73%

44.43%

-4.30%

NI

12328

12337

. .

9

Sales

25296

27767

. .

2471

Assets Turnover (Sale/Assets)

. .

19.56%

21.38%

1.83%

Sales

25296

27767

. .

2471

Assets

129338

129853

. .

515

Leverage Factor (Assets/Equity)

.

.

142.18%

145.30%

3.13%

Assets

129338

142252

. .

12914

Equity

90970

97900

. .

-6930

Return on Equity (ROE)

. .

13.55%

13.80%

0.25%


TABLE 3

FINANCIAL PERFORMANCE

Rs. in Millions

YEAR

SALES

Growth YOY

COGS

% OF SALES

(EBITDA)

% OF SALES

PAT

% OF SALES

EPS

DPS

Empl-
oyees

Sales/
Employee

2003

46,629

n/c

13,568

29.10%

32,025

68.70%

20,848

44.70%

3.85

3.00

9,282

5,023,594

2004

52,607

12.80%

14,197

27.00%

37,683

71.60%

22,857

43.40%

5.31

4.00

9,965

5,279,177

2005

66,598

26.60%

10,098

15.20%

55,628

83.50%

32,935

49.50%

7.66

7.50

11,708

5,688,247

2006

86,364

29.70%

17,909

20.70%

67,459

78.10%

45,803

53.00%

10.65

9.00

-

5,688,247

2007

89,797

4.00%

20,757

23.10%

68,196

75.90%

45,255

50.40%

10.52

9.00

11,000

8,163,364

06-07 Growth

3.98%

 

15.90%

 

1.09%

  -1.20%

 

-1.22%

-

-

43.51%

5 Year CAGR

14.00%

 

8.88%

 

16.32%

 

16.77%

  22.27% 24.57%   10.20%