OGDCL FY09 Review

Highlights of the FY09 include:
 OGDCL’s net sales increased by 3.9% to Rs 130,830 million from Rs 125,908 million compared to the last year
 Profit before tax increased by 3.3% to Rs 80,928 million from Rs 78,307 million compared to the last year
 Net profit after tax stood at Rs 55,540 million resulting in earnings per share of Rs 12.91 as against Rs 44,338 million and earnings per share of Rs 10.31 respectively during last year.
 Operating profit margin and net profit margin for the year was 59% and 42% respectively.
 Payable interim dividend of Rs 2.50 per share.
 Average net realized price for the natural gas sold was Rs 174.78/Mcf, compared to Rs 140.88/Mcf during the last year
 Average net realized price for the crude oil sold was US$ 55.53/BBL, compared to US$ 71.29/BBL during the last year
 The Company spudded 30 wells and made two discoveries during the year, (Kunnar South-1 & Pasahki West Deep-1).
Performance Review
OGDCL increased its Profitability by 25.26%YoY
OGDCL has announced its FY09 annual result on August 13, 2009. The company reported its profitability by 25.26%YoY increase to NPAT of PKR 55.54 Billion comparing to the NPAT of PKR 44.34 Billion last year. Profit before tax increased by 3.3% to PKR 80.92 Billion from PKR 78.31 Billion compared to the last year. The EPS for FY09 increased by 11.87%YoY to PKR 12.91 compare to PKR 11.54 last year. The Gross Profit Margin for the year was 69.92% comparing to 69.50% last year whereas the Operating profit margin and net profit margin for the year was 59% and 42% respectively.
Growth mainly driven by gas sales
The FY09 Sales figure was PKR 130.83 Billion with 3.91%YoY increase from PKR 125.91 Billion last year. The company experienced a drastic increase in sales for ‘Gas’ by 26.07%YoY which is a good symbol for the company that it’s actually driving its sales towards the demanding fuel of the country. OGDC contributed 24% of the country’s total natural gas production and the total sales of ‘Gas’ in FY09 was PKR 75.04 Billion compare to PKR 59.52 Billion.
On the other hand, the decrease in the sales of ‘Crude Oil’ and its bi-products i.e. ‘Naphtha’, ‘Sulphur’, ‘Gasoline’, ‘Kerosine Oil’, and ‘High Speed Diesel Oil’; and ‘LPG’ were noticed if I compare it to last year’s figures. The reason behind the decrease in their production was primarily due to decline in production from Dhodak, Thora, Lashari, Bobi, Sono, Tando Alam and Chanda fields. The company has also begun conducting offshore exploration activities which I believe has significant untapped potential.
The major contribution in FY09 Sales after ‘Gas’ was made by ‘Crude oil’ and ‘LPG’ with PKR 63.20 Billion and PKR 3.40 Billion comparing to PKR 70.63 Billion sale of ‘crude oil’, and PKR 5.30 Billion sale of ‘LPG’ by last year.
Operational Review
With a portfolio of 35 operated exploration licenses, the company has the largest exploration acreage in Pakistan, covering 30% of the total awarded acreage till FY09. The company has been able to keep the operational costs at the bare minimum by utilizing their own services and negotiating competitive service contracts for drilling and seismic operations. The company board agreed to merged with Pirkoh Gas Company (Pvt) Limited (PGCL) and the process of merger completed effectively in January 01, 2009
Net Profit margins increased by 21%The chief considerable part came from lesser corporate tax paid by the company of 31% which assisted the company to score net profit margins of 42% compare to 35% last year. This was due to the prior year tax adjustment of PKR 11.60 Billion which the company had to pay last year.
Found only 2 wet well from the exploration of 30 wells/2 Discoveries out of 30 explorationsThe exploration cost mounted by 16%, but then again the company successfully offset its effect by exploring 30 wells, drumming two new findings during FY09. OGDC made overachievement from its target for its exploration activities but failed to maintain the ratio of 3-1.
Lower Production for its major products in FY09
The company had lower production for its major products in terms of volume in FY09 compare to FY08. On average the gas prices increased by 24% to PKR 174.78/mcf along with the PKR depreciation of 23% during FY09 but this effect stoutly offset by 22% on average decline in oil prices as they linked with international price quoted in USD.
Circular Debt still an obstacle
The company owned overwhelming amount of PKR 65 Billion in receivables till March 2009. The company owned ‘circular debt’ as the key area to concern which is minimizing shareholders' return in terms of cash.
Looking Forward
I have optimistic attitude for OGDC to buy. OGDC has outperformed in the market by 97% over last 6 months in response to the exploration and growth related news. OGDC also announced couple of discoveries located in Sindh Province at Kunnar South-1 and Pasahki West Deep-1. Subsequently, on August 12, 2009 another gas discovery was made by the Company at Reti-1A in Guddu Exploration License which comes under the joint venture between OGDCL, IPRATOC, and GHPL holding pre-commercial stakes of 70%, 25%, and 5% respectively.
I estimate the findings to have a marginal annualized EPS impact of PKR 0.016/share for OGDC based on the initial flow rate. Although the above mentioned discoveries would be having a positive price performance impact but then again I am estimating the slowdown to the increase in exploration related news.