Higher exploration costs dampen OGDC’s otherwise decent performance

Oil and gas explorer announces exceptional profit of Rs76b.

KARACHI:

The Oil and Gas Development Company (OGDC) – the country’s largest company by market capitalisation – announced earnings for the first nine months of fiscal 2013, which revealed negative surprises for the market as the otherwise decent performance was overshadowed by higher exploration write-offs.

According to a notice sent to the Karachi Stock Exchange, profits grew a modest 9% in the July 2012 to March 2013 period to Rs75.67 billion compared to Rs69.25 billion in the corresponding period of last year. OGDC also announced an interim cash payout of Rs1.75 per share with the quarterly results, taking the cumulative payout for the period to Rs5.5 per share.

Since the company also holds the highest exploration acreage in the country, OGDC managed to increase its revenues on the back of higher production of crude oil and gas during the period, which clocked in 19% higher to Rs169 billion against Rs142 billion in the comparable period of last year.

OGDC’s crude oil and gas production witnessed significant increase of 6.7% and 3.8% respectively on account of start-up of production from Nashpa-3 well and Sinjhoro and Nur-Bagla fields. Average net realised prices of crude oil and gas sold was $83.87 per barrel and Rs264.4 million cubic feet.

Average crude oil production was recorded at 39,822 barrels per day, gas production at 1,104 million cubic feet per day, liquefied petroleum gas (LPG) production at 225 million tons per day and sulphur production at 43 million tons per day.

During the period under review, the explorer added 7,515 barrels per day of crude oil and 112 million cubic feet per day of gas.

Moreover, rupee depreciation also played its due role in enhancing the top-line as the greenback averaged Rs99 in the third quarter.

However, higher exploration costs have been plaguing the giant for some time now as they were recorded at 3.4 times higher to Rs8.95 billion during the period, dampening the growth in revenues.

In the first half of fiscal 2013, five wells were written-off, of which the biggest write-off was Rs2.5 billion on Khwaja-I wells, which combined with three dry holes in the January to March quarter and one deferred write-off (Kohat-I) carried over from the previous quarter takes the total to nine wells written-off during the period under review.

OGDC’s other income jumped 150% to Rs6.84 billion, absorbing the shock of unanticipated rise in exploration expenses, on account of the Rs82 billion term finance certificates issued in September 2012 by the government to control the spiralling circular debt.

An analysis note from Global Securities estimates the company to have booked Rs6.5 billion as interest income on the TFCs. The company had already accrued interest receivables to the tune of Rs3.5 billion in December 2012.

Though the issuance of TFCs helped the company record higher other income, it has also increased its exposure to the circular debt issue as these TFCs were subscribed by the company in order to settle its overdue receivables from oil refineries and gas companies.

OGDC holds the largest portfolio of recoverable hydrocarbon reserves in Pakistan, at 39% of gas and 60% of oil, respectively, as at June 30, 2012. It contributed 26% of the country’s total natural gas production and 52% of its total oil production as at February 28, 2013.

With a portfolio of 33 exploration licences, the company has the largest exploration acreage in Pakistan, covering 21% of the total awarded acreage as of March 31, 2013.

Published in The Express Tribune, April 26^th, 2013.

Like Business on Facebook to stay informed and join in the conversation.