Earnings Report /

Oil & Gas Development: 1QFY23 Result Review

  • OGDC posts all-time high quarter earnings of PKR12.4/share, gaining most from oil prices and PKR deval

  • Opex normalized during the quarter owing to absence of previous quarter one-offs

  • Considering receivables balloon similar to past trend, 2P reserves contribute PKR84 to valuation

Intermarket Securities
25 October 2022

Oil prices and PKR devaluation help OGDC hit all-time high quarterly profits   

OGDC has kicked off FY23 with the highest ever quarterly earnings outcome of PKR53.3bn (EPS:PKR 12.39). Earnings are 1.5x higher from the previous quarter owing to lower super tax applicable in the quarter. Higher oil prices and PKR devaluation during the quarter kept oil and gas revenues at the higher end. The company also announced an interim payout of PKR1.75/share.

Key highlights

  • Net sales hit an all-time high of PKR106bn during the quarter, gaining majorly from higher realized oil and gas prices. Production also improved during the quarter where oil output rose 8% QoQ and gas output jumped 2% QoQ.

  • Operating expenses declined substantially by 35% QoQ majorly due to absence of a one-off higher sales tax with respect to capacity invoices of Uch gas field. Overall, opex have normalized to c. PKR1,000/boe.

  • This quarter witnessed lower exploration costs to the tune of PKR1.5bn majorly owing to less dry well expenditure. We await interim accounts for clarity in this regard.

  • Other income continued to remain high majorly benefiting from high interest rates and PKR devaluation; contributing PKR18.5bn during the quarter. Moreover, strong earnings from MARI have kept associate earnings contribution fairly adequate during the quarter.

  • Effective tax rate for the quarter clocked in at 40% against 36% last year owing to one-off high super tax.

OGDC is the largest E&P of Pakistan but its valuations stay embroiled in circular debt. Under an assumption that receivables continue to balloon, as they have over the last 3-4 years, the 2P reserves contribute PKR84/share to overall valuation. Despite this, we favour the emphasis on new Frontier areas, which boasts the potential of a large discovery in the near future. We currently have a Buy stance, based on our TP of PKR162/sh. The scrip trades at an FY23f P/E of 2.4x. Such low valuations can sharply rebound on circular debt resolution.