Earnings Report /

Oil & Gas Development: 2QFY22 review – beats expectations on higher exchange gains

  • OGDC’s 2Q results beat our estimates. Payout is slightly lower but exceeds recent quarterly average

  • Higher exchange gains was the major deviation, offsetting the impact of higher-than-expected other charges

  • We reiterate our Buy rating on OGDC with a TP of PKR165/sh

Intermarket Securities
23 February 2022

Oil & Gas Development Co. Ltd (OGDC) has posted net profits of PKR35.3bn (EPS PKR8.20) for 2QFY22, up 5% qoq but nearly doubling yoy; which beats our EPS estimate of PKR7.58 majorly due to higher exchange gains. The result takes 1HFY22 net profits to PKR68.9bn (EPS: PKR16.02), up 63% yoy. The payout of PKR2.0/sh (1H DPS PKR3.75) is lower than our expectations but higher than the average payout in the previous four quarters (of PKR1.66/sh).

Key highlights for 2QFY22:         

  • Net Sales have clocked in at PKR79.6bn, up 11% qoq and 46% yoy, almost in line with our estimate. OGDC had a 4% qoq decline in its gas production to c.880mmcfd, courtesy turnaround at its largest gas field, Uch; while its oil output was flat qoq at c.35,000 bpd, where production from new fields offset the decline in mature fields. OGDC had added about seven new fields in recent quarters.

  • Opex of c.PKR18.5bn, up 9% qoq and 8% yoy, have risen despite flattish production, potentially due to higher depreciation/ amortization expense related to new fields, in our view. On the other hand, Exploration expenses (doubled qoq) are lower than expected. OGDC had one dry well, Baratai in Kohat block, where we had estimated the cost of the well at c.US$20mn. 

  • Other income of PKR10.4bn is the major deviation, which we had expected at PKR7.7bn. We attribute higher-than-expected exchange gains. Note that Uch-II lease has increased sensitivity to exchange rate movements and thus led to greater exchange gains than before (IFRS-16 treatment began in 1QFY21).

  • Share of profits is a negative PKR883mn; this should be the operating losses of c.PKR2.4bn emanating from Pakistan International Oil Ltd (PIOL), which is the offshore E&P in Abu Dhabi and has recently begun exploration. Mari Petroleum (MARI) booked the same amount in its 2Q results (both companies have 25% stake in PIOL). Previously, OGDC booked share of profits from only MARI.   

  • The effective tax rate has fallen to 33% from 36% in the previous quarter, though it is the same as that last year.

This is a good result by OGDC, where the company has increased its payout to PKR2.0/sh per quarter. We understand from another E&P that operating losses of c.PKR2.4bn from PIOL are not recurring and await clarity on this from OGDC’s analyst call later today. We have a Buy rating on OGDC with a June 2022 TP of PKR165/sh.