Earnings Report /
Pakistan

Oil & Gas Development: 3QFY20 Review: Lower exploration expenses & large exchange gains

  • Oil & Gas Development Ltd (OGDC) has posted 3QFY20 NPAT of PKR30.5bn (EPS PKR7.08), up 7% yoy and 18% qoq

  • OGDC skipped the interim dividend for the first time since 2QFY11

  • We have a Buy stance on the scrip with a June 2021 TP of PKR158/sh

Intermarket Securities
24 April 2020

Oil & Gas Development Ltd (OGDC) has posted 3QFY20 NPAT of PKR30.5bn (EPS PKR7.08), up 7% yoy and 18% qoq. This takes 9MFY20 earnings to PKR83.6bn (EPS PKR19.45), down 2% yoy. OGDC skipped the interim dividend for the first time since 2QFY11. 

Key Highlights for 3QFY20 

Net Sales fell 3% qoq (flat yoy) to PKR65.0bn, with a 3% qoq pickup in gas production to 876mmcfd and a 4% qoq decline in crude oil output to 36,600bpd. The decline in oil sales is largely due to Nashpa and Tal block which were affected by the lockdown at the end of March (refinery offtake down 60% in the last week). The sequential improvement in gas output is due to a pickup in Uch. Oil prices averaged 8% lower qoq, however, at US$54.0/bbl and PKR/USD was largely flat at 156 despite the depreciation in March. 

Importantly, OGDC booked about PKR5.8bn of additional revenues (one-time impact) related to the revision in gas prices of Uch-II. This was not incorporated in the 2Q results. 

Exploration expenses are down 52%qoq to PKR3.0bn where the impact of only one dry-well was booked (five in the previous quarter); the well was in Nim block. This line item may remain low in the coming quarters as exploratory and drilling activities may be reduced in light of lower oil prices. 

Other income is up 73% qoq to PKR8.8bn which includes exchange gains of about PKR3.5bn (by our estimate)

The cut in dividends could be reasoned by the sharp decline in oil prices which could lead to a reduction of drilling and exploratory activities in future. The last time OGDC skipped payout was in 2QFY11 amid rising circular debt. We have liked OGDC for its high FCF yield; even at crude oil prices of US$30/bbl we estimate FCF yield of 12-14% assuming moderate increase in circular debt. Clarity on future payout is critical, in our view. We have a Buy stance on the scrip with a June 2021 TP of PKR158/sh.