Oil & Gas Development Co. Ltd (OGDC) has posted a net profit of PKR24.1bn (EPS PKR5.61) for 3QFY21, up 28% qoq but down 21% yoy, better than our EPS estimate of PKR5.25. This takes the 9MFY21 NPAT to PKR66.4bn (PKR15.43/sh), down 20% yoy. OGDC has also announced a third interim dividend of PKR1.8/sh (we expected PKR2.5/sh), taking 9M payout to PKR5.4/sh.
The key deviation from our estimate was less-than-expected exchange losses (Other income has come in higher). Otherwise, most other line items have come in line.
Key Highlights for 3QFY21
Net Sales have clocked in at PKR65bn, up 20% and flat yoy. Among the three E&Ps in our coverage, OGDC is the only one that had production growth in 3Q (of 6% qoq on mmboe basis). Its gas production rose 9% qoq to c.950mmcfd, thanks to Uch plants operating near optimal capacity following an annual turnaround in 2Q. Oil production was up 2% qoq at c.38,000bpd because of Pindori, Nashpa and Dhurnal. Note average exchange rate was nearly flat qoq at 160 and average crude oil prices rose 35% qoq to US$59/bbl.
Exploration expenses have doubled qoq to c.PKR5.6bn – driven by costs of two dry wells (Khewari and Qadirpur Deep) – which is equivalent to about PKR0.80/sh. OGDC is one of the few E&Ps in Pakistan that has maintained its drilling activity despite sharp decline in international oil prices in 2020.
Other income of PKR1.6bn is the major deviation from our estimate. It indicates less than expected exchange losses (from the c.5% PKR appreciation), which we had expected to be aggravated by the Fx losses related to Uch lease (dollarized accounting). We await the detailed accounts to shed more light on this.
Lower effective tax rate of 31% vs. our expectation of 33% (as in the previous quarter) was the other key deviation.
Note that this will be the second quarter that OGDC will be reporting the asset Uch as a finance lease (under IFRS-16). We had estimated a net earnings impact of negative c.PKR0.50/sh (non-cash). But it has seemingly had a milder drag on the bottom-line due to lower exchange losses.
The result broadly meets our expectations. It could have been better (at least PKR6.5/sh) had it not been for exchange losses and significant dry well expenses. The latter may continue in coming quarters as OGDC remains aggressive on exploration, but PKR appreciation in the future should be relatively moderate. We have a Buy rating on OGDC with a TP of PKR159/sh.