Equity Analysis /
Pakistan

Oil & Gas Development: FY 18 above expectations on lower exploration expenses

    Intermarket Securities
    7 September 2018

    Oil & Gas Development Company (OGDC) posted FY18 PAT of PKR78.74bn (EPS: PKR18.31), up 23% yoy. 4QFY18 EPS is PKR5.10, up 9% qoq and 35% yoy, which is higher than our estimated EPS of PKR4.64. OGDC also announced a final cash dividend of PKR2.50/sh, inline with our expectations, taking full-year payout to PKR10.0/sh (55% payout ratio).

    Major deviation from our 4QFY18 expectation is due to lower than expected Exploration expenses of PKR5.0bn, vs. PKR6.8bn we expected, despite four significant dry wells during the quarter (Surqamar, Khanpur, Daru and Tolanj East). We suspect there could be some reversal in exploration expenses from the past and await clarity on it from the Analyst conference call

    Other Key Highlights in Q4:     

    • Net Sales of PKR57bn (up 11% qoq and 27% yoy) is healthy and attributed largely to 4% PKR depreciation and 8% higher oil prices amid flattish trend in production. Slowdown in Tal and Nashpa dragged oil production to 39,500bpd (down 3% qoq) while gas output was flat. LPG production, while flat sequentially, rose 15% yoy owing to commissioning of Nashpa-Mela project in Feb’18. 
    • Lifting cost of estimated US$7.5/boe in 4QFY18 continued to creep up (US$6.2/boe in 4QFY17), as OGDC draws greater production from high cost areas like Nashpa, has installed several development projects of late, and continues to enhance production from mature fields through workovers etc.
    • Other income was also higher than expected which could be attributed to higher exchange gains than we estimated.
    • Effective tax rate in 4Q of 32% is high considering OGDC largely escapes Super Tax, being state owned.

    OGDC’s FY18 profits, though up 23% yoy, disguise declining trend in oil production where growth mainly emanates from higher oil prices and weaker PKR. We have a Buy rating on the scrip with a TP of PKR179/sh, where FY19F P/E and EV/EBITDA of 6.9x and 3.2x are fairly attractive. Key for OGDC will be revival of production plans and any foreign asset identified for acquisition abroad.