Earnings Report /
Pakistan

Oil & Gas Development: FY19 results: Strong FX gains overcome Kekra cost

    Saad Ali
    Saad Ali

    Head of Research

    Intermarket Securities
    18 September 2019

    Oil & Gas Development Co (OGDC) has posted 4QFY19 NPAT of PKR33.0bn (EPS PKR7.69) which is up 51% yoy but down 16% qoq. This takes FY19 earnings to PKR118.4bn (EPS PKR27.53), up 50% yoy, largely on the back of PKR devaluation (higher revenues and FX gains). The 4Q result is slightly better than our estimate of EPS PKR7.39; however, the final dividend of PKR2.5 (full year PKR11.0/sh) is lower than our expectation of PKR3.0/sh.

    Key highlights for 4QFY19   

    • Net Sales of PKR69.4bn is the highest ever OGDC has booked in a quarter. The 20% yoy growth is majorly attributed to price catalysts – 27% PKR depreciation – while overall production grew 5% yoy to 21.5mmboe led by 21% yoy growth in LPG production (based on PPIS data). On a sequential basis, net sales grew 7% again on the back of 12% PKR depreciation (albeit not reflected in gas prices); production was broadly flattish (some improvement in Tal and Kadanwari).
    • Exploration expenses of PKR6.0bn came in line with our estimate, where we had estimated dry well cost of Kekra (offshore) at PKR3.5/sh (PKR0.55/sh after tax). Another dry well was found in Qadirpur Deep.
    • One key deviation from our expectation was other income. This could be due to larger exchange gains and interest income. This has helped in overcoming hefty dry well expenses.
    • Effective tax rate in 4Q came in at 32% vs 34% in the previous two quarters.  
    • As expected, OGDC did not book any IFRS-9 related provision, following exemption granted by SECP until Jun’21.

    We have a Buy stance on OGDC with a TP of PKR180/sh, as we think the stock is significantly undervalued. It is presently trading at a forward EV/EBITDA of 1.6x and has a dividend yield of 13%. Notwithstanding the reversal in the rally in oil prices, the stock is trading at an implied oil price of only US$25/bbl. Key attributes to like about OGDC is its high dividend yield, low concentration risk and relatively lower exposure to circular debt.

    Risks: (i) Slowdown in production in major assets, (ii) unfavourable GoP decision on the terms of the converted Tal block fields, and (iii) decline in oil prices.