Earnings Report /

Oil & Gas Development: Q2 FY 20 results without retrospective impact of revised Uch-II gas price

    Intermarket Securities
    26 February 2020

    Oil & Gas Development Co. Ltd (OGDC) has posted 2QFY20 NPAT of PKR25.9bn (EPS PKR6.01), down 14% yoy and 5% qoq. This takes 1HFY20 earnings to PKR53.2bn (EPS PKR12.37), down 6% yoy. The 2Q result is lower than our estimate of PKR7.08/sh. The interim dividend of PKR1.75/sh is also lower than our expectation. 

    Key deviation from our estimate is that OGDC did not book the retrospective impact of new Uch-II gas prices (of about PKR5.8bn or PKR1.0/sh after tax), without which this is an in line result.

    Key Highlights for 2QFY20: 

    • Net Sales rose 2% qoq to PKR67.2bn, where gas production was flat at 961mmcfd but oil production rose 3% qoq to 38,500bpd. We had expected OGDC to book PKR5.8bn of incremental revenues from Uch-II. 
    • Exploration expenses have risen substantially by 63% qoq and doubled yoy to PKR6.5bn, where OGDC has booked dry well cost related to Soghri well while three other exploratory wells were temporarily suspended. In addition, OGDC has been ramping up geological studies. 
    • Other income is up 79% qoq due to lack of exchange losses, which were booked in 1Q. 
    • Admin expenses of PKR1.7bn are nearly double the quarterly average of PKR1.0bn. We await latest accounts and analyst call to shed more light on this.
    • The dividend cut from average PKR2.5/sh per quarter points to some cashflow issues, where receivables would have risen as a result of weak recoveries from end-customers by SNGP (LNG supplied to domestic consumers at subsidized rates during winter), in our view. The upcoming Energy Sukuk-II may somewhat resolve this issue.

    The results, including the payout, is lower than our expectation. We think there may have been some delays in booking the incremental revenues of Uch, which can appear in future quarters. We also think the dividend cut would be temporary due to weak cash-flows in winter. OGDC is our top pick where it is trading at undemanding valuations (FY21f of 4.5x and EV/EBITDA of 1.5x) and has better DY and more certainty on payouts than its close peer PPL. We reiterate our Buy rating on OGDC with a FY 21e target price of PKR187/sh.