WE Financial Services Limited.

In our today’s morning briefing we would discuss the performance of Oil & Gas Development Company Limited (OGDC) in FY15 and would give recommendation to the investors.

PAT dips 30% YoY

Primarily owing to heavy decline in international crude oil prices, the profit after taxation (PAT) of Oil & Gas Development Company Limited (OGDC) witnessed a severe decline of 30% YoY in FY15 to Rs87,249 million (EPS: Rs20.29) versus a PAT of Rs123,915 million (EPS: Rs28.81) in FY14.
In addition to lower oil prices, the profitability of the company was also affected by higher expenses and surge in financial cost. On QoQ basis, the PAT of the company dropped by 5% to Rs19,243 million (EPS: Rs4.47) in 4QFY15 as against a PAT of Rs20,178 million (EPS: Rs4.69) in 3QFY15.
The corporate results were accompanied with a final cash dividend of Rs1.5/share taking the total cash dividend announced in FY15 to Rs7.75/share.

Big hit by lower revenue

The net revenue of the company fell by 18% YoY in FY15 to Rs210,625 million as against Rs257,014 million in FY14.

This was owing to significant decline in international crude oil prices where the average crude oil prices declined to $74.45/barrel in FY15 which is 30.2% YoY less from average crude oil prices of Rs106.64/barrel in FY14. Therefore company’s average realized oil prices fell by 27.8% to $63.29/barrel in FY15 and average realized gas prices fell by 3.6% YoY in FY15 to $272.61/Mcf.

Production follows the declining trend

The crude oil production of the company reduced by 1% YoY to 40,818 bpd in FY15 as against 41,330 bpd in FY14. On the other side, the gas production dropped by 3% YoY in FY15 to 1,143 mmcfd versus 1,173 mmcfd in FY14.

The decline in production was mainly attributed to natural decline from Bobi, Chanda, Dakhni, Kal, Kunnar, Mela, Pasahki, Qadirpur, Sinjhoro, and Sono fields. The gas production was affected by; heavy floods at Bahu gas field, reduced shares from non-operated JV fields, ATA of some companies, and reduced gas intake from Uch-II by  Uch-II Power (Private) Limited. During the year, the company made some new oil and gas discoveries at Soghri-1, Jand-1, Jarwar-1, and Palli Deep-1 which have provided support to the declining production levels.

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Recommendation

We have a positive outlook on the scrip which is trading at Rs128.8/share offering an upside potential of 36% to our June’16 target price of Rs175/share