Morning Call about Oil and Gas Development Company Limited – Arif Habib Limited

Karachi: 1HFY12 profitability jumps by 32% YoY

OGDCL declared its 1HFY12 results yesterday posting net earnings of PKR 41,573mn (EPS: PKR 9.67), a rise of 32% YoY.

According to Arif Habib Limited, this growth is emanating from increased gas production, soaring crude oil prices and higher other income due to better liquidity. The company also declared a 2nd interim cash dividend of PKR1.5/share, taking the FY12TD payout to PKR 3.0/share. In 2QFY12, the company’s earnings depicted a decline of 10% QoQ to PKR 19,658mn (EPS: PKR 4.57) from PKR 21,915mn (EPS: PKR 5.1) in the 1QFY12. The primary reasons for this decline are lower oil and gas production resulting in the topline to decline by 1.5% QoQ and higher operating expenses and exploration expenditure which were up by 13% and 68% respectively.

Production: Oil is declines by 2.9%YoY and Gas improves by 3.7% YoY

Crude oil production during 1HFY12 remained depressed, depicting a decline of 2.9% YoY. The output of crude oil was affected due to floods in Sindh and annual turnaround (ATA) of Uch, Dakhni and Qadirpur plants. This situation was further aggravated by strike of transporters of crude oil from Chanda, Mela and Nashpa fields. In the latter half of 2QFY12, production commenced from Nashpa-2 and Mela-3, contributing cumulatively around 6,480bpd. Gas production has augmented by 3.7% YoY in 1HFY12. The major contributor to this rise is higher output from Nashpa, Chanda, Mela and Qadirpur fields.

 

Financial Highlights PKRmn
2QFY12 1QFY12 YoY 1HFY12 1HFY11 YoY
Net Sales 43,994 44,686 -1.5% 88,680 81,090 9.4%
Gross Profit 30,221 31,905 -5.3% 62,126 58,022 7.1%
Other Income 2,318 2,304 0.6% 4,622 919 40 2.9%
Exploration and Prosp Exp 1,116 665 67.7% 1,781 3,536 -4 9.6%
PBT 28,928 31,098 -7.0% 60,026 51,171 17.3%
Taxation 9,270 9,183 0.9% 18,453 19,572 -5.7%
PAT 19,658 21,915 -10.3% 41,573 31,598 31.6%
EPS 4.57 5.10 -10.3% 9.67 7.35 31.6%
Source: AHL Research, Company Accounts

 

Other income jumps 1.2times YoY

During the 1HFY12, company’s liquidity (cash and short-term investments) has witnessed a rise of 1.2 times YoY (3.1% since Jun-11) to PKR 53.9bn. This subsequently has resulted in OGDC’s other income to jump by 4.6 times to PKR 4,622mn in 1HFY12 from PKR 919mn. The company maintains approximately 37% of the liquidity in USD term deposits. Despite improving liquidity, Arif Habib Limited may not see a rise in payouts as the Company would prefer to utilize these funds for its development projects.

Energy Prices major contributor of 9% YoY growth in topline

Crude prices are playing pivotal role in enhancing the company’s topline, which has increased by 9.4% YoY during 1HFY12. During the period under review average oil prices have ascended by 37% YoY from USD 79.2/bbl to USD 108.6/bbl in 2HFY12. However, magnitude of this increase is diluted as the majority of the OGDC’s fields are governed under old E and P policy, according to which oil prices are capped. Hence the realized price of crude during 1HFY12 was USD 82.0/bbl compared to USD 66.1/bbl in the corresponding period last year. On the other hand gas prices, which are revised on the basis of previous six months’ crude price, were up by 2% YoY to PKR 220/mcf.

Major Projects under Development

•              OGDC is aggressively developing through in-house resources, a number of discovered fields which have faced prolonged delays for multiple reasons. The company has initiated production of 100mmfd of gas and 1,000bpd of oil from KPD-TAY in phase-1 effective from Jan-12. Under phase-2, which is expected to be completed by Feb-14, 148mmfd gas, 3,400bpd of oil, 400bpd of NGL and 387tons/day of LPG will be added to the company’s production base.

•              Sinjhoro development project is also being developed in 2 phases. For this purpose, the company is shifting the compression plant from its Dhodak field (whose reserves are almost worn out), to commence production. The 1st phase will be completed by Jun-12 and will produce 16mmcfd of gas, 1,400bpd of oil and 50tons/day of LPG. In the 2nd phase, output will augment to 25mmcf gas, 3,000bpd of oil and 120 tons/day of LPG by Dec- 12.

•              The Dakhni expansion project which is to produce 52mmfd gas is scheduled to be completed by Mar-12. Moreover, extensive work is being undertaken at Uch (160mmcfd by Feb-14), Jhal Magsi (15mmcfd by Jan- 12), Nashpa Development project (60-80mmcfd gas and 140-160tons/day of LGP by May-13) and Mela (18mmcfd gas and 40-50tons/day of LPG). • OGDC is also planning to bring online its shut-in fields (Nur, Bagla, Jakhro, Gopang, Nim and Nim West) which would add 19mmcfd gas, 435bpd of condensate and 20tons/day of LPG to the company’s production base. The company has not given any time line for the completion of these fields.

Recommendation

Crude oil prices have witnessed a significant upside in 2HFY12 to-date, up by 6.5% from average of 1HFY12 to USD 115.8/bbl. This has compelled us to increase Arif Habib Limited’s crude price assumption for 2HFY12 from USD100/bbl to USD 110/bbl. Moreover, production is likely to augment in 2HFY12 as Makori East will start production by end of 3QFY12 and impact of Nashpa and KPD-TAY flows will be fully visible. Thus Arif Habib Limited has increased earnings for FY12 to PKR 20.5/share. In Jan-12, according to the company, its total crude production stood at 39,626bpd, a 10% higher than 1HFY12 average, while gas output was around 1,150mmcfd compared to 1HFY12 average of 1,017mmcfd. At yesterday’ closing price, the share is trading at FY12E PER of 6.5x and offering potential upside of 4% to Arif Habib Limited’s Dec-12 target price of PKR 168.9/share.

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