OGDC’s earnings likely to lose pace

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Earnings of the Oil and Gas Development Company (OGDC), for the Financial Year 2012, are set to lose pace as the company’s Sinjhoro project has been delayed. This project will now be implemented in two stages. Delivery of the first phase has been moved from June 2011 to Nov 2011, with expectation of full production (3,200bpd + 30mmcfd) in March 2012.
Similarly, the Uch-II delivery is likely to face similar delays though OGDC has maintained that delivery of Uch-II is on track (December, 2012). In addition, Mela-3 and Nashpa-2 may overshadow long term concerns as the short-term positive momentum is likely to be built behind flow numbers from two development wells in Nashpa block, to be announced by the end of May, 2011. Meanwhile, MOL is likely to release the total flow numbers of Makori-East and Tolanj in early June, 2011.
Sinjhoro, Uch-II, and KP+TAY continue to be the corner stone of OGDC’s growth prospective; however, visibility regarding delivery of these projects has remained poor as concerns of continuing litigation on the fields have prevailed. Tender on the Sinjhoro project was scrapped in favour of in-house development of the field, while concerns on OGDC’s ability to meet the delivery timeline of June, 2011 have now materialised.
Similar to Sinjhoro, the company has scrapped the tender on Uch-II development project (expected production: 160mmcfd) and has decided to complete the project on its own. The tender was scrapped to avoid another legal hassle after FWO served notices to OGDC on account of accepting an amended bid bond after the submission deadline. Though, the company remains firm on completing Uch-II project by the stated timeline (December, 2012); delays in previous projects (Qadirpur and now Sinjhoro) forms the premise behind a delay.
An addition of 2,500bpd from Nashpa is expected, while Makori-East remains on track of becoming Pakistan’s largest producing well. Though, these near term triggers might drive stock price, overrun on completion time of key projects remains a key risk to the company’s bottom-line. Farooq Najam at Invisorsec said that delay in project delivery translates in our FY, 2012 earnings estimate being reduced by Rs 0.41 per share.