OGDC: Zin block too early to determine

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In recent days, the Zin block of the Oil and Gas Development Company (OGDC) has been in the limelight because of the potential it holds for eliminating gas curtailment, which has crippled the country’s industrial activity.
It has had a positive impact on stock price of its operator, OGDC, which has outperformed the broader KSE-100 index by 10 per cent in the last 6-trading sessions.
“Though it is high profile, we continue to flag that it is as premature to coin Zin as a success story on account of field not entering the final testing stage,” viewed Nauman Khan of Topline Securities. On the other hand, the analyst said volumetric impetus to OGDC’s FY12 growth story comes from commissioning of long-awaited KPD-TAY Integrated and Sinjhoro development projects along with augmented production flows from Naspha and Tal blocks. He said the recent price rally had already factored in the likely increase in the company’s profit in FY12 along with the news of Zin Discovery.
As per latest Pakistan Petroleum Information Services (PPIS) report, OGDC has reached the target depth of the exploratory well of the highly anticipated Zin Block. Furthermore, because of its close proximity to other major gas producing fields like Sui, Kandkhot and Uch, hopes were high of a potentially large size gas discovery from the field. “However, we would like to be less optimistic, as the final testing phase has not been completed. And thus, it is premature to dwell on the actual flow size from the field.” For this reason, the analyst said, we had not included any production flow from the block in our company’s valuation.
“We believe major price trigger for the company are commissioning of stalled developmental programs of Sinjhoro and KPD&TYA. (Kunnar Pasahki Deep – Tando Allah Yar).” The 1st stage of both the stalled projects were expected to come online by the third quarter of FY12, which would cumulatively add 2,400 barrel per day and 115 million cubic feet of oil and gas, respectively, to OGDC’s production profile, Khan said.