According to the weekly numbers released by PPIS for the week ending on December 27, 2011, production from Nashpa-2 has commenced thereby taking the cumulative oil production from the block including the three wells of Mela to 15kbpd. Although, production for 1HFY12 remained dismal, tie-in of near completion projects could boost the production during 2HFY12.
According to the guidance provided by the management, OGDC continues to face delay in completion of projects on account of floods occurred earlier during FY12 and liquidity squeeze from circular debt. Phase-I of KP-TAY is expected to be commissioned by mid-January 2012 after completion of work by SSGC on the 30km transportation pipeline. Accordingly, various projects including Dakhni expansion and Sinjhoro development projects have also faced delay which we have already incorporated into our earnings and fair value estimates, said Salman Vidhani at HMFS.
The spare capacity in Nashpa block (OGDC Stake: 56.5 per cent) ensured fast track tie-in of appraisal well Nashpa-2 which has added 5000bpd of oil and 13 mmcfd of gas. However, a successful effort at appraisal well Nashpa-3, which is near completion, would require OGDC to enhance capacity at Nashpa processing facility to utilise the flow from the well.
OGDC would enhance the capacity further by 5,000bpd to 15,000bps by installing 3rd Separation Battery to utilise the flows from Nashpa-3, which we have assumed at 3,000b/d of oil and 10mmcf/d of gas, he added. Furthermore, currently storage capacity at Nashpa field is 60,000 barrels which is expected to be further raised to approximately 100,000 barrels.
Well head gas prices are expected to witness another jump of four per cent to nine per cent for 2HFY12 owing to four per centH/H rise in international crude oil prices on and depreciation of Pakistani rupee against the greenback fetching 4.64 per cent H/H. Although formal notification for Qadirpur gas price agreement of revised discount table is still being awaited, OGDC continues to reap benefits from adverse exchange rate movement whilst field contributes 30 per cent to the natural gas segment sales. Furthermore we flag tie-in of Makori east-1, completion of KP-TAY phase-1 and Dakhni expansion project as key triggers for 2HFY12.
The scrip has come off by 16per cent since the high of Rs159.41 per share on FYTD and has underperformed the benchmark KSE-100 index by 12 per cent on a 52-week rolling basis. Consequently, its weight in the index has shrunk to 22.2 per cent, albeit remains a source of tracking risk. Imminent stress on external accounts and precipitous decline in value of local currency has caused downward pressure on the stock in recent days, as foreign investors holding of OGDC exceeds 70 per cent (440mn shares) of the free float. Even though, systematic risk casts concern, strong fundamentals driven by stable international oil price, USD index revenue stream and line-up of projects are likely to foster the bottom-line ahead. Therefore, a shrewd investor’s boldness amidst present overplayed pessimism could garner attractive return relative to index once the dust is settled for the stock.
He said, “We have conservatively estimated our earnings forecast at a long term oil price assumption of $95/b, which is a significant discount to FYTD Arabian gulf light oil prices of $110/b. We estimate OGDC to post an EPS of Rs18.24 along with full year DPS of Rs8.0 for FY12 on our base case assumption, he added.
