The Oil and Gas Development Company Limited (OGDCL) remains one of the most profitable public sector entity, which recorded an increase of 9.2 per cent or Rs155.6 billion in sales revenue and its profit after tax increased to 7.4 per cent or Rs63.5 billion during the last financial year 2010-11.
Higher international oil prices
According to the annual report of OGDCL, the results are primarily attributed to higher realised prices of crude oil, gas and Liquefied Petroleum Gas (LPG) which averaged at $72.05 per barrel (Bbl), Rs214.03 million cubic feet (mcf) and Rs65,443 metric tonnes (M tonne), as compared to $61.37 Bbl, Rs186.47 mcf and Rs 54,415 M tonne during the last fiscal year. This translated into an earning per share of Rs14.77 as compared to Rs13.76 during the preceding fiscal year. During the last financial year, OGDCL contributed Rs76.8 billion to the national exchequer. The flagship national oil and gas exploration and production company holds largest number of 34 exploration blocks, including 22 blocks with 100 per cent ownership including an off shore block and 12 joint venture blocks including two off shore blocks. OGDCL could not commence exploration activities in 10 blocks during the last fiscal year due to lack of security clearance and cover from the concerned agencies. If the security cover is provided the company plans to undertake exploration activity during the current fiscal year.For starting exploration activity in the province of Balochistan, OGDCL is making efforts to start exploration activity in close liaison with the government of Balochistan. During the last year, OGDCL seismic crew was able to acquire 1,500 kms of 2D and 600 kms of 3D seismic data in various concessions and blocks. OGDCL marked 29 well locations and spudded in 21 wells including 7 exploratory, 3 appraisal and 11 development wells. In addition work over jobs on 9 wells was completed during the last fiscal year.
OGDCL contributed 56 per cent to total oil production in Pakistan FY11
OGDCL made two oil and gas condensate discoveries Sheikhan well 1 in Kohat in Khyber Pakhtunkhwa and Gopang well 1, Hyderabad in Sindh during the last fiscal. This made an addition of 0.14 million stock barrels (MMstb) of oil and 59 billion cubic feet (bcf) of gas in the company’s reserves. OGDCL’s remaining recoverable reserves as on June 30, 2011 stood at 133.7 MMstb of oil and 9.6 bcf gas as compared to 142.7 MMstb and 9.9 bcf gas respectively on June 30, 2010. OGDCL contributed 22 per cent of country’s total gas production and 56 per cent of its oil production as on June 30, 2011. The report says that an increase in gas price revision of Bobi field with effect from January 01, 2007 and higher sales volume of gas contributed positively towards financial results of the company. However the profitability could have been even higher had there been no impediments faced in the form of adverse financial impact of Rs15.2 billion on company’s sales revenue in respect of revision of Kunnar crude oil price with effect from January 01, 2007. Increase of Rs5.6 billion in amortization of development and production assets due to capitalisation of new wells and reclassification in 1P and 2P reserve evaluation study. However, it observes that OGDCL’s financial and operational performance have also been adversely affected due to slight decline in the production of crude oil and LPG, payments of arrears of security services to Inspector General Frontier Constabulary for Uch, Pirkoh fields and Zin block in Balochistan, higher work over costs at Toot well no 12 and Missakeswal well no 2, higher crude transportation charges at Chanda and Mela fields and idle cost of rigs and engineering field parties due to floods, donations towards flood relief and provision for impairment on development and production assets related to Sara West and Jandran fields.
Five mega projects in the pipeline
About the liquidity and cash flow the report says, that the cash flows from operations of the last year after working capital changes and payment of income tax of Rs29.4 billion and royalty of Rs29.8 billion were Rs67.9 billion, showing an increase of Rs6.4 billion over the last year. After investment and financing activities of Rs37.1 billion and Rs2.5 billion respectively, the company’s cash and cash equivalents increased by Rs33.3 billion with the ending balance of Rs52.1 billion on June 30, 2011. Its trade debts and current liabilities reduced by Rs5.08 billion and Rs13.06 billion and current and quick ratios surged to 6.87 times and 6.22 times respectively. At present the company is maintaining strong liquidity position to meet its commitments towards important development projects. The company is currently working on 5 mega development projects, Sinjhoro and Kunnar Pashaki deep in Sindh, Dakhni expansion in Punjab, Jhal Magsi and Uch II in Balochistan. These projects have a combined estimated capacity of approximately 500 mmcfd of gas, 8,500 barrels of crude oil per day and 525 metric tonnes per day of LPG. The report sites that being an exploration and production company, OGDCL is exposed to various risks that may un-favourably affect its operational and financial performance. The company is exposed to commodity price risk due to volatile international oil prices which could affect the company if international crude oil prices fall below the capped prices.
Risks to OGDCL
The exchange rate, exploration and drilling, security and competitive risks and reserves depletion are identified as major threats but credit risk is identified as the most major threat. The company’s financial instruments that are potentially exposed to concentrations of credit risk consist primarily of trade debts. Significant trade debts are owed by local crude oil refineries and natural gas distribution companies, settlement of such amounts had been delayed due to circular debt. The government has confirmed in writing to OGDCL that circular debt outstanding will be settled in full and steps were being taken to resolve the issue.
