KARACHI – Oil production of the Oil and Gas Development Company (OGDC) is forecast to decline at an average rate of two percent annually from 13.34 million barrels in Financial Year 2010 to 13.10 million barrels in Financial Year 2014.
The drop in production is mainly expected as the reserves of major oil fields such as Chanda and Dakhni are depleting at a rapid pace.
However, gas production is projected to register an increase at the three-year compound annual growth rate (CAGR) of four percent during the same period. Gas production is expected to rise to 1,116 MMCFD of gas from 970 MMCFD observed in FY10. This predicted rise is attributed to boosts in production at Mamikhel, Kunar, Uch and Qadirpur gas fields.
Qadirpur gas production has recorded growth of 51 percent to 530 MMCFD in November 2010 from a previous low of 343 MMCFD in September 2010, due to the commissioning of 14 newly installed compressors. OGDC has also revealed that it plans to develop three more fields at Qadirpur; this may bode well for Engro’s new urea plant as well.
Prodction at Dhodak field has depleted, so its plants and ancillary equipment are being shifted to Sanjaro field, this is expected to augment production from Sanjhoro Field by about 30 MMCFD of gas and 100 BOPDL. Moreover bids for KPD-TAY have been received but contracts are yet to be awarded after technical evaluations. The KPD-TAY project is estimated to contribute 4,400 BOPD and 285 MMCFD of gas.
On the other hand, gas prices are expected to register an increase of between eight percent and ten percent in the first half of FY12. In addition, oil prices are also anticipated to rise in the same period, due to the unique gas pricing structure, gas prices will remain high in the second half of the year.
It is to be noted that the company’s cash position is depreciating owing to the persistent circular debt issue prevailing in the energy chain for the last few years. This is due to higher trade debts which have ballooned to Rs 96 billion in direct contrast to Rs 24 billion in FY05.
Consequently, the company trimmed its dividend payout ratio from 85 percent in FY05 to 40 percent in FY10. It is feared that if the government does not settle the crippling debt crisis, then it may emerge as a major barrier to the company’s vigorous exploration activities and dividend may fall further.
With the current price level at Rs 171.3 per share, the stock of OGDC is trading at a premium of 17.2 percent to our target price, said Shahbaz Ashraf at Arif Habib.
