JCR-VIS Reaffirms Entity Ratings of Oil and Gas Development Company Limited at AAA

Karachi, February 28, 2013 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the medium to long-term entity rating of Oil and Gas Development Company Limited (OGDCL) at ‘AAA’ (Triple A) and short-term entity rating at ‘A-1+’ (A One Plus). Outlook on the assigned rating is ‘Stable’.

Assigned ratings take into account shareholding structure of the company, with around three-fourth shares held by the Government of Pakistan (GoP). Being the largest petroleum Exploration and Production (E and P) company, OGDCL holds strategic importance in the oil and gas sector of the country.

Financial performance of the company has remained robust given low business risk emanating from assured product off-take as Pakistan’s energy requirements are in excess of local production; meanwhile consistently high international prices of fossil fuel have also contributed positively to the company’s financial health.

Higher realized prices of crude oil and gas, main revenue generating products of the company, improved the margins of the company during FY12. Equity base of the company continues to expand on account of profit retention.

Investment in the IT infrastructure is expected to benefit business operations of the company. Going forward, production of petroleum products is projected to increase, which is dependent on timely completion of on-going development projects. Meanwhile, security concerns continue to impede E and P activities in certain blocks.

While the liquidity issues in the energy sector raise concerns as regards the timely receipt of receivables, so far the company has been able to manage its cash flows without having the need to access bank borrowings. Trade receivables escalated significantly in FY12. In order to partially settle overdue payments, Government of Pakistan (GoP) floated a Privately Placed Term Finance Certificate (PPTFC) during 1QFY13 for a period of seven years.

PPTFC was fully subscribed by OGDCL and the proceeds were utilized by the GoP to settle the trade debts of OGDCL. Investment in PPTFC was a cash neutral transaction for OGDCL; however counterparty credit risk has been transferred from oil refineries and gas companies to the GoP.

For more information, contact:
Mr. Javed Callea
Advisor
JCR-VIS Credit Rating Company Limited
Tel: +9221 35311861 (10 lines) (Ext: 501)
Fax: +9221 35311872-3
E mail: javed.callea@jcrvis.com.pk

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