The Bell about Oil & Gas – Elixir Securities Limited

Karachi: OGDC – Downgrade to Neutral on strong price performance

According to Elixir Securities Limited,


OGDCL Outstanding Shares: 4,301mn
Sales – net  39,452 44,686  13% 33,365 34%
Royalty  4,523 5,115 13% 3,271  56%
Operating expenses 6,355  7,230 14% 12,791 -43%
Transportation charges  397  436  10% 795  -45%
Gross profit 28,176  31,905 13%  16,507   93%
Other income  607  2,304 280% 1,785 29%
Exploration and Prosp. Exp 2,532 665 -74% 2,416 -72%
General and Admin. Expenses 508 418 -18% 1,059 -61%
Finance cost 355 407 15% 394 4%
Workers’ profit participation fund 1,270 1,637 29%  722 127%
Share of profit in associate 20 17 -17% 18 -9%
Profit before taxation 24,137 31,098 29% 13,719 127%
Taxation 7,428 9,183 24% (623) -1574%
Profit for the year  16,710 21,915  31% 14,342 53%
EPS (PKR)  3.89 5.10  31%   3.33  53%
DPS (PKR) 1.50 1.50 0% 2.50 -40%
Source: Elixir Research


Stellar 1QFY12 EPS led to a strong rally; downgraded to Neutral

OGDCL’s 1QFY12 EPS at PKR5.1, up 31% YoY, was ahead of market estimates due to sharp rise in other income and lower exploration costs. 1QFY12 EPS forms 27% of Elixir Securities Limited’s full year estimates. The company also announced a DPS of PKR1.5 with 1Q results. The scrip posted a strong price performance, rising 16.5% since result announcement, against 5.1% appreciation in KSE‐100. With OGDCL now trading 3% higher than Elixir Securities Limited’s Jun‐12 PT of PKR150/share, Elixir Securities Limited downgrades Elixir Securities Limited’s rating to Neutral.

Net sales up 13% YoY on higher oil revenues

Net sales for OGDCL rose 13% YoY mainly on the back of 41% YoY growth in oil revenues while gas revenues edged up only marginally by 4%. Growth in oil revenues was driven by higher Arab Light prices, which averaged USD109/bbl in 1QFY12, 49% higher than USD74/bbl during 1QFY11. As a result, net oil wellhead for OGDCL rose from USD60/bbl in 1QFY11 to USD83/bbl in 1QFY12. Oil production during 1QFY12 was almost unchanged on YoY basis.

Stellar 1QFY12 EPS driven by strong other income

OGDCL posted highest ever quarterly other income during 1QFY12 at PKR2.3bn, on the back of highest ever cash balances and exchange gain. Elixir Securities Limited remains conservative on Elixir Securities Limited’s other income forecast for the remainder FY12 as 1QFY12 other income forms 31% of Elixir Securities Limited’s full year estimates. Cash holdings increased by PKR3.1bn during 1QFY12 to PKR58.7bn. While receivables rose by PKR15.3bn during the quarter, it was partly offset by PKR9.0bn rise in payables due to increase in outstanding tax payments. Net cash flows from operations stood at PKR15.3bn during 1QFY12.

Lower than normal exploration cost

1QFY12 exploration cost was down 74% YoY due to absence of any dry wells in 1QFY12. Seismic acquisition also fell from 4QFY11 levels to 376line km of 2D seismic and 191 sq km of 3D seismic, though seismic acquisition was higher on YoY basis. Elixir Securities Limited’s estimates factor in higher exploration costs for the subsequent quarters as 1QFY12 exploration cost forms a mere 8% of Elixir Securities Limited’s full year estimates.

Development projects pushed back further

OGDCL has extended the timelines of most of the development projects by 2‐3 months. Sinjhoro phase‐1 is now expected to be completed by Jun‐12 (previous April‐12), KPD‐TAY phase II by Dec‐13 (previous Sep‐13) and Dakhni Expansion by Feb‐12 (previous Dec‐ 11). However, KPD‐TAY has been completed on time and is ready to supply 100 mmcfd gas and 1,000 bpd oil, and is awaiting completion of gas pipelines on SSGC’s end. Gas sale from the KPD‐TAY phase I is expected to commence in Dec‐11.

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