Thursday, April 07, 2011

The Vantage Point OGDC

Oil and Gas Development Company HOLD
Market Price: PKR135.03
P/E: 9.2x

OGDC Trading Data OGDC: Upgraded to ‘Hold’

Market Cap (PKR Billion) 579.4
With its stock price having witnessed a steep fall in 1st quarter CY11
Outstanding Shares (mn) 4,300
(losing 25% in Jan’10) we now upgrade our stance to ‘Hold’ from ‘Sell’
Free Float (%) 15.0%
on OGDC. The stock is currently trading at 6% discount to our target
Average Price YTD 159.9
price of Rs145. However, potential delays in CAPEX plans and circular
High (YTD) 180.7
debt hampering company’s payout capacity still remain key areas of
Low (YTD) 135.0
concern in our view.
Average Daily Volume (000) 660
Weight In KSE-100 Index 19.74% 1HFY11 EPS at Rs7.35, up 11%YoY
Source: KSE & BCPL Research The company reported an after tax profit of Rs31.6bn (EPS Rs7.35), a
growth of 11%YoY. The result was lower than expectation, mainly due
to a high effective tax rate of 44.9 % recorded in 2QFY11. Higher tax
KSE-100 Index Snapshot
rate was mainly attributed to the provision of deferred tax on account of
Index Cap (PKR Billion) 2,934
decommissioning cost which stood around Rs3.3bn in 2QFY11. As per
YOY Change (%) 22.5%
the management, deferred tax on decommissioning cost is likely to
YTD Change 0.7%
keep the tax rate high in the coming few quarters as well. Moreover,
YTD High 12,681.94
circular debt remains a key concern for the company as its trade debts
YTD Low 11,223.52
have now soared Rs107.9bn as of December 2011. Similarly, the initial
Average Volume (mn) YTD 119.75
CAPEX target of US$800mn is also likely to be missed owing to the
Source: KSE & BCPL Research
security situation in the country.

P&L (PRK in million) 1HFY11 1HFY10 ?(%)

Relative Price Performance Net Sales 81,090 72,633 12%

KSE-100 Index OGDC
Royalty 9,297 8,402 11%
100%
80% Operating Expenses 12,792 10,817 18%
60%
40% Exploration & Prospecting Exp 3,536 4,722 -25%
20%
0%
-20%
Transportation Expenses 979 839 17%
Jan-10

Feb-10
Mar-10

Jun-10
Jul-10

Oct-10
Oct-10

Nov-10
Dec-10
Jan-11
Feb-11
Mar-11
May-10

Sep-10
Apr-10

Aug-10

Gen. Admin & Other Exp 867 682 27%

Financial Charges 716 599 20%
Source: KSE & BCPL Research Workers' Profit Participation Fund 2,693 2,391 13%
Other income 960 1,237 -22%
Profit Before Taxation 51,171 45,421 13%
Taxation 19,572 16,928 16%
Profit After Taxation 31,598 28,493 11%
EPS 7.35 6.62 11%
Source: Company Financial & BCPL Research

Burj Cap Research

research@burjcap.com
Contact: 9221 95615861-66 Ext. 541

Burj Capital Pakistan (Private) Limited (Formerly Crosby Market (Private) Limited.)
4th Floor, PRC Towers, M.T Khan Road, Karachi, Pakistan +92-21-35615861-66 research@burjcap.com

Disclaimer: All reports and recommendations have been prepared for your information only. Summary and Analysis are not recommendation to Buy or Sell. This information should only be used by investors who are aware of the risk
inherent in securities trading. The facts, information, data, indicators and charts presented have been obtained from sources believed to be reliable, but their accuracy and completeness cannot be guaranteed. Burj Capital Pakistan (Private)
Limited (Formerly Crosby Market (Private) Limited.) and its employees are not responsible for any loss arising from use of these reports and recommendations.

“The project is expected to lift
OGDC’s production by 3,000-
3,500bpd oil and 25-30mmcfd
gas …”
“OGDC has already drilled 6
wells under the UCH 2
development project …”
Progress on key development plans underway
With regards to its development projects, the management in its recent conference
call highlighted revised timelines for its key development projects like Sinjhoro which
is now expected to be operational by August 2011. The project is expected to lift
OGDC’s production by 3,000-3,500bpd oil and 25-30mmcfd gas. For its KPD/TAY
project, OGDC has already received bids and the evaluation is underway. The
expected completion timeline of the project is September 2012 and the management
anticipates production of 4,400bpd oil and 284mmcfd gas to be added post the
completion.
On Dakhni expansion project (estimated production rise of 720bpd of oil), the
company received the SRU unit last year and all other equipments have been
installed. Completion of the Jhal Magsi project is targeted for March 2012 and is
likely to increase gas production by 15mmcfd. At Qadirpur field, all 14 compressors
have been installed with the field’s raw gas supply ranging between 590-600mmcfd.
Full commissioning of the project is now expected in the coming few weeks.
Furthermore, OGDC has already drilled 6 wells under the UCH 2 development
project and the gas production is likely to reach 410mmcfd. The project is likely to be
completed by May 2012.
Exchangeable bonds issue on the cards
In its latest meeting, the CCoP (Cabinet Committee for Privatization) approved the
exchangeable bonds issue for the company and the Privatization Commission is
currently seeking Expression of Interest from financial advisors. We believe an
exchangeable bond issue rather than convertible bonds bodes well for OGDC’s
investors as the former is nondilutive hence keeping the value intact for existing
shareholders.
Recommendation: upgraded to ‘Hold’
Currently the stock is trading at FY11E PE of 9.2x and offers a potential upside of
6% based on our target price of Rs143, hence we upgrade our stance to ‘Hold’ from
“Sell” on OGDC