Oil & Gas Development Company (OGDC) posted FY18 PAT of PKR78.74bn (EPS: PKR18.31), up 23% yoy. 4QFY18 EPS is PKR5.10, up 9% qoq and 35% yoy, which is higher than local research house estimated EPS of PKR4.64. OGDC also announced a final cash dividend of PKR2.50/sh, in line with market expectations, taking full-year payout to PKR10.0/sh (55% payout ratio).

Major deviation from our 4QFY18 expectation is due to lower than expected Exploration expenses of PKR5.0bn, vs. PKR6.8bn we expected, despite four significant dry wells during the quarter (Surqamar, Khanpur, Daru and Tolanj East). Analyst suspects there could be some reversal in exploration expenses from the past and await clarity on it from the Analyst conference call.

Other Key Highlights in 4Q:

· Net Sales of PKR57bn (up 11% qoq and 27% yoy) is healthy and attributed largely to 4% PKR depreciation and 8% higher oil prices amid flattish trend in production. Slowdown in Tal and Nashpa dragged oil production to 39,500bpd (down 3% qoq) while gas output was flat. LPG production, while flat sequentially, rose 15% yoy owing to commissioning of Nashpa-Mela project in Feb’18.

· Lifting cost of estimated US$7.5/boe in 4QFY18 continued to creep up (US$6.2/boe in 4QFY17), as OGDC draws greater production from high cost areas like Nashpa, has installed several development projects of late, and continues to enhance production from mature fields through workovers etc.

· Other income was also higher than expected which could be attributed to higher exchange gains than we estimated.

· Effective tax rate in 4Q of 32% is high considering OGDC largely escapes Super Tax, being state owned.

OGDC’s FY18 profits, though up 23% yoy, disguise declining trend in oil production where growth mainly emanates from higher oil prices and weaker PKR.