Oil & Gas Development Co posted a NPAT of PKR23.4bn in 1QFY21

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Oil & Gas Development Co. Ltd (OGDC) has posted a NPAT of PKR23.4bn (EPS PKR5.45) for 1QFY21, up 43% qoq but down 14% yoy, beating our estimate of PKR4.60/sh. Like in case of PPL’s 1Q result earlier, the major variance came from higher revenues, in addition to lower exploration expenses. As expected, OGDC announced an interim dividend of PKR2.0/sh.

Key Highlights for 1QFY21:

Net Sales are up 28% qoq to PKR59.5bn (down 10% yoy), against our expectation of PKR53bn which is partly attributed to higher well-head gas prices than assumed (as in case of PPL) where OGDC has evidently booked them close to previous quarter’s levels. Note that well-head gas prices for 1HFY21 are due to be revised by OGRA based on average benchmark crude oil prices of around US$46.85/bbl, but not all fields will be affected. Oil and gas production during the quarter were up 7% and 19% qoq to c.34,000bpd and c.903mmcfd respectively.

Exploration expenses of PKR2.9bn (down 47%) is lower than our expectation of over PKR4.0bn even though OGDC booked three dry wells. Two of the wells were located in Sindh (Lower Indus Basin), which typically entails low drilling costs, and were drilled to moderate depths.

Other income of PKR3.3bn is down 35% qoq (up 16% yoy) because of lower earnings on cash (interest rates) and lack of exchange gains.

Effective tax rate has come in 31% (vs. 34% in 1QFY20) but will likely be normalized in the last quarter of the year (FY20 ETR: 30%).

We have a Buy stance on OGDC with a TP of PKR147/sh (based on average oil prices of US$40/bbl). Note that despite the same issues as affecting PPL (circular debt in particular and declining oil prices) OGDC has maintained payouts (c.40% ratio), while also ramping up both exploratory and development programs. These are in sharp contrast to its close peer PPL. However, given that international oil prices have again come under pressure from the second wave of coronavirus pandemic (Brent presently below US$40/bbl), price discovery in the stock will remain sluggish, in our view.

(Intermarket Securities Limited.)

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