OGDC – Lower than expected earnings; marginally higher payout in FY11

FY11 EPS lags expectations by PKR0.3; slightly higher DPS: OGDCL posted FY11 EPS at PKR14.77, PKR0.3 lower than our expected EPS of PKR15.07. Final dividend of PKR2.5/share was slightly on the higher side (we expected PKR2.0), taking full year payout to PKRE5.5, equaling last year.

Wellhead prices behind revenue growth: Reported volumes came in slightly higher than expected, with oil production rising 2% YoY, whereas as gas rose 4% YoY pushing overall volumes 3.8% to 67.5mnboe. Net selling price was up 16% to USD29.1/boe, on the back of 31% YoY increase in oil wellhead.

Reserves reclassification led to higher amortization cost: Amortization on development and production asset reached PKR12.1bn in FY11 on the back of a hefty PKR7.3bn booked in 4QFY11 alone, on account of reclassification of reserves, which lowered the base used for calculation amortization cost. Amortization cost will likely normalize next year to PKR7.8bn which shall trim operating expenses by 7% YoY in FY12.

Other income spikes in 4Q on rising cash balances: Cash balances continued their upward trend, rising by PKR28.5bn during 4Q to PKR52bn, helped by improved recoveries and PKR15bn received in early May-11 as GoP injected PKR120bn in the energy chain. 4QFY11 other income thus rose 2x QoQ to PKR1.8bn, as opposed to PKR1.5bn in 9MFY11. FY11 other income remained unchanged YoY at PKR3bn.

EPS revision: Factoring in full year results and analyst briefing updates, we have revised down our FY12 EPS estimate by 1%, while raising FY13 EPS estimate by 1%. We maintain our PT at PKR150/share. BUY

FY11 EPS lags expectations by PKR0.3; slightly higher DPS

OGDCL posted FY11 EPS at PKR14.77, PKR0.3 lower than our expected EPS of PKR15.07. Revenues (after adjusting for royalty payments) lagged our estimates by PKR1.3bn, while operating expenses including transportation costs exceeded estimates by PKR0.9bn, leading to PKR2.2bn lower than estimated gross profits. FY11 revenues included net downward adjustment of PKR12.5bn on account of downward revision in oil revenue receipts of Kunnar (PKR15.2bn) and upward revision in gas receipts of Bobi field (PKR2.8bn) which chipped off PKR2.0 from FY11 EPS on after tax basis. Lower gross profits were somewhat offset by higher other income & lower exploration cost.

Wellhead prices behind revenue growth

While reported net revenues were up a mere 9% YoY in FY11, it included impact of prior period revenue adjustment, without which, net revenues would likely have been up 22.5% YoY. Growth in revenues came primarily on the back of growth in wellhead prices which rose 16% YoY to USD29.1/boe for OGDCL, on the back of 31% YoY increase in oil wellhead. Reported volumes came in slightly higher than expected, with oil production rising 2% YoY, whereas as gas rose 4% YoY pushing overall volumes +3.8% to 67.5mnboe.

Reserves reclassification led to higher amortization cost

Amortization of development and production asset reached PKR12.1bn in FY11 on the back of a hefty PKR7.3bn booked in 4QFY11 alone, on account of reclassification of reserves by third party reserves evaluator, which lowered the base used for calculation of amortization cost. Furthermore, OGDCL also booked an impairment of PKR801mn for development and production assets in Sara West and Jandran East. Overall opex/boe (including depreciation, amortization and impairment) rose 31% YoY to USD5.7/boe, whereas cash opex/boe rose 11% YoY to USD2.8/boe. Amortization cost will likely normalize next year to PKR7.8bn which shall trim reported operating expenses by 7% YoY to PKR31bn or USD4.7/boe in FY12.

Other income spikes in 4Q on rising cash balances

Receivables remained well contained in FY11, falling by USD5.1bn during the year, with the entire improvement coming in 4Q which witnessed receivables falling by PKR49bn, helped by improved recoveries. Also, PKR15bn received in early May-11 as GoP injected PKR120bn in the energy chain, was of further help. Lower receivables enabled OGDCL to clear the withheld royalty amount in 4Q to the tune of PKR12.6bn, while it also cleared other payables to the tune of PKR13.1bn. Cash balances, as a result, rose by PKR28.5bn during 4Q to PKR52bn. 4QFY11 other income thus rose 2x QoQ to PKR1.8bn, as opposed to PKR1.5bn in 9MFY11.  FY11 other income remained unchanged YoY at PKR3bn.

Outlook on development projects and EPS revision

OGDCL has maintained expected commencement of KPD/TAY phase I (1,000bpd oil, 100 mmcfd gas) for end Oct-11 whereas Sinjhoro phase I is expected by end Jan-12. However, timeline for KPD/TAY phase II has now been extended from Jan-13 to Aug-13. Incorporating revised timelines and tweaking our projections for detailed accounts we have revised down our FY12 EPS estimate by 1%, while raising FY13 EPS estimate by 1%. We maintain our PT at PKR150/share. BUY

Economic & Political News

Power tariff: Govt plans 14% increase in four phases

The government has planned to increase power tariff by 14% in four phases by levying surcharge on electricity consumers in a bid to generate over PKR100bn to eliminate circular debt which has crossed PKR400bn, according to documents available to The Express Tribune reveal

Gas companies seek tariff increase to finance development schemes

Sui Southern Gas Company (SSGC) and Sui Northern Gas Pipelines Limited (SNGPL) have sought an increase of up to 7% in gas tariffs

Land transfers to Etisalat

The Ministry of Finance has issued a Letter of Comfort to provinces, assuring them of releasing their money immediately after the government gets the remaining USD800mn from Etisalat, said a senior official on Saturday. In 2006, Etisalat signed an agreement to purchase a 26% stake in PTCL for USD2.6bn through Etisalat International Pakistan (EIP), but so far it has paid only USD1.8bn.
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