OGDC – Further project delays due to floods

Floods effecting E&P operations: The recent floods in Sindh have affected drilling operations at various sites, while also affecting the pace of development projects. Latest PPIS drilling activity report shows suspension of drilling on three well sites while work on OGDCL’s Sinjhoro development project has also been affected.

Sinjhoro phase I & II pushed back by 4-8 months; KPD TAY also face risk: OGDCL has indicated that Sinjhoro development project phase I will now be completed in April-12 (previous Jan-12) while phase II is pushed back by 8 months to Dec-12 (previous April-12). While OGDCL has maintained end Oct-11 timeline for KPD-TAY phase I, TAY district has also been hit by floods, which could lead to more delays. Commencement of Kandanwari-27 has also been delayed by two months to Dec-11.

Disappointing flows from Mela-03: OGDCL has officially communicated flows from, Mela-03 at 460bpd oil and 1.5mmcfd gas, much lower than the average of 2,500bpd oil and 6.5mmcfd gas from Mela-01 and Mela-02.

EPS revision: Factoring in revised project timelines, we cut our FY12-14 EPS estimates by 3%, while maintaining our PT at PKR150/share. OGDCL trades at an attractive FY12 PER 7.2x, while offering FY12-14 volume CAGR of 9% and EPS CAGR of 19%. BUY

Floods effecting E&P operations

The recent floods in Sindh have affected drilling operations at various sites, while also affecting the pace of development projects. Latest PPIS drilling activity reports shows suspension of drilling on three well sites – two exploratory – including Kakejani-01 operated by BP and Gulsher-01 operated by OGDCL – and one development – Dhodak Deep-02 operated by OGDCL. Work on OGDCL’s Sinjhoro development project has also been affected and is subjected to delays while timeline of KPD/TAY project could also face risk, with TAY (Tando Allahyar) being amongst the affected districts of Sindh.

Sinjhoro phase I & II pushed back by 4-8 months; KPD TAY also face risk

OGDCL has indicated that Sinjhoro development project phase I (1,400 bpd oil, 15 mmcfd gas, 50 tpd LPG, 2.9%/1.1% of FY11 oil / gas production) will now be completed in April-12, four months after the original timeline of Jan-12, while phase II (1,600 bpd oil, 10 mmcfd gas, 70 tpd LPG, 3.3%/0.7% of FY11 oil / gas production) is pushed back by 8 months to Dec-12 (previous April-12). OGDCL has maintained end Oct-11 timeline for KPD-TAY phase I (1,000 bpd oil, 100 mmcfd gas, 2.7%/10% of FY11 oil / gas production). However, with TAY district having also been hit by floods, we would not rule out a 3-6 months delay on KPD-TAY phase I as well. Commencement of Kandanwari-27 (40 mmcfd gas) has also been delayed by two months to Dec-11.

Disappointing flows from Mela-03

OGDCL has officially communicated flows from, Mela-03 at 460bpd oil and 1.5mmcfd gas, much lower than the average of 2,500bpd oil and 6.5mmcfd gas from Mela-01 and Mela-02. This is quite disappointing as we originally expected Mela-03 flows to match those of Mela-01 and Mela-02. This could also hurt investor sentiments regarding expected flows from Nashpa-02 and Nashpa-03, which are located in Nahspa field – adjacent to Mela. We have however assumed a conservative flow rate of 4,000 bpd oil and 13 mmcfd gas from Nashpa-02 and Nashpa-03, 33% lower than Nashpa-01 (6,000 bpd oil and 21 mmcfd gas).

Economic & Political News

Inflationary pressure: Petrol, CNG prices likely to rise by PKR4

The government is expected to hike petrol price by PKR4.15/litre and compressed natural gas (CNG) price by PKR4/Kg from October 1 following due to adjustment in petroleum levy, rise in global oil prices and depreciation of the rupee against the dollar. Meanwhile, price of the most used fuel, high speed diesel (HSD) may decline while light diesel oil (LDO) and kerosene oil rate are expected to be kept unchanged.

Indus Motor increases prices of all vehicles

In an expected move to counter the rupee depreciation, the Indus Motor Company, on Thursday, raised the prices of its locally assembled cars and light commercial vehicles LCVs by almost 24%. Indus Motor Company has increased the prices of all of its variant models by PKR30,000 to PKR50,000 with effect from 29 September 2011
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