Oil and Gas Development Company Limited (OGDC) Earnings Call Transcript & Summary

Good day, and welcome to the OGDCL Full year FY 2020-2021 Financial Results Conference Call. Today's conference is being recorded. At this time, I'd like to turn the conference over to Mr. Shahid Salim Khan. Please go ahead, sir.

Hi. This is Shahid Salim Khan, MD, CEO. Ladies and gentlemen, I welcome you all to OGDC's full year fiscal year 2020-'21 financial results announcement conference call. I understand that our Investor Relations team has already sent you a presentation on OGDCL's full year results of 2021 presentation. Let's start on Page 2 of the presentation, where I'll ask you to go over the legal disclaimer first. I will take a short pause while you read the legal disclaimer. Ladies and gentlemen, I am pleased to report OGDCL's operational and financial performance during the financial year 2020-'21. OGDCL being the largest upstream player in Pakistan enjoys the largest share of exploration acreage in the country, which stands at 43% of the total awarded acreage. As of June 30, 2021, OGDC held 43% of the country's recoverable oil reserves and 36% of the country's recoverable gas reserves. In terms of production, currently, OGDCL delivers 29% of Pakistan's gas output and 48% of its oil output. Our remaining 2P recoverable reserves estimates, as of June 30, '21, stood at impressive 705 million barrel of oil equivalent. OGDCL has a portfolio of 111 development and production leases, which are basically D&P leases. Out of which, 77 D&PL leases are 100% owned and operated, while 34 are non-operated D&P leases, where we act as non-operators having joint venture agreements with foreign as well as local E&P companies. OGDCL operations are spread out all over the country. During the fiscal year from July 2020 to June '21, OGDCL reported average daily net crude oil gas & LPG production of 36,892 barrels, 870 million standard cubic feet of gas and 803 metric ton per day of LPG. This year -- rather last year, OGDCL spud 20 wells, comprising of 10 exploratory, 8 and 1 re-entry well and 1 side track well and has also made 6 new hydrocarbon discoveries during the year. Moving on to Slide #4. You can see a map, which clearly shows OGDCL's dominant position in all the prospective areas of Pakistan. OGDCL holds a diverse portfolio of exploratory assets, currently constituting 50 owned and operated joint venture exploration licenses, along with holding working interest in 8 blocks operated by other exploration and production companies. Also included 11 new exploration blocks awarded to OGDCL, 10 as an operator and one as a non-operator on account of participation in the competitive bidding round for exploration boards held by Government of Pakistan. These exploratory licenses are spread across all 4 provinces of the country and representing the largest exploration acreage held by any E&P company in Pakistan. To carry on with the presentation, I will now ask Mr. Anas Farook, our CFO, and other head of departments to take you through the next few slides of this presentation.

Good morning, good evening or good afternoon, ladies and gents, as to wherever you are. This is Anas Farook, the Chief Financial Officer of OGDCL. Let me -- if you can switch on to Slide #5. OGDCL during the year ended June 30, 2021, registered sales revenue of PKR 239 billion as compared to PKR 232.9 billion last year. Higher sales were primarily attributable to increase in average realized prices of gas and LPG to PKR 383.88 million scfs as compared to PKR 356.82 million scfs and PKR 66,345 per ton for LPG as compared to PKR 63,997 per ton for last year. Moreover, enhancement in crude oil and LPG production, coupled with a rise in exchange rate to 106 -- to the average exchange rate of PKR 160.6 as compared to PKR 158.32 last year, lent strength to the financial statements. However, lower average crude oil realized prices of $46.67 per barrel as compared to $46.76 barrels -- per barrel negatively influenced the financial statements. Operating profit margin and net profit margin were 45% and [ 35% ], respectively, with EPS of PKR 21.28. In addition, the Directors of the company have announced a final cash dividend of PKR 1.50 per share for financial year 2021, which brings our overall dividend at PKR 6.9 per share for the year. I would now hand over the presentation to Iqbal Khosa, who is our General Manager, Exploration to continue with this presentation.

Okay. Ladies and gents, this is Iqbal Khosa, GM, exploration. I will be taking you to Slide 6. OGDCL, being the market leader in E&P sector of Pakistan, holds the largest exploration acreage, which as of June 30, 2021 stood at 91,795 square kilometer, representing 43% of country's total area under exploration. Business exploration portfolio currently comprises 50 owned and operated joint venture exploration licenses. Additionally, the company possesses working interest in 8 blocks operated by other E&P companies. The company was awarded 11 new exploration blocks, 10 and 1 non -operated during the year 2021. In order to enhance oil and gas reserves, OGDCL during the year under review acquired 2,539 linear kilometer of 2D seismic data and 600 square kilometer of 3D seismic data in comparison to 3,407 senior kilometer of 2D seismic data in the last year. Acquired seismic data represents 79% and 69% of total 2D and 3D seismic data acquisition in the entire country, respectively. On the drilling front, OGDCL spud 20 wells, including 10 exploratory appraisal wells, 8 development wells and 2 re-entry side track wells. Moreover, drilling and testing of 11 wells pertaining to previous fiscal years were also completed. During the reporting period, OGDCL's exploratory efforts to locate new reserves yielded 6 oil and gas discoveries, namely Togh Bala-1, Siab-1, Samanasuk reservoir and Siab-1, Hangu/Lumshiwal reservoir in in district Kohat, Khyber Pakhtunkhwa province, Lakhi Rud X1 in district Musa Khel and Jandran X-4 in district Barkhan, Balochistan province and Sial1 in district Hyderabad, Sindh province having expected formulative daily production potential of 26 million standard cubic feet of gas and 850 barrels of oil. Now Mr. Abdul Rashid Wattoo, GM, Production will take you through the next couple of slides.

Hello, everyone. This is Abdul Rashid Wattoo, and I'm General Manager of Production department. Let's move on to Slide #7. OGDCL, during the year under review, injected 12 operator wells in the production gathering system. These injected wells include Mela-7, Pasakhi-11, Pasakhi Deep-6, Pasakhi West Deep-2, Saand-1 & 2, Tando Allah Yar South West-1, Umair-1, Mangrio-1, Togh Bala-1, Nashpa-10 and Qadirpur-62, which cumulatively yielded gross crude oil and gas production of 584,808 barrels and 12,092 MMcf gas, respectively. In an effort to arrest natural decline and sustained production from mature wells, OGDCL during the reporting period carried out 72 workover jobs, comprising 16 with rig and 56 rig-less. Overall, company's production during the FY 2020 and '21 contributed around 48%, 29% and 37% towards country's currently total oil, natural gas and LPG production, respectively. [Technical Difficulty] Slide #8, where latest status on our various development projects is given. Nashpa compression project, this project has been completed, resulting in incremental daily production of 1,600 barrels of oil and NGL, 6 MMcf of gas and 20 tons of LPG. Qadirpur compression projects, compression has been delivered at project site while the installation work is currently underway. Maru-Reti project, compressor has been delivered at project site while hiring of PC contractor for installation is in progress. Dakhni project, conceptual study of this project have been completed while basic/front end engineering design work and regression of tender documents for hiring of EPCC contractor are in progress. Uch compression project, revised consumption strategy, basic/front engineering design work and preparation of tender documents for hiring of EPCC contract are in progress. Now I ask Mr. Anas Farook, our CFO, to continue with this presentation, please. Thank you.

Ladies and gentlemen, moving on to Slide #9. You would see a slight increase of 3% on our net sales, despite the adverse impact of COVID-19 on the oil and gas sector. OGDCL during the year June 30, 2021, posted an improved sales revenue of PKR 239 billion as compared to PKR 232.9 billion last year, which is 3% higher this year. Higher sales are primarily attributable to increase in average realized prices of gas and LPG, which the LPG -- the gas prices moved up to PKR 383.88 per million scf as compared to PKR 356.82 per million scf -- per cubic feet, sorry, and PKR 66,345 per ton as compared to PKR 63,997 per ton, respectively. Moreover, enhancement in crude oil and LPG production, coupled with rise in average exchange rate to PKR 160 per U.S. dollar as compared to PKR 158.32 per U.S. dollar lent strength to the financials. Our lower average crude oil realized prices of $46.67 per barrel as compared to $46.76 per barrel negatively influenced the financials. Our operating expenses were slightly higher by 7%, primarily as Mr. Wattoo mentioned, they were due to the increased workover jobs where we did 16 wells as compared to 6 wells last year. We also had a slightly increased amortization and development costs because we had our 3-year review of reserves. Our repairs and maintenance costs were slightly higher because of some control systems, which we issued to our Uch plants and repairs to our various turbo compressors and cat engines at Sinjhoro and Nashpa. Some other reasons also included pipeline repair costs at Juna, Tando Alam, Nashpa and Mela and replacement of molecular sieves at the KPD and Sinjhoro plants. The decrease in exploration and -- prospecting and exploration expenditure of approximately 5%. Although we did the same number, we had the same number of dry wells, 8 in 2020-'21 as compared to last year, 2019-'20. But the cost of the dry wells is slightly lower as compared to last year because we had some high-value wells last year, which included Soghri X-3 for PKR 2.8 billion, Shawa X-1 costing PKR 1.8 billion, whereas in the current year, we had Washuk of PKR 2.8 billion and the [ March ] costing PKR 1.1 billion. Profit after tax decreased by 20%, mainly due to decrease in petroleum prices and the volumes. The net profit after tax, in addition to the above OGDCL's profitability during the year-end review, was impacted by reduction in other income on account of exchange loss and decline in interest income. Turning on to Slide 10, which shows the key performance indicators of the company. I will hand over the presentation back to our MD, CEO.

Thank you, Anas. OGDCL's management is fully focused on achieving consistent growth in production volumes of the company. OGDC is also fully committed to ensure the speedy development of our projects in the pipeline. We plan to achieve the production and reserves growth through implementing international best practices across all our operations. This, ladies and gentlemen, conclude our presentation for today. And I thank you all for joining in the conference call. We now ask the operator to conduct a Q&A session, which we expect to be not more than 15 to 20 minutes duration.

[Operator Instructions] We will take our first question from Asim Khatri from NBP Funds.

[Foreign Language] My first question is that with regard to the fourth quarter, your realized oil prices are much lower than been observed in previous quarters. So I think there's a gap of almost 25% discount, which is not seen in previous quarter to -- please specify the reason. And my second question is, can you please shed some light on the Abu Dhabi block that OGDC with the other companies got recently? Can you -- in terms of the reserves are looking for the pricing, the CapEx that you are looking for and some more details, please.

Okay. I'll take that question. My name is Anas Farook. I'll answer your second question first regarding Abu Dhabi, the ADNOC bid. We, as a consortium of the companies, Mari Petroleum, Government Holdings, GHPL and PPL which is the operator was awarded an offshore block-5 in Abu Dhabi, which was the second competitive round of bidding by Abu Dhabi in the recent 3 or 4 years. This block covers an area of approximately 6,223 square kilometers, and is located approximately 100 kilometers northeast of Abu Dhabi. Each of the consortium partners holds 25% share in the entity -- in the new entity, which is Pakistan International Oil Limited and is at the Abu Dhabi Global Market. The exploration concession agreement was signed on August 31, 2021. The minimum commitment of the concession of the all 4 partners is approximately $304 million during the exploration phase. We have also provided joint and several guarantees to the -- of the parent companies to the Abu Dhabi Supreme Council for Financial and Economic Affairs to guarantee the obligation of Pakistan International Oil Limited. Does that answer your second question?

Can you further elaborate on it, what sort of reserves are you looking at and what is the total exploration program, in a number of years, how this $3 million or $4 million that you are going to spend, how long is it going to take? And I'm assuming that this block will have undergone the study. Seismic studies will have been carried out on this block. So what are the prospects like because I'm hearing -- what I'm hearing is that the prospective area surrounding this block is highly prospective? Anything that you can share on this front about the prospects of this block going forward?

To be very honest, we are bound by a confidentiality agreement on -- with ADNOC and the Supreme Council. And the specific information which you've requested, we will not be able to share it in such detail. But what we can do is whatever we can share, we will share it via e-mail with you on this. The -- a little bit on this particular thing is that as the exploration licenses and the development licenses are for approximately 30 years, and we intend to get going on this. As you would have seen the ECC has approved it, and we have gotten approval from the ECC of approximately $400 million on this for an exploration program which lasts around 9 to 10 years. Our minimum commitment, as we mentioned, to ADNOC is $304.7 million during the exploration phase. As far as prospects go, obviously, we have done our homework on the prospects and we have reviewed all the information, which was provided to us by ADNOC. And we are very, very confident that we will be able to add a good number of barrels to our operating portfolio. And obviously, this being the first such consortium which has gone outside of Pakistan and a very lucrative and a very rich hydrocarbon area reserve, we feel very comfortable that we will be able to make good on our investments.

Okay. Can you just hopefully mention that when you are planning the first exploratory well in this block?

As I said, it's too early to basically say that right now, because we've just signed the contract on August 31. As I said, we have a set exploration program. We are now finally getting our 3D seismic reports finalized with the reviews, and we will be -- based on those seismic results, we would be looking at approximately maybe a couple of years or something like that.

Can you just respond to the second -- the first question actually, that was regarding...

Can you repeat that question for me, please because I got a bit lost in that?

In the quarter, your realized oil prices are much lower than seen in the previous quarters. That is in the fourth quarter, it is coming around 5%, which is much larger than the previous quarters. Can you please specify the reason?

Okay. So our realized prices for each quarter are -- for the first 2 quarters, it was approximately $38 per barrel. Is that what you have? And we saw a slight dip in the fourth quarter from -- hello. Can you hear me? The first 2 quarters of 2020-'21, we had our realized prices at around $38, $39 per barrel. And we had -- the third quarter was approximately $52. And although the fourth quarter was slightly higher, actually. But we -- in our prices, we looked at -- we were -- basically, we have looked at our position as far as yield analysis of our oil. And we had discussions going on with NRL for some time one of the refineries. And we have eventually agreed to basically -- based on the COSA to apply the yield analysis, which were the latest one. So we had some adjustments to our revenue based on those yield analysis. That's why you would see our realized price, which is lower for the fourth quarter.

This adjustment was taken on account of the previous 3 quarters also, or this pertained to the fourth quarter?

No. This is [ of ] our prior years before the yield analysis was finalized. So it could be not only for the first 3 quarters, but it is for some -- for the previous past 2, 3 years also.

Okay. So this yield quality differential is going to continue in the future also?

No, this is a one-off prior period adjustment. It will not affect in the future, [ please ].

Okay. Sure.

[Operator Instructions] We have no further questions at this time. I would like to turn the conference back to your hosts for any additional or closing remarks.

Okay. If there are no further questions, I take this opportunity to thank you and other participants for joining us in this conference.

And that concludes today's presentation. Thank you for your participation. You may now disconnect.