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

Good day, and welcome to the Oil and Gas Development Company Limited Half Year Financial year 2022 to 2023 financial results, July 2022 to December 2022 Conference Call. Please note this call is being recorded. [Operator Instructions] I will now hand the call over to Mr. Salim. Please go ahead.

Yes. Good afternoon. This is Muhammad Amir Salim. I'm the Executive Director for Petroserv and officiating the Office of Managing Director, CEO. I welcome all of you to the OGDCL's half yearly fiscal year 2022, '23 Financial Results Announcement Conference Call. Along with me, there is an executive team joining this call. I understand that our Investor Relations team has already sent you the presentation on OGDCL's half yearly results '22-'23. So 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. Okay. So ladies and gentlemen, I'm pleased to report OGDCL's operational and financial performance during the half year '22-'23. OGDCL being the largest upstream player in the Pakistan enjoys the largest share of exploration acreage in the country, which stands at 40% of the total awarded acreage. As of June 30th, 2022, OGDCL held 33% of country's recoverable oil reserves and 34% of the country's recoverable gas reserves. In terms of production, currently, OGDCL delivers 29% of Pakistan's gas output and 46% of its oil output. Our remaining 2P recoverable reserves estimates as of -- as at December 31, 2022, stood at an impressive 759 MMBOE. Our portfolio -- OGDCL has a portfolio of 111 development and production leases, out of which 77 development and production leases are 100% owned and operated, while 34 are nonoperated D&P leases, where we act as nonoperators, having joint venture agreements with foreign as well as local E&P companies. Our operations are spread all over Pakistan. During the fiscal year from July '22 to December '22, OGDCL reported average daily net crude oil, gas and LPG production of 33,061 barrels, 772 MMcfd and 730 metric tons per day, respectively. We spud 4 wells, comprising 3 exploratory wells and 1 development well and also made 3 new hydrocarbon discoveries. So moving on to Slide #4, please. You can see a map which clearly shows our dominant position in all the prospective areas of Pakistan. OGDCL holds a diverse portfolio of exploratory assets currently constituting 49 owned and operated joint venture exploration licenses along with holding work interest in 9 blocks operated by other exploration and production companies. Subsequent to the half year, 2 new blocks were also awarded by the company's nonoperated. These exploratory licenses are spread across all provinces of country -- all 4 provinces of country and representing the largest exploration acreage held by any E&P company in Pakistan. Now to carry on with the presentation, I will request Mr. Anas Farook, our Chief Financial Officer, and other Head of Directorates to take you through the next few slides of this presentation.

Good evening, ladies and gentlemen. My name is Anas Farook, and I am the CFO of OGDCL. If you turn to Slide 5, it gives you a brief outline of what results were for this first half of the -- of our year. We recorded improved sales where our sales went up to PKR 203 billion as compared to PKR 151 billion last year in the same half. These sales are primarily attributable to the increased realized prices of crude, which averaged at approximately $79 per barrel as compared to $63 per barrel. The company also recorded increase in the realized prices of gas and LPG at -- gas was sold at approximately PKR 570 per million cubic feet as compared to PKR 404 in the last half year, and LPG was approximately PKR 140,000 per ton as compared to PKR 113,000 per ton last year. Further, we also saw an increase in the average exchange rate, which lends tends to our financials. The average exchange rate went up from PKR 169.98 to PKR 223.85 in the current year. The operating profit margins and the net profit margins were 59% and 47%, respectively. And our EPS for the half year stands at PKR 22.09. In addition, the Board of Directors in the meeting today have approved a second interim cash dividend of PKR 2.25 per share. Earlier, we had given a dividend of PKR 1.75 in the first quarter. I will now hand over the presentation to Mr. Farrukh Saghir, who is the Head of Exploration at OGDCL, to continue.

Good day, ladies and gentlemen. This is Farrukh Saghir, I'm the Head of Directorate of Exploration. And I will be taking you through Slide #6. OGDCL being the market leader in the E&P sector of Pakistan, owns the largest exploration acreage and portfolio. During the reporting period, its exploration acreages increased to 89,459 square kilometers compared to the last June of 87,290 square kilometers. Owing to a grant of new exploration license, Chah Bali, which is over this year, representing the 40% of country total area exploration under activities. Exploration portfolio comprises of 49 owned and operated joint ventures, exploration licenses. Additionally, the company possesses working interest in 9 exploration blocks operated by other E&P companies as at December 31, 2022. In an effort to discover oil and gas reserves, OGDCL acquired 626 line kilometers of 2D seismic data compared to the last year of 652 line kilometers and 221 square 3D kilometer data, representing 56% and 31% of 2D and 3D seismic data acquisition in the country, respectively. Moreover, the company using in-house resource process and reprocessed of 1,393 line kilometer of 2D data and 360 square kilometer of 3D data was processed. Additionally, 186 line kilometer of geological field work was carried out in [ Missan-01 ] exploration license. On the drilling front, OGDC spud 4 wells compared to the 6 wells last year, including 3 exploratory wells Siab, [indiscernible], Chak-20-1 and Gaja Wah-1 and one development well, Chanda -07, were spudded. Moreover, the drilling and testing of 6 wells pertaining to previous fiscal years was also completed. However, 2 planned wells, [ Bobi-11 and Bobi-D1 ] could not be spud due to the gas oozing issue at the drilling site. Total drilling recorded during the 6 months was 17,249 meters. OGDCL exploratory efforts to look at new reserves during the period under review yielded 3 oil and gas discovery, having an expected cumulative daily production potential of 3,007 barrels of oil and 2.7 million of gas, respectively. Discoveries including 2 deep in Attock province, Punjab, Chak Dim at South-3 and Kot Nawab-1 in district Sanghar, Sindh provinces. That is the update from the exploration. Now I would like Mr. Ameen Aftab to take you forward through the production site [indiscernible]. Thank you.

Good afternoon, everyone. This is Ameen Aftab and I am the Head of Production [indiscernible]. Let's move on to Slide #10. OGDCL production during the period under review contributed around 46%, 29% and 37% towards country's total oil, natural gas and LPG production, respectively. The average daily net scalable crude oil, gas and LPG production crossed in at 33,061 barrels and 772 million cubic feet and 730 tons in comparison to 36,788 barrels, 827 million cubic feet and 814 tons in the comparative period, respectively. The decline in hydrocarbon was partially mitigated by injection of who operated wells in the production gathering system with Lala Jamali-2 and Chak-5 Dim South-3, which cumulatively geared gross crude and gas production of 49,436 barrel and 791 million cubic feet, respectively. During the period under review, production output was impacted due to natural decline at KPD-TAY, Bobi, Chanda, Mela, TOC, and Nashpa fields combined with forced production curtailment owing to torrential rains, floods at Palli, Mangrio and KPD-TAY fields resulting in daily production loss of 810 barrels of crude oil, 35 million cubic feet of gas and 22 metric ton of LPG. Likewise, lower gas production was observed due to less gas intake by UPL from Uch field due to technical issues at Uch power plant as well as on account of [indiscernible] incident at 26-inch gas pipeline, Uch field to UPL plant. The reduction in production from and JV fields also contributed during -- also contributed towards lower hydrocarbon outflows. In an effort to arrest natural decline and sustained production from mature well OGDCL during the period under review carried out 34 work over jobs comprising 6 rigs and 28 rig-less. Moreover, to induce improvement in the current well flow parameters, pressure buildup, survey jobs were completed at various wells of Uch, Qadirpur, Maru-Reti, and Kunnar fields. Additionally, electrical submersible pumps were installed at Pasakhi North-3 and [indiscernible] resulting in incremental oil productions of 2,000 barrels per day. Going over to Slide #8, where latest status on our various development projects is given. Dakhni compression, the economic feasibility of the project is under review. KPD-TAY compression, LOI has been issued to the [n PC & EPCC ] contractors. Uch compression tending process for hiring of the EPCC contractors has been completed. I now ask Mr. Anas Farook, our CFO, to continue with presentation.

Again, ladies and gentlemen, just to give you a snapshot, you would see a graph, which basically shows that our sales have gone up by approximately 34%. As I mentioned earlier, that's primarily a result of better crude prices and a better exchange rate, which partially offsets our reduction in production, which we are trying to basically curtail. Our operating expenses have gone up by approximately 14%. They are primarily on account of some one-off expenses, which have shown up in the current year, which primarily includes some professional services which we took for our Reko Diq project. As you would be aware that we have signed that project on 15th of December. Further, we did some other technical studies, et cetera, which set us a bit back on contract services. We also have a one-off claim on our expenses on the Tal block where MOL ooze operator suffered a fire incident, and we took our share of our expenses on that, which is approximately PKR 1 billion. And our repairs and maintenance also is slightly up primarily, which is a direct result of the inflation which we are seeing in the market, where we take services from outside vendors. The other thing which is exploration prospecting expenditure that has actually gone down by 4%, although we had 2 dry wells, both in the first half of this year and in the previous year, but the expenditure incurred on those dry wells was slightly lower as compared to the previous year, which basically resulted in a lesser exploration and prospecting expenditure. Overall, our profit after tax increased by 38%, which is substantial, and we could attribute it definitely to better petroleum price and exchange rate. If you turn on to the next slide, you would see the basic financial indicators of the year of the first half. You will see that we have done better in almost all indicators, as I said, and the reasons I've already explained. The dividends are also better in that respect. And we are looking at achieving basically results which the largest oil and gas company should for the current year -- for the rest of the year. I'll now hand over the presentation back to our MD, CEO, who will make his closing remarks.

Thank you very much, Anas. So we remain focused on consistently giving the growth and achieving our production volumes, and we have the full commitment for speedy development of our projects which are in the pipeline. We also plan to achieve the production and reserve growth through implementing various international best practices across all our operations. This, ladies and gentlemen, concludes our presentation for today, and I would like to thank all of you for joining the conference call. We will now request the operator to conduct -- move to the Q&A session, which we expect not to be more than 15 to 20 minutes. Thank you very much.

[Operator Instructions] We'll move to the first question.

Can you hear me?

We can hear you.

This is Saad Ali from EFG Hermes. Just a couple of questions. First up on Nashpa. The production from that field has -- it has nicely plateaued at around 11,000 barrels per day for quite a while. Just some guidance or outlook on whether that is a plateau you see continuing into the future? I understand one well -- one development well is under drilling. Once that is added, that might also help sustain this production level. But can you give some outlook on the production levels for Nashpa? Do you think this level will be sustained going forward?

Saad, this is the only question or do you have another question?

My other question will be the usual one, the CapEx guidance for the remainder of this year and how many wells you plan to drill for until June?

So on the Nashpa front, as you rightly mentioned, we're seeing a recent plateau there. We don't expect any major change in that particular output and for the rest of the year. Obviously, various studies are being done to enhance production and to assess how we can basically get the most out of the field. But to answer your question, the plateau should remain consistent for the next year -- for the coming year, rest of the year. And the second question was about the CapEx. Now that's a very CapEx and the number of wells which we intend to drill. Obviously, that's a very good question, but the thing which we are looking at, there are a lot of factors in play right now with the situation. We're carefully analyzing our inventory levels and where we get good leads. That will basically play into how many wells we drill, but we're looking at doing a few more development wells and a few more exploratory wells. The exact number would be too premature for me to comment on, but you can be rest assured that we're looking at all possible avenues to basically enhance the production. As far as the CapEx is concerned, the CapEx will depend obviously on the wells which we drill. And besides that, we are -- we've already awarded the contract for Uch compression. That should kick in somewhere in later this year, and that would define the major CapEx which we have in the pipeline.

Sir, just a follow-up question. We've asked this before, but can you give us the CapEx for the 3 projects? I mean in million dollars, what sort of outlay are you seeing for these 3 projects?

See, what we are looking at is, again, these are something which is only -- which we can -- because we have -- we are in the process of tendering and all that. So it would not be appropriate to basically give out estimates as of now in the conference call. But in a range-wise, over a number of years, I could say that easily that we're looking at $100 million to $125 million over a number of years.

We'll now move on to the next question.

Can you hear me?

Yes.

This is [indiscernible] Jalal from [indiscernible] Capital. My question is related to the increase in gas prices. Well, the understanding is that with the current increase, there will be no more piling up of circular debt. So how does the company see this development? And what impact would this have on your cash flows and your operations?

As far as gas prices are concerned, our prices are based on the wallet price on where we have contracts with, obviously, the PCAs, which are the concession agreements. And the gas prices which you're seeing would impact the transportation and the distribution companies as far as the recoveries are concerned. So they would be able to recover a bit more. So we are hoping that once they start recovering a bit more, we will be able to collect a bit of our overdue receivables. So that is the impact. But again, that impact, we will -- once we start seeing then would be a better place to quote a number. Right now, we will only be able to guess that we will see an increase of, I don't know, maybe 10% to 15% on our collections. I mean that's just a wild guess.

Okay. With this increase, will we see an improvement in the payout ratio?

That is a question which, obviously, the Board will look at based on the reserves and the capital commitments which we have. As you would appreciate, we have capital commitments also for Reko Diq and BIOL, ADNOC offshore. So that is something which the Board will look at. Obviously, this quarter or this half -- in this quarter itself, the Board has announced dividends, which are much better than the last quarter and also compared to the previous quarter. So we are upbeat and when things get a bit better as far as the cash flow front is concerned, the company would look at its options.

Okay. One last question. What was the exchange gain/loss for the first half?

See, the exact exchange gain or loss is determined as far as we are concerned on 2 or 3 factors. So if I was to say how much was my exchange GNR loss, the net was approximately $9 million -- [ PKR 9 billion], which is by the way lower than last year.

We'll now move on to the next question. Seems they have stepped away, we'll now move onto our net question.

Hello, can you hear me?

Yes, we can hear you.

Asim Khatri from NBP Funds. I have 3 questions. My first question is, recently, there was in the news that federal government has allowed then government to issue exploration licenses. So how do you see this development? And in specific, can you identify if you guys are looking for some blocks that will be coming for bidding process? And my second question would be that recently, I think the question was also asked before, but if you can again touch upon that recently gas prices have been increased, and how much do you see the impact of gas prices on your ongoing receivables of your sales? So for example, if 60% of your gas revenues are stuck up in receivable, so how much improvement do you see in that? And my last question would be with regards to Mamikhel South. There was again in the news that Mamikhel South additional production had been settled with the formula that it will be sold to a third party and the levy will be charged over and above of the cost of the production. So is there any development like how -- when we can expect the production to start from Mamikhel South?

Okay. So far, so I'll just answer your question on the gas prices again. The gas prices, as I mentioned, has been increased at the consumer end, and it will not affect our profitability as such because we have a fixed PCA and wellhead. As far as recoveries are concerned, we expect obviously an increase in recoveries, and we are following it up as exact number as to what we might expect to get is a bit hard to estimate as of now because there are various commitments, which are there. So I guess we'll have to wait and see and to what sort of recoveries we're looking at. But we would say that at least we would look at some additional 10% to 15% recoveries for what we're actually getting as of now. So that would be on the gas prices. As far as the Mamikhel South is concerned, Mamikhel South is operated by our JV partner and is currently basically ready to produce. Once we have some clarity on when the dates are going to be somewhere in the last quarter, I guess, of this financial year, I will give you an exact or sort of a tentative date, but expect something in the last quarter of this year. The exploration licenses, I'll ask Farrukh to basically -- our Exploration Director to basically...

About your question about the recent development, which we also see in news, currently, the exploration license are managed by federal government, which is the Department of DGPC, Director General Petroleum Concessions. One, the mechanics is available how this government will manage the exploration license. We are an E&P company, and we will follow the same process, what we do for the federal bidding here. So it will be very similar for us.

We'll now move to the next question.

This is Muhammad Iqbal from Arif Habib Limited. Am I audible to you?

Yes, yes. Go ahead.

Sir, I just wanted to ask regarding circular debt. Already, Finance Minister has announced that they will be clearing circular debt, but not recently. So can you shed more light on this, if you have additional information regarding this? And second of all, my question is regarding Wali-1. When will this production come online? And also regarding Bannu West, if you can shed some light on that.

Yes. So on the circular debt, we haven't received any further information from the government as to how the previous accumulated circular debt is going to be settled. So I guess it's just us waiting and trying to see what the plan is. So no further communications as far as we are concerned officially. As far as Wali is concerned, we are looking again at the second -- I mean last quarter of this year to have some production from Wali-1 from one of the reservoirs. And as far as Bannu West is concerned or Waziristan, as you would call it now. Again, something which -- that's a slightly longer project, and that might be a situation where we would look at somewhere next year.

There are further 2 questions in the queue. Do you wish to go ahead and take the questions?

Yes.

We'll now move on to the next question. It seems they have stepped away. We'll now move on to the last question.

I am [indiscernible] from Optimus Capital. Can you hear me?

Yes, we can hear you.

Actually, I wanted to ask about the CapEx on [ UAE ] Block 5 for the rest of the year and the next year? And my second question is regarding the Zin block. I was basically -- Zin block is large field, and it's a low BTU gas, but we do have special policies for the low BTU gas. So are you planning anything on that?

So on the ADNOC front, as you would know that we are still in the process of evaluating the data and finalizing our contracts for drilling of wells there. We are again in the process of tendering and finalizing the details with ADNOC. And once we have some visibility on the costs, then only -- there will not be any major costs this year. But once we have visibility for the cost for the next year, then we will be able to share it with you a bit later in the year. As far as Zen is concerned, obviously, we're looking at various options which are there, and we have been looking for it for a very long time, and we've been discussing it with the regulators, et cetera. So we are aware and fully cognizant of the fact that we need to develop that huge field. Unfortunately, the security situation is something which is hampering our -- basically our efforts, and -- but we are working diligently with DGPC and hopefully, we'll come out with something very soon.

There are some further questions in the queue. Will I go ahead, sir? Or would you like to finish up your call?

We can take 1 last question.

We'll now move on to the next question.

Can you hear me?

Yes, we can hear you.

This is Sarah from Alfalah Securities. I just had one follow-up question. You mentioned about 10% to 15% of recoveries or collections, basically the improvement due to gas price increase. Can you just elaborate a bit more that what is this 10% to 15%? Is it a certain percentage of your billing or something else?

see, the way we look at it is, since this is a step which has been taken going forward and it would be implemented from January onwards on the prices, so -- and once these slabs come into play and then we would be seeing that circular debt would be addressed at certain forums -- at a certain point. Now, 10% to 15% is a wild guesstimate. The reason why I say 10% to 15% is that the various entities who are also dependent on increase in gas price, so that -- the allocation from SSGC and SNGPL to what they owe us is what we're looking at on a monthly basis.

I'll now hand back over to your host for closing remarks.

Okay. So thank you very much for joining us today.

If you have any further questions, please do send us to our Investor Relationship Officer, Mr. Waseem. We will try and answer those questions as expeditiously as possible. Thank you.

Thank you. That will conclude today's conference call. Thank you for your participation, ladies and gentlemen. You may now disconnect.