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

Hello, and welcome to the OGDCL Full Year 2024 Financial Results from July 2023 to June 2024. My name is Laura, and I will be your coordinator for today's event. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Mr. Ahmed Hayat Lak, Managing Director and CEO, to begin today's conference. Thank you.

Thank you very much. Ladies and gentlemen, I welcome you all to OGDCL's Full Year Financial Year 2023/'24 Financial Results Announcement Conference Call. I understand that our Investor Relations team has already sent you presentation on OGDCL's full year results. Let us start on Page 2 of the presentation. We will ask you to go over the legal disclaimer first. I'll 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 '23, '24. OGDCL being the largest upstream player in Pakistan enjoys the largest share of exploration acreage in the country, which stands at 39% of the total awarded acreage. As of June 30, 2024, OGDCL held 51% of country's recoverable oil reserves and 32% of country's recoverable gas reserves. In terms of production, currently, OGDCL delivered 46% of Pakistan's oil output, 28% of its gas output and 37% its LPG output. Our remaining 2P recoverable reserves estimates as of June 30, 2024, stood at an impressive 721.32 million barrels of oil equivalent. During the fiscal year from July '23 to June 2024, OGDCL reported average daily net crude oil, gas and LPG production of 33,117 barrels, 717 MMcf and 717 metric tons respectively. OGDCL has a portfolio of 97 development and production leases, out of which 67 leases are 100% owned and operated while 30 are non-operated leases, where we act as non-operators, having joint venture agreements with Forum as well as local E&P companies. OGDCL operations are spread out all over Pakistan. The company made 5 new gas condensate discoveries during this 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 54 owned and operated joint venture exploration licenses, along with holding working interest in 13 blocks operated by other exploration and production companies. 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, Chief Financial Officer; and other heads of departments to take you through the next slides of this presentation. Thank you very much.

Good afternoon, ladies and gentlemen. My name is Anas Farook, and I am Chief Financial Officer of OGDCL. Let's turn to Slide 5 of the presentation and let's -- take on you through those major numbers here. For the year ended 30th June 2024, the sales revenue recorded by OGDCL was PKR 463 billion as compared to [ PKR 413 ] billion last year. The higher sales revenue is primarily attributed through higher gas prices and LPG prices and obviously higher oil production, which we saw in this current year, which is partially offset by lower crude oil prices which we saw in the market this year. The significant chunk, which we -- part of the revenue which is as exchange rate. The exchange rate jumped approximately PKR 33 from PKR 248.18 to PKR 283.48, which is the average exchange rate for the year. And this length strengths the financial statements. During the year, our operating profit margin and net profit margin were 52% and 45%, respectively. And the EPS recorded was PKR 48.59. In addition to this, the Board of Directors commended a final cash dividend of PKR 4 per share, which took our dividend for the year at PKR 10.10 for the year. I'll now hand over the presentation to Mr. Farrukh Saghir, who is the Head of Exploration, who will continue with the presentation.

Good day, ladies and gentlemen. This is Farrukh Saghir, I'm Head of Exploration Directorate and I'll be taking through your Slide #6. OGDCL being the national flagship of Pakistan E&P sector holds the largest exploration acreage, which is on 30 June 2024 stood at 99,268 square meters representing 39% of country total area under exploration. The company's exploration portfolio currently comprise of 54 owned and operated joint venture exploration licenses. Additionally, the company possess working interest in 13 exploration blocks offered by other E&P companies. In line with this exploration-led strategy, growth to locate the oil and gas reserves, OGDCL, during the year acquired 1,236 line kilometers of 2D and 1201 square kilometers of 3D seismic data in comparison to its 1804 line kilometer of 2D and 765 square kilometer of 3D data in the last year. The acquired seismic data represents 45% and 89% of total 2D and 3D seismic data acquisition in the country, respectively. Moreover, the company using its in-house resources processed and reprocessed 6,573 line kilometers of 2D and 289 square kilometer of 3D seismic data. Furthermore, 386 line kilometers of geological field was carried out in Hazro and Nowshera blocks. On the drilling front, OGDCL spud 13 wells, including 7 exploratory appraisal wells, namely Kharo 01 in Khewari EL, Bettani Deep 1 in Wali EL, [indiscernible], Soghri North 1 in Soghri EL, Chak 202-1 in Marie East EL [indiscernible] Togh-02 in [indiscernible] EL, Sono-9 and Sono D&PL, Kunar West-3 and Kunar West D&PL, [indiscernible] D&PL. OGDCL's exploratory efforts to look at new reserves during the year under review yielded 5 oil and gas Condensate and Tight Gas discoveries, namely Chak 214-1 in Dunghan and SML formations in district Rahim Yar Khan, Punjab province. Dars West-2 Lower Goru C-Sand in district Tando Allah Yar, Sindh province. Kharo-1 in Lower Goru Massive-Sand in district Khairpur, Sindh province, Togh-2 Lumshiwal-II in district Kohat, Khyber Pakhtunkhwa Province. Nur West-1 in Tight Gas Discovery Lower Goru A-Sand in district Thatta, Sindh province. Having an expected cumulative daily production potential of 481 barrels of oil and 28 million of gas was added to the system. Now the next part of the presentation will be following.

Ladies and gentlemen, this is Anas again. I'll just run you through the production and the operational updates on this call. OGDCL's production strategy, as you would know, focuses on maintaining and enhancing hydrocarbons while rapidly creating new [ exploration wells and development wells ]. In order to meet Pakistan's growing oil and gas demand, OGDCL is utilizing cutting-edge production optimization techniques. And on top of that, accelerating our ongoing development projects. This approach basically ensures that we have a steady increase in production leveraging new discoveries and advancements in technology. OGDCL's average daily net oil and gas production stood at 33,117 barrels and 717 MMscf respectively. The company faced significant challenges due to severe forced gas curtailment resulting in the current and unexpected shut in or chokdown of wells. This had a detrimental effect on our reservoirs, particularly the aging fields -- aging wells in the fields. OGDCL recorded forced curtailment of 19,604 MMscf of gas, 138,517 barrels of oil and 6,893 metric tons on LPG from Qadirpur, Nashpa, Chanda and [indiscernible] fields due to the SNGPL system constraints and less intake from [indiscernible]. Further, the LNG influx in the system, this was a result of the LNG inflection in the system to basically ease out the gas pressure and the pipeline distribution system, the distribution companies stopped taking indigenous gas produced in the system. The company's average daily net LPG production clocked in at 717 tonnes, owing to higher production primarily from Nashpa and KPD fuels. In the current year, OGDCL injected 11 operated wells in the production gathering system, namely Nim East 1, Suleman 1, [indiscernible] 2, Togh-02, Suleman 2, Nashpa-11, Sono-9, [ Chak-632-234 ], Kunar West-3 and Chanda 7, which come lately yielded gross crude oil and gas production of 774,381 barrels and 4.2 MMscf of gas, respectively. Moreover, 10,111 metric tons of LPG was successfully recovered from the gas. Additionally, as part of our optimization drive, electrical submersible pumps were installed at Pasakhi-11, Sono-9, Kunar 8, Kunar 11 and Sono 2 resulting in incremental crude oil production of 4310 and revival of 540 barrels per day of oil. In order to arrest natural decline and sustain production from mature wells, 93 workover jobs were carried out, which comprised 16 with rig and 77 were rigless. Moreover, to induce improvement in the current well flow parameters, pressure buildup survey jobs are completed at various wells of producing fields, namely Qadirpur, Sinjhoro. [indiscernible], Nashpa, Uch, KPD-TAY, Maru-Reti, Chak, [indiscernible], Chanda, Rajian et cetera. As part of our preventive maintenance plan, OGDCL successfully completed annual turnaround of its plants at Chanda, Dakhni, KPD-TAY, Uch-I, Uch-II, Qadirpur, [ Attock ] during the period in discussion. Now let's turn to Slide 8 of your presentation. This basically shows the growth and development projects, which we are in the process of undertaking. The first one is the Khewari development project, construction, installation and commissioning activities have been executed on a fast-track basis and the project was completed in October 2023, that is within 6 months. Then the next one is the Jhal Magsi development project. Subsequent to the approval of the marginal gas price, [indiscernible] contract was awarded and the contract was mobilized at site. Currently, significant site construction activities have been completed, and plant commissioning will start shortly. Dakhni Compression project. A contract has been signed with the EPCC contractor on 14th November 2023. Project kickoff meeting was held in the third week of January 2024, and the detailed engineering is in progress. Uch compression project contract was signed with the EPCC contractor on 9th of October 2023, kickoff meeting was held in the fourth week of January. Again, the detailed engineering is in progress. KPD-TAY compression project contract, the EPCC contract was signed on 1st November 2023. The project was kicked off in the third week of January, again, the detail engineering is in progress for this particular project also. Now turning on to Slide #9. Basically, it gives you a financial snapshot of our sales and the operating expenditure and the exploration prospecting expenditure and our net profit after tax. So the sales revenues, as I previously mentioned, is primarily attributable to higher crude oil production, an increase in the realized prices of gas and LPG averaging 712 MMscf and [ 161,224 ] per tonne against 610.92 [indiscernible] and PKR [ 148,723 ] per tonne in the preceding year, respectively. Furthermore, the rise in exchange rate to PKR 283.48 from PKR 248.18 in the last year strength to the financials. Operating expenses increased by 32%, which was primarily as a result of additional 15% wellhead value on the renewal of leases beyond 30 years for current period, which amounted to PKR 13 billion in the current year, out of which PKR 7.9 billion was pertaining to the previous year relating to Pasahki and Pasahki North. Further, there was full amortization of [indiscernible] on the basis of revised reserve estimates based on the study undertaken by [ GLJ ] in the current year. Our contract services were high because we were undertaking various petroleum engineering services at various fields for production optimization, approximately of 1.1 billion. Furthermore, since we are in difficult years now, our security costs have increased by approximately 700 million as a result of work at Bettani, Uch and Jhal Magsi. Also, we did more workover wells this year, which is 16 as compared to 12 last year, which added PKR 2.1 billion to our operating expenditure. Furthermore, salaries and benefits also resulted in a change due to the increased inflation and finalization of the 27th memorandum settlement with the staff. As you would see, there's an exploration and prospecting expenditure has decreased, that is not because we are doing less exploration or seismic shooting less seismic its because we had no dry wells in the current year, whereas last year, we had 7 dry wells. The net profit after tax decreased by approximately 7%. Mainly, that is due to lower other income, which was higher in last year because of a onetime increase of PKR 75 billion due to the modification of Uch 1 finance lease. And the exchange loss was approximately PKR 46.7 billion. And this year, we have also recorded an impairment on interest receivables on account of [ PSG ], approximately PKR 23 billion which is partially offset by the reversal of tax expenses on depletion allowance as a result of favorable decisions by the court, which is approximately PKR 28 billion. Turning on to Slide 10. It gives you, the major performance indicators, as you would see it, which has the net sales, operating profit margins, EBITDA, net profit margins, profit after tax, profit operating activities, earnings per share and cumulative dividends. 2023, '24 is in your presentation, would still show nil, but obviously, as I've told you before, that it's PKR 10 in the current year. I'll now hand over the presentation to our MD CEO, Mr. Ahmed Hayat Lak, who will say a few words.

Thank you, Anas. OGDCL's management is fully focused on achieving consistent growth in production volumes of the company. OGDCL is also committed to ensuring the speed development of our projects and pipeline. We plan to achieve the production throughout through implementing international perspectives across all our operations. With this, ladies and gentlemen, concludes 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. Thank you very much. Over to Operator, please.

[Operator Instructions] We'll now take our first question from Muhammad Ali of AKD Securities.

This is Muhammad Ali from AKD Securities. I would like to ask the update on the drilling of the wells in Abu Dhabi block. And what is the estimated production size, if any? And my second question is what would be OGDCL and the consortiums production [indiscernible] working interest? And my final question is, you stated that KPD compression pump will complete by 2026. Will it add 100 MMcfd to the current production, which is 50-60 MMcfd or is it already somehow incorporated in these levels?

Let me just answer your questions on the ADNOC block. First of all, we are in the appraisal stage of basically our wells and [indiscernible], which is ADNOC block. And once the appraisal is completed, then we will only be able to basically assess the reserves and the production profile of that. So we'll have to wait for that a bit. As far as what will be our share in this thing, that is also an ongoing discussion with our partners at ADNOC. And once it is finalized, obviously, we'll share that with the stock exchange and the relevant for us as it concludes. As far as KPD-TAY is concerned, the expectation is that we will add 100 million scf of gas from what we are producing right now, and that is not included in the numbers as of now. I hope that answers your questions.

[Operator Instructions] There are no further questions in queue. I will now hand it back to your host for closing remarks. Thank you.

Thank you very much. If there are no further questions, we'll just conclude the conference call. And on behalf of OGDCL, we would like to thank all the participants for being part of the call. Thank you.

Thank you. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.