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

Ladies and gentlemen, hello, and welcome to the OGDCL Half Year Financial Results from July 2024 to December 2024 Conference Call. Please note, this call is being recorded. [Operator Instructions] I will now hand you over to your host, Mr. Ahmed Hayat Lak, Managing Director, CEO, to begin today's conference. Thank you.

Gentlemen, this is Ahmed Lak, MD, CEO, OGDCL. I welcome you all to OGDCL's Half Year Financial Year 2024-'25 Financial Results Announcement Conference Call. I hope that you got hold of our presentation for the half year results and have been able to go through it as well. We can start off with Page 2 of the presentation. And as a matter of housekeeping, so I would like you to go through the disclaimer, and I'll take a short pause before moving to Page 2. Ladies and gentlemen, I'm pleased to report OGDCL's operational and financial performance during the first 6 months of financial year '24-'25. 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 per latest available data of June 30, 2024, OGDCL held 51% of the country's recoverable oil reserves and 32% of the country's recoverable gas reserves. In terms of production, currently, OGDCL contributed around 48%, 28% and 34% towards country's total oil, natural gas and LPG production, respectively. During the year -- half year from July 2024 to December 2024, OGDCL reported average daily net saleable crude oil, gas and LPG production of 31,477 barrels, 672 million scfs and 629 metric tons per day, respectively. Our remaining 2P recoverable reserves estimates as at December 31, 2024, stood at an impressive 710 million barrels of oil equivalent. OGDCL has a portfolio of 112 development and production leases, out of which 79 leases are 100% owned and operated, while 33 are nonoperated development and production 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 Pakistan. During the half year, the company spud 4 wells comprising 3 exploratory appraisal wells and 1 development sidetrack well. Further, the company made 3 gas condensate discoveries. Now moving to Slide 4. You can see a map which shows OGDCL's dominant position in all the prospective areas of Pakistan. OGDCL holds a diverse portfolio of exploratory assets, currently constituting 59 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. Muhammad Anas Farook, Chief Financial Officer, and other heads of departments to take you through the next few slides of this presentation. Thank you.

Good evening, ladies and gentlemen. This is Anas Farook, the CFO of OGDCL. As you turn to Slide 5, you would see that our sales revenue has gone down as compared to last year by approximately PKR 29-odd billion. That is basically a result of increased forced production curtailment, which we have seen in this half of the year '24-'25. The realized prices also had a bit of a dip where our prices reduced from $69.78 barrels, which was there in last year realized prices to $62.57 per barrel. There was also a marginal decline due to the strengthening of Pak rupee against U.S. dollar. In the first half last year, the conversions were at PKR 287.52 versus PKR 278.53 in the current year. We have seen an increased realized price in LPG and gas. LPG went up from PKR 155,703 per metric ton to PKR 168,764 per metric ton, whereas the gas increased marginally from PKR 711 per million scfs to PKR 712 per million scf. During the half year, the operating profit margin and the net profit margin were 51% and 40%, respectively. In addition to that, I would also add that the Board of Directors announced a second interim cash dividend of PKR 4.05, which is the highest dividend paid in any quarter by OGDCL. Now I'll hand it over to Mr. Farrukh Saghir, who is our Exploration Director, to run you through the exploration slides.

Good day, ladies and gentlemen. This is Farrukh Saghir, I am Head of Exploration Directorate, and I'll be taking you through number Slide 6. OGDC, being the national flagship of Pakistan E&P sector, holds the largest exploration acreage, which is on 31st December 2024 stood at 99,293 square kilometer, representing 39% of country's total area under exploration. The company's exploration portfolio currently comprises of 54 owned and operated joint ventures exploration licenses. Additionally, the company possesses working interest in 13 exploration blocks operated by other E&P companies. In light of its exploration-led growth strategy to locate oil and gas reserves, OGDCL during the half year acquired 174 line kilometers of 2D and 131 square kilometer of 3D data in comparison to last year of 573 line kilometers of 2D and 451 square kilometer of 3D data during the half year targets. The acquired seismic data represents 25% and 64% of total 2D and 3D seismic data acquisition in the country, respectively. Moreover, the country using in-house resources processed and reprocessed 953 line kilometers of 2D data. Furthermore, measured 1,500 meters of geological section in Nizampur and Kala Chitta near area with the spot checking of key localities for validations and refinement was carried out in Naushera block as well with 24 line kilometers of geological field work completed in the Qilla Saif Ullah block as well. On the drilling front, OGDCL have spud 3 plus 1 wells, including 3 exploratory and 1 development well. Exploratory wells are Baragzai X-1 in Nashpa EL, [indiscernible] in Bitrism EL, Chak-22-2 in Mari East EL and development well with Chak-202 sidetrack Chak-2 D&P. OGDCL's exploratory efforts to locate new reserves during the half year under review yield 3 oil and gas condensate discoveries, namely Chak-202-1 in Sui Main Limestone in district Rahim Yar Khan, Punjab province, Baloch-2 in Sembar in district Sanghar, Sindh province, Bettani-02 in Samanasuk in district Laki Marwat, KPK province, having an expected cumulative daily production potential of 462 barrels of condensate per year and 15 million gas per day. Now I will request Mr. Mumtaz Soomro, Head of Production Directorate, who will take you through the next slide, please. Thank you.

[Foreign Language] and good evening, everyone. I am Mumtaz Ali Soomro, and I am Head of Production Directorate. Now let us move to Slide #7. OGDCL's production strategy is designed to sustain and maximize hydrocarbons by rapidly integrating new exploratory, appraisal and development wells into the network. In response to Pakistan's growing energy demands, the company is employing state-of-the-art production optimization techniques while expediting ongoing development projects. By leveraging cutting-edge technology and capitalizing on new discoveries, OGDCL remains committed to ensure a steady and sustainable increase in production, reinforcing its role as a key contributor to the national energy security. OGDCL average daily net oil and gas production is clocked in at 31,477 barrels, 672 MMscf of gas, whereas 629 metric tons of LPG production was recorded. The company encountered significant challenges due to severe forced curtailment leading to periodic and unexpected well shut-ins or even we had to choke down the wells. This situation has an adverse impact on reservoir performance, particularly affecting aging wells and mature fields. As a result of SNGPL constraints, primarily due to LNG influx and the subsequent need to regulate the gas pressure in distribution network, indigenous gas uptake was curtailed. Consequently, OGDCL recorded a forced curtailment of 14,536 MMscf of gas, 200,370 barrels of oil and 7,360 metric tons of LPG from key fields. Those are Qadirpur, Nashpa, Chanda, Mela, Dhok Hussain and Togh. Similarly, gas curtailment was also recorded in Uch gas field due to reduced demand from power sector. Injection of two operated wells into the gathering system, Baloch-2 and 35 and Uch-35 cumulatively yielded gross crude oil and gas production of 11,236 barrels of oil and 304 MMscf of gas. Additionally, 499 metric tons of LPG was also recovered. In order to arrest natural decline and sustain production from mature wells, 40 workover jobs were carried out, comprising of 9 workovers with rig and 31 rigless operations. And the rig workover jobs also include installation of 6 ESPs, electrical submersible pumps at Sono-7, Kunnar-9, Sono-2, Pasahki-5, Sono-8 and Rajian-3A. Notably, OGDCL became the first company to install ESP in heavy oil at Rajian oilfield, that is the well Rajian-3A. These efforts increased production rate by 3,014 barrels per day of oil, 32.1 MMscf per day of gas and 69 metric tons of LPG. Pressure buildup surveys were also conducted at Qadirpur [Technical Difficulty] while annual turnarounds were completed at Nashpa, Sinjhoro, KPD, Qadirpur and Uch. Additionally, early commercial production has also started from Nur West-1, the first ever tight gas discovery, delivering 1.5 MMscf of gas into SSGCL network. Right now please move on to Slide 8, where I will give you a short brief of ongoing projects in the company. Jhal Magsi development project. Subsequent approval of marginal gas price by Economic Coordination Committee, ECC, contract awarded as per plant time line, plant construction and installation have been completed. The supply of gas is linked with the installation of 98-kilometer gas transmission line, which is being led by SSGCL. Dakhni compression project, Uch compression project and KPD-TAY compression project, contract effective time line started opening of foreign LCs in December. However, EPC contractor has been completed substantial work, detailed engineering and -- as of successfully completed. The contractor has mobilized at site and started its initial work. The production -- the project completion time lines are for Dakhni it is January 2026 and for Uch, that's June '26 and for KPD, it is April '26. Now I ask Mr. Muhammad Anas Farook, our CFO, to continue with the presentation.

Yes, ladies and gentlemen, if you can turn around to Slide 9. As you would see that our sales revenue have decreased by approximately 12%. I already mentioned in my previous comments that, that is primarily as a result of lower realized prices accompanied by -- primarily accompanied by forced curtailment, which Mr. Soomro just mentioned at various fields. Our operating expenses also went down by 12%. These are primarily related to the amortization of development and production assets where we recorded a higher amortization in the previous year due to increased decommissioning costs. The rent fee and taxes in the corresponding period included some extra sums of money for the additional 15% wellhead, which has to be given to the government after 30 years of production. So -- and in this year, it came down to the normal levels. Exploration and prospecting expenditure, that increased by 57%, where we had 2 dry holes as compared to 0 dry holes in the last comparative period. The 2 wells that went dry were Kadanwari-01, which cost PKR 1.8 billion and TAY NE-1, which cost approximately PKR 0.7 billion. The net profit after tax decreased by 33%, primarily due to two reasons: one, was that, obviously, it was a direct result of reduced sales, et cetera. But the other primary reason was that last year, the same quarter, we had a one-off write-back of expenses of -- depletion allowance of approximately PKR 28 billion, which OGDCL managed or the industry managed to basically get a positive decision from the Supreme Court whereas in this year, the opposite thing, we had to pay additional tax to get -- to obtain the bonus shares issued by Mari, which amounted to approximately PKR 13 billion, including super tax. So that basically reduced our net profit after tax by 33%. If you turn over to Slide 10, the next slide, it shows you the major financial indicators of the first half of the company. And you would see that our sales obviously have declined and -- but the interesting thing to note over here is that our net profit margins, if you look at it rationally, then you would see that these net profit margins have remained the same. Overall sales declined due to force curtailment and our dividends are way higher as compared to last year on the same time scale. With that, I will hand it over to Mr. Ahmed Hayat Lak, our CEO, for the final comments.

Thank you, Anas. OGDCL's management remains fully committed to achieving sustained growth in the company's production volumes through strategic initiatives, technological advancements and operational excellence. OGDCL is equally committed to expediting the development of its projects in pipeline, ensuring timely execution through strategic planning, innovation and operational efficiency. Our strategy involves implementing international best practices all across -- across all our operations to achieve production and reserves growth. This, ladies and gentlemen, concludes our presentation for today, and I thank you all for joining the conference call. We now ask the operator to conduct Q&A sessions, which we expect to be not more than 15 to 20 minutes duration. Thank you.

[Operator Instructions] The first question comes from Muhammad Iqbal calling from Arif Habib.

[Foreign Language] This is -- sir, I have a question regarding circular debt. Sir, is the circular debt being curtailed? Or is it still increasing? Because we have -- I have seen your numbers, and I think it is going to increase because of all the issues right now because we have seen PSO's numbers as well, they were also not good. So is it being still curtailed? Or is it going to be...

If you're talking about this half year, Mr. Iqbal, then our recoveries are approximately 115% of our billing this half year. So we had a pretty decent recovery percentage in this year -- in this half year. If you're talking about going forward, we have had challenges in the month of January and February with the recoveries primarily due to our LNG being diverted to local consumers, et cetera. So we would see some uptick in the next quarter, but we are very hopeful that, that situation will change again when the summer or the spring season starts as soon as the power demand...

Sir, just a question. Sir, right now, the government is -- right now, there is a curtailment from the natural gas, right, curtailment at the end of natural gas. So how -- is it going to affect the collection rate of OGDCs?

That's -- collection rate of OGDCL is not really related to curtailment. Obviously, our revenues are going to go down. So our collection would be affected as in the number of collection would be affected. But as far as collection as an overall percentage of our billing, as I mentioned, the first quarter is first -- as in the third quarter is going to be challenging, and -- but I expect the position to go back to normal in the fourth quarter of the year.

Okay, sir. Just last question, sir. You have a good cash position right now. So are you considering drilling offshore blocks?

We -- there is an offshore block option, which has been announced recently in January 2025. Obviously, we'll be looking at obtaining licenses on those blocks and then moving forward. So yes, we are very hopeful that we will move into offshore drilling also, but that is a long-term process, yes.

The next question comes from the line of Hassan Raza calling from NBP Funds.

Am I audible?

Yes, you're audible.

First of all, sir, thank you for the presentation and many congrats on the strong set of results and as you mentioned, the highest ever quarterly payout for OGDCL. I had two questions. First was pertaining to the exploration potential going forward. If I ask OGDCL's management, which prospect is OGDC most excited about, because you have mentioned in your -- the notes that you have shared along with the presentation that one of the prospects is Waziristan. And as far as market talks are concerned, there is a lot of talks of very strong discovery in Waziristan. So can you give your input on that? And also which other prospect or is this a prospect that OGDC is most excited about?

[Audio Gap] to our Exploration Director.

So thank you for asking the question. I think the Waziristan, we are partnered with Mari Petroleum. So they are testing the well. And hopefully, we are looking for a good results. Yes, MariEnergies, sorry, just to correct, because the company has changed the name. So the MariEnergies are the operators, and we are the partner. So the news will come from them, and then we will follow it. We are looking forward. It seems to be on a positive side. For us, we have a couple of drilling major wells, which are Soghri, Nashpa and a couple of wells we are drilling. So we are hopeful that we'll have positive results on that one.

Right. And my second question is on Reko Diq. Recently, Barrick has released its detailed technical study where they have even shared their detailed financial models. So even if we incorporate the numbers, Barrick's number and just make slight adjustments with regards to the ongoing current gold prices and the rate at which gold prices and copper prices have escalated in the past 40, 50 years, we see that the project's NPV, which Barrick has mentioned at $13 billion easily jumps beyond $40 billion. So my question pertains to the news rumors that Pakistan may be selling its stake in Reko Diq at probably not such attractive prices. So can you give us an update on that and where that transaction stands? And what is OGDCL's stance and overall Pakistan's stance on it with the size of the offer that is being offered for the Reko Diq stake?

As regards to Reko Diq, I think the first part, which we would like to underline is that OGDCL is fully committed towards the development of the project. And as part of it, as part of the joint venture, cash calls for the long lead items are being paid. There's progress on the project finance side. And as far as any possible or potential divestment is concerned, this is a process which is under consideration and nothing has been decided as of yet so far. So as of now, we are committed towards project development.

Right. And my last question would be on circular debt. You mentioned that the third quarter because of the diversion of LNG might experience some buildup of circular debt. But on an overall basis, if I ask for the fiscal year '25, what would be the expectation of OGDC in terms of recovery -- overall recovery for the fiscal year?

Well, I would say that we would be looking at collecting almost 90% to 100% of our billing of the current year.

[Operator Instructions] The next question comes from the line of [ Adil Jalal ] calling from [ Vitalis Capital Ltd ].

[Foreign Language] Am I audible?

Yes.

My question pertains to the forced curtailment issue. You see these are winter months and E&P companies have been forced to curtail... [Audio Gap]