Oil & Gas Development Company: Volume growth to drive QoQ rebound in earnings – FS Research
By: Mohammad Fawad Khan, CFA
92 21 5612290-94 Ext 338 firstname.lastname@example.org
· We see a strong uptick in Oil & Gas Development Company’s 3Q production which should drive concurrent earnings rebound. We estimate 3Q EPS of PKR7.5, up 38% QoQ (9MFY13: PKR19, up 18% YoY). OGDC’s other performance indicators have also staked up well. Drilling record has improved while cash flow position remains comfortable. Two key negatives are build-up of receivables and lack of sizeable discovery in 9M. Reiterate Outperform.
Volume recovery to lead strong rebound in earnings: We estimate 38% QoQ earnings growth predicated primarily on (1) 14% volume jump, and (2) firm oil prices. Production recovery in 3Q is largely expected and driven by pick-up in gas volumes (up 17% to 1175mmcfd) on Uch field (normalization of production) and Kadanwari (production jump post successful drillings). While near-term outlook on production is positive, our project wise review suggests risk of 3-6mth delay on key projects has increased. Overall we continue to see strong 3-year volume CAGR of 14%.
Drilling performance improved: OGDC looks set to improve its drilling record in FY13. Year to date, OGDC has achieved 50% drilling targets. 4Q pick in activity should bring the company close to its target level. Key disappointment on drilling front is absence of any major discovery so far. On QoQ basis, exploration write-off on dry wells and seismic spend are likely to drop. In 3Q only one well has been declared dry while at least two are in suspended status.
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