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Executive Summary

OGDCL is the national oil & gas company of Pakistan and the flagship of the country’s E&P
sector. OGDCL was created under an Ordinance dated 20th September 1961 with the prime
responsibility to undertake an organized and systematic exploratory program and to plan and
promote Pakistan's oil and gas prospects. Government of Pakistan holds 85.02% of shares in
the company.

OGDCL financial performance in the current year is quite impressive. Sales growth is about
25% , the reason for the high sales is rise in oil and is prices in the country. Gross profit,
operating profit, Net profit of the company are high as compared all companies in the industry,
this is because of the less decommissioning cost, no financial leverage, and other incomes.
While in turnover, company’s debtor turnover is less as compared to other companies showing
managerial inefficiency and ineffectivity. Earning per share of company is ever rising due to
rising net income, while it is less as compared to companies in industry; this is because of 22
times more share of OGDCL than any other company in industry. OGDCL has a growth of
almost 40%.

An in future prospect, the company’s growth is expected to be 37.61% under sustainable growth
method, while 35.31% under varying growth method, showing the company is growing robustly.

OGDCL is 85% government owned, so the major income of it goes to the government revenues.
Table of Contents

Chapter#1 Introduction to Company

• Introduction

• Background

• Business prospects

Chapter # 2 Industry & Company Analysis

Chapter # 3 Business Analysis
• Business Strategy

Chapter # 4 Financial Ratios Analysis

• Trend Analysis

• Cross-Sectional Analysis

Chapter # 5 Forecasted Financial Statements

• Sustainable Growth Rate
o SGR under Steady Model

o SGR under varying Assumptions

• Forecasted Statements


Business Prospects
Introduction to OGDCL

OGDCL is the national oil & gas company of Pakistan and the flagship of the country’s E&P
sector. The Company is the local market leader in terms of reserves, production and acreage,
and is listed on all three stock exchanges in Pakistan and also on the London Stock Exchange
since December 2006. The Company is all set to ride the wave of E&P activity, equipped with its
Vision & Mission, Business and Strategic Plan, a debt-free and robust balance sheet and
healthy cash reserves. The Company is ready to take on the challenges of a volatile E&P

Background of the Company:

The Government of Pakistan signed an agreement with USSR on the 4th of March 1961 to
revive exploration in the country's energy sector. The Agreement entitled Pakistan to 27 million
Rubles to finance equipment and services of Soviet experts for exploration. Subsequently,
OGDCL was created under an Ordinance dated 20th September 1961 with the prime
responsibility to undertake an organized and systematic exploratory program and to plan and
promote Pakistan's oil and gas prospects.

Initially stages the financial resources were arranged by the Government of Pakistan as the
OGDC lacked the ways and means to raise the risk capital. Later, in July 1989, as the company
progressed as a result of major oil and gas discoveries, the Government off-loaded the
Company from the Federal Budget and allowed it to manage its activities with self generated
funds. The year 1989-90 was the company's first year of self-financing. Today, OGDCL is the
largest Exploration and Production Company in Pakistan, listed on all three exchanges of the
country as well as the London Stock Exchange. Government of Pakistan holds 85.02% of
shares in the company.

Business Prospects of OGDCL:

Over the years OGDCL has grown to become the company owning the largest oil and gas
shares in the country. Presently, the company's oil and gas production stands at 59% and 23%
respectively. The company holds a total number of 44 Exploration licenses covering 85,100.98
Sq.Kms, which is 32% of the country's total exploration acreage.
Industry and Company Analysis
Particulars Explanation
Total Reserves in Country:
Oil 300 Million Barrels
Gas 28 trillion cubic feet (Tcf)
Production (Recent Year):
Oil 60,000 Barrels/day
Gas 968 billion cubic feet (Bcf)
OGDCL Contribution:
Oil 59% (41,581 Barrels Per day, 7.2%
Gas 23% (966 Mmcf per day, 1.7%

Reason For Decrease Water Cuts in Some oil Fields.

Productions of OGDCL other
than Oil & Gas:
LPG 228 Tons per day (37.4% decrease)
Sulphur 53 tons per day (22.8% Decrease)
BP (UK), Eni (Italy), OMV (Austria),
Market Players in the Sector Orient Petroleum Inc. (OPI, Canada),
Petronas (Malaysia) and Tullow
(Ireland), PPL (Pak), PSO (Pak)
Competitors to OGDCL BP (UK).
OMV (Austria) , PPL (Pak).
Contribution of major BP (UK), producing 35,000 barrels
competitor in production: per day
OMV (Austria) , PPL (Pak), 30% of
total production
Consumption (Recent year):
Oil 400 thousand Barrels.
Gas 968 billion cubic feet (Bcf)
Oil 80% of consumption
Oil Exporters to Pakistan Middle East, with Saudi Arabia
Strategy Adapted by OGDCL in Aggressive growth strategy resulted
Site exploration. in discovery of 10 fields in 2007 and 6
fields in FY'08, bringing the total to
Production Capacity of sites
Oil 1150 barrels per day
Gas 46 MMcf per day
OGDCL Portfolio of net
recoverable hydrocarbon
Oil 30% (as of Dec 2006)
Gas 32% (as of Dec 2006)
Industrial Life Cycle Expansion Stage
Type of Industry Growth & Cyclical
Business Cycle Recovery
Risk & mitigation (OGDCL)

• Systematic (External Risks)

o Interest Rate 15%

o Inflation Rate 17.2%
o GDP 175 Billion (21.6% growth)
o Foreign Debt 45 Billion
9.45 Billion
o Foreign Reserves
-1.19 Billion
o Trade Deficit
-3.98 Billion
o Budget Deficit 12%
o CPI Political Instability
o Political Conditions
o Beta

• Unsystematic: Bureaucratic
o Management Style
Business Analysis

(Business Strategy)

Business strategy

As the leading exploration and Production Company in Pakistan, OGDCL’s primary

objective is to enhance its reserves and production profile and ultimately maximize value for
shareholders. In order to achieve this goal, the Company seeks to execute the following

 Accelerate Production Growth: by continuing to accelerate production growth,

allowing the Company to utilize its significant reserves base and capitalize on the strong
economic growth and accelerating energy demand in Pakistan.

 Exploit Exploration Opportunities: by building the Company’s future reserves portfolio

through its large onshore exploration acreage. For the fiscal year 2007, the Company
has set targets for exploration drilling of at least 41 wells and plan to increase this target
to 52 wells in fiscal year 2008 and 65 wells in fiscal year 2009.

 Maintain Low Cost Operations: OGDCL’s operating environment, namely the

geographic concentration of its reserves base within Pakistan, will be a major factor in
allowing it to control its low cost structure. Within Pakistan, the Company’s leading
position also enables it to access economies of scale across its significant reserves base
and operations.

 Pursue Selective International Expansion: while domestic expansion remains

OGDCL’s core focus, the Company intends to grow and diversify its portfolio through
selective international expansion in the medium to long-term.
 Implementing International Best Practice: by ensuring an efficient organizational
structure and business processes that are focused on core production. As part of they
restructuring plan, OGDCL has established an in-house technical services division, the
Petroserv Directorate, which separates technical support services from core E&P

Demand of Oil and Gas:

As discussed in the oil and gas industry analysis that the demand of both oil and gas are
increasing very rapidly. Demand for oil has reached up to 400 thousand barrels a day, but the
supply is only of 50 thousand barrels a day. The demand for gas is also increasing as the
demand of LPG is increasing. To meet this demand OGDCL is increasingly spudding the wells.
The spudding of wells depends upon the discovery of Oil and Gas. This discovery is also
increasing day by day. We can see both of it in the graphs.

Capital Structure:
OGDCL is 100% equity financed company out of which 85% share is of Government of Pakistan
and remaining 15% is issued to general public and some shares are also bought by
international investors.

Growth in Sales:
The sales of OGDCL has also grown insignificantly. In 2002 the sales of OGDCL 8 million
barrels of oil and now it has reached to 14500 barrels of oil. This growth in sales is due to
increasing demand of oil. The sale of Gas has also increased from 250000 MMcF in 2002 to
300000 in 2005 which was also same in 2007, now it has increased to 350000.

Earnings & Dividend:

The EPS of OGDCL has increased from 4 in 2002 to 11.54 in 2008. The Dividend payout rate of
OGDCL is very high because of the government control due to 85% share in capital.
Government covers its losses of petrol by getting these dividends.
Operating Leverage:

OGDCL has high operating leverage as it has high total Fixed Expenditures as
compare to variable expenditure, it gives a magnifying effect. It also shows that the
company is risky one.
A.Trend Analysis
B.Cross Sectional Analysis
Trend Analysis

I. Current Ratio
Ratios Reason for Deviation
Year Current Previous Deviation
1. Increase in:
• Dividend payable
2005 12.17 4.96 -59% • Creditors
• Compensated absences
• Benevolent payables.
2. Though C.A also increase but
percentage increase in C.L is higher.
1. Decrease in trade and other payables
2. Accrued liabilities increased due to
payment of benevolent fund and some
other employee related liabilities.
2006 6.51 4.96 +31.25% 3. The C.L. decreased by about 19.5%
and Current assets also increased by
1. Other financial assets decreased due
to decrease in Term Deposit Receipts
by about 18bn.
2. Net increase in C.L. is about 1bn ,
3. Provision for taxation decreased by
2007 6.16 6.51 -5.38% 3bn and
4. Trade and other payables increased
by about 4bn, due to increase in
unpaid dividend by 2bn.
1. C.L. has shown a heavy increase due
• The royalty payables, which rose
2008 3.69 6.16 -40.1% from Rs 2.397 billion to Rs 6.606
• Accrued liabilities.
2. The tax payable at the end of the year
amount also was high, as it included
advance tax from last year as well
3. C.A also rose in the year, primarily due
to the massive increase in trade debts,
from Rs 27873.515 billion from last
year to Rs 40626.931 billion.
Still the increase in liabilities is much
higher than the Increase in C.A. and as
compared to previous year.
II. Quick Ratio
Ratios Reason for Deviation
Year Current Previous Deviation

Decrease in inventory but

2005 4.4 10.32 -57.4% comparative greater increase in

The inventory level remained

2006 5.49 4.4 +24.8% same; But there is a decrease
in C.L.

2007 4.97 5.49 -9.5% Increase in inventory level by


2008 2.91 4.97 -41.5% Increase in C.L. in form of

royalties and as in the case of
last year in the form of taxes
provision incurred.

III. Debtor Turnover Ratio (or Receivables Turnover Ratio)

Ratios Reason for Deviation
Year Current Previous Deviation

Increase in sales was in greater

2005 4.65 3.92 +18.6% percentage as compared to the Account
Receivable increase
1. The drastic change in sales
2. The DTO in days has changed from
2006 4.50 4.65 -3.2% 78 to 81 days

2007 Comparatively less increase in sales as

3.83 4.5 -14.9% compared to trade debts Receivables.

2008 3.66 3.83 -4.4% Although rise in sales was high, but the
rise in debtors is relatively higher than

IV. Asset Turnover Ratio

Ratios Reason for Deviation

Year Current Previous Deviation
2005 70% 57% +22.8% Sales increased by 43% and assets
increased by 20%.
About 60% of company’s total assets in
this year are C.A. The sales increased
2006 82% 70% +17.1% with greater percentage as compare to
assets. That means that existing assets
were more effectively utilized. In fact the
plant property and equipment decreased
by about 1%
Increase in sale by 3.6% and increase in
2007 80% 82% -2.4% assets by 6.6%. Increase in asset is due
to increase in intangible production assets
by 7bn.
Sales have been on the increase
2008 90% 80% +12.5% (25.12%), so have the assets (15.02%)
but the increase in sales have been much
higher than the sales of assets
V. Operating Profit margin
Ratios Reason for Deviation
Year Current Previous Deviation
2005 63% 57% +10.5% Comparative increase in EBIT of 2005 is
greater than comparative increase in
sales. Workers profit participation fund
increased by about 1bn.
Percentage increase in sales was more
then percentage change in operating
2006 64% 63% -1.6% profit expenses. It can be concluded that
the company managed its op. expenses
well and was able to control them. We
can see that EBIT increased by 32%
against 31% increase in sale
Increase in sales by 3.6% but EBIT
2007 57% 64% -10.9% decreased by 7%. Operating expenses
increased by 22%. Other income
decreased exploration expenditure
increased more than 100%.
higher sales revenue
2008 60% 57% +5.26% Income gained from exchange gain on
foreign currency deposits

VI. Net Profit Margin

Ratios Reason for Deviation
Year Current Previous Deviation
2005 45% 44% +2.3% increase in sales by 43% and increase in
net income is 45% even taxes have
increased by double
Although Operating profit margin just
increased by 1% but net profit margin
2006 48% 45% +6.67% increased by 3% because the interest
expense didn’t increase by the same
percentage of revenues, this means that
company has utilized its assets more
efficiently as supported by Asset turn over
Decreased Gross Profit because of
2007 46% 48% -4.2% increased operating expenses as
development and spud ding of wells
More taxation costs of Rs 33.747 b as
2008 40% 46% -13% compared to Rs 15.428 b of last year.
This high taxation expense was mainly
due to tax effect of depletion allowance
cost for prior years.
VII. Gross Profit Margin

Ratios Reason for Deviation

Year Current Previous Deviation
2005 68% 61% +11.5% Due to increase in sale by 43% but the
COGS has not increased so much,
showing that company performed
Company has shifted exploration
expenses from COGS to operating
2006 72% 68% +5.9% expenses that is why the increase in
EBIT is less than increase in gross profit.

Increase in operating expenses of about

2007 70% 72% -2.8% 3bn.
The increase in cost of sales has been
2008 70% 70% 0% much higher than the increase in gross


Note: We are analyzing both ROCE & ROE under same head as there is no debt
Ratios Reason for Deviation
Year Current Previous Deviation
2005 41% 33% +24.3% Increase in NI by 45% and
increase in total capital is 9.2%,
as evident by OPM & NPM &
ROA of the respective years.
Capital increased by 13% due
to increase in appropriated
2006 52% 41% +26.8% profit but comparative increase
in NI is much more that is about
Net income decreased by 0.7%
2007 47% 52% -9.6% and Average capital increased
by 6%.
The rate of increase in Net
2008 47% 47% 0% income is equal to that of
increase in Average Capital
IX. Return on Investment

Ratios Reason for Deviation

Year Current Previous Deviation
2005 31% 25% +24% Increase in NI is 45% and
increase in total assets is 20%.

Percentage increase in NI was

more than the percentage
2006 39% 31% +25.8% increase in the assets.
Small decrease in net income
2007 36% 39% -7.7% and increase in the total assets
especially the significant
increase in intangible
production assets by about 7bn.

Rise in assets has been 16.4%,

2008 35% 36% -2.8% while the rise in Profit After Tax
has been 8.7%.
X. Earnings Per Share
EPS for the year is 11.56 while for the previous year it was 10.41, showing a rise in net
income. Rise in EPS means the rise in income as the total number of share of OGDCL
are same.
Cross Sectional Analysis

(Analysis with Industry)

Ratios Reason for Deviation
Ratio Company Industry Deviation
I. Increase in Royalty payable.
II. Increase in tax rate
Current 3.69 4.3 -14.2% III. Although Current assets
Ratio are 52% of total assets with
industrial average of 32%,
but the current liabilities is
seen to have a significant
rise due to above stated two
major factors.
I. Although the company has
maintained less stock as
Quick 2.91 3 -3% compared to industry
Ratio average. Company Stock is
about 1.9% of total current
assets, but the industry
average is 8% of total current
assets. But the major reason
is still the rise in royalty &
The company has about 26% of
its sales as receivables whereas
Debtor in the industry receivables are
Turnover 3.66 5.89 -37.9% 16% of sales. The company’s
credit policy seems to be less
strict than the industry.
Because of the high RTO the RTO
in days is also higher than the
industry as 100 days for the
company and 62 days for the

The amortization of exploration

Gross and decommissioning costs for
Profit 70% 60% +16.67% the industry are about 16% of total
Margin costs of goods sold where as for
OGDC there were no amortization
costs for the last two years and a
provision for decommission costs
has already been made. Overall
OGDCL is more profitable than
the industry.
Operating Total operating expenses as a
Profit 60% 51% +17.65% percentage of total expense are
Margin also less for OGDCL than the
The NPM for industry and for
the company has reduced
prominently from 47% and
Net Profit 44% respectively. Reason
Margin 40% 38% +5.3% being:
I. Increase in Finance Cost
II. Increase in Tax rate from
25% to 40%
a. Sustainable Growth Rate (SGR)

b. SGR under Steady- State Model

c. SGR under varying assumptions

II. Forecasting statements on the basis of SGR

Sustainable Growth Rate

A. Under Steady State Model

b = Dividend Payout ratio

= Net profit margin

= Debt to equity ratio

= Assets to sales

b = 82%

= 40%
= 0 (OGDCL is fully equity Financed)

= 1.20

So, SGR is,

B.SGR under varying assumptions


Eq. = Current Equity

New Eq. = Additional Equity issued

Div. = Dividends

= Debt over equity ratio

= Sales over assets

= Net profitmargin
= Current year sales

So, for OGDCL;

Eq. = 100

New Eq. = 0

Div. = Rs9.82


= 0.833147

= 40%

= Rs 125,445,674

So, SGR for OGDCL under varying assumptions is;

SGR = 35.31%
3. Forecasted Financial Statements
Demonstrated in Excel sheet.