OGDCL

FINANCIAL ANALYSIS OF OGDCL

Yr 07-09

ISLAMIC INTERNATIONAL UNIVERSITY

Submitted to : PROF. WASEEM ULLAH(LUMS)

Submitted by: SEHRISH SADAQAT
MERIUM RAUF
HUMA NAYAB
KASHAF SHABIR

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OGDCL

OGDCL (oil and gas Development Corporation) is the leading exploration and Production
Company in Pakistan.It was initially created as the PUBLIC sector in 1961.It was converted into
the public limited company on 23 October 1997. OGDCL is listed on all the three stock
exchanges of Pakistan as well as on the London stock exchange. Government of Pakistan has
divested 4.98% of its shareholding in October 2003 through an initial public offering. GOP now
owns 85.32% of shares of company. OGDCL contributes 24% of country’s total natural gas
production and 62% of its oil production.
MAIN PRODUCTS: OGDCL deals in the production and exploration of crude oil, gas, LPG,
and sulphur. OGDCL is the main supplier of crude oil, petroleum, gas and LPG to Shell, PSO,
Attock Refinery, Pak refinery. So OGDCL is the main leader of the gas and oil exploration and
enjoys autonomy.

Company has productions from 3 sorts of fields 100% own, joint venture and shares in non
operated fields. Currently OGDCL has 44 developmental and production mining leases. OGDCL
is following the strategy of sustainable growth with the primary objective to enhance its reserve
and production profile and ultimately maximize the value for shareholders. Main strategy is to
accelerate the production and cut the cost that can allow the company to capitalize on the
economic growth.

RISK: OGDCL as an oil and gas explorer is exposed to certain operational and non operational
risk. Crude oil pricing, exchange rate, exploration and drilling risk and environmental risk
constitute the composite risk of OGDCL. However competitor risk is quite low as the allocation
of resources, pricing and sales contract are made by the Pakistan government, attributing the
highest profit compared to their competitors.

LEVERAGE: OGDCL is self sufficient in financing through profits and internal investment
however because of circulated debt and financial crises of their buyer, OGDCL has to take loans
to continue exploration. Since it earns huge profit, OGDCL has the excess to the funds at the

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OGDCL

desired rate pro OGDCL in compliance with the government’s regulatory requirements of
Environmental Protection Act 1997.

INFORMATION TECHNOLOGY: Oracle E&P system, is used to bring more efficiency,

transparency and control.

REPUTATION OF OGDCL: The main sponsor of OGDCL is Pakistan government that

enhances the management reputation and also the biggest public sector of oil and gas with
highest share in the country production ascertain the reputation of OGDCL in the market.

CAPITAL: OGDCL financing by equity is in a high proportionate that not only provides
flexibility and cushions in decisions but also the opportunity to generate new capital is also
commendable.

PRODUCTION AND SALES: Sale revenue in FY09 increased by 3.9% to RS 130.8 billion
compared to Rs 125.908 billion in2008 and 100.197 billion in 2007. Increase in sales was mainly
due to increase in realized prices and enhances sales volume. However in 2009 the realized
prices and sales volume of LPG and other petroleum product declined resulting in the net
increase of only 4.946 billion. Profit for the whole year increased by 25.3% to Rs 55.540 billion
compared to 44.338 billion in FY08 due to decrease in provision for taxes and royalty. Because
of increased profit the earning per share has increased to Rs 12.91 compared to Rs 10.31 in 2007
and 2008.Production of crude oil in company 100% own fields and share operated JV however
in year 2009 was less than year 2008 by 3.3%.Gas production and LPG production also
decreased due to security issues and other mechanical problems as was anticipated for year 2009.

PEER GROUP SELECTION: Among the all oil and gas producers peer group is selected on
the basis of sales as competition and strength of market could be determined through sales thus,
indicating the demand and profitability.

• PAK PETROLEUM LIMITED

• ATTOCK REFINERY
• ATTOCK PETROLEUM

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OGDCL

• SHELL

LIQUIDITY

2007 2008 2009

Liquidity Current Deviation Current Deviation Current Deviation
Current ratio 6.2 -0.30 3.7 -2.50 4.1 0.40
Quick or acid test ratio 5 -1 3 -2 3.3 3

The current ratio shows the ability of the business to generate cash to meet its short-term
obligations. The overview shows that they have not managed to create a good combination of the
current assets and liabilities making it financially not sound and liquid enough to cover its
liabilities. There is however a considerable appreciation in the year 2009 as compared to the past
years. This phenomenon may be attributed to the considerable increase in current assets with less
proportionate change in liabilities. In 2007 the ratio has depleted, decreasing by 0.3 and the
main contributors to this were the decrease in current assets and increase in current liabilities as
there is a 55% increase in trade and other payables and a 5.65% reduction in other financial
assets. In 2008 ratio has depleted, decreasing by a greater percentage of 2.5. Main reason for the
depletion is 53% increase in payables and provision for tax being made. However, in 2009 the
ratio has appreciated showing the 0.4 from the previous year which is because of reduction in
current liabilities. This shows it needs to improve its liquidity position by increasing its current
assets or reducing its current liabilities further so that it has sufficient cash at hand to meet its
day to day expenses.

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OGDCL

The acid test ratio shows how a firm is able to cover its current liabilities with the most liquid
of its assets excluding the inventories which are not so easily converted into cash. As it can
already be seen from the current ratio, the firm is not in a good liquidity position. This can be
due to the fact that current liabilities have risen but the severity can also be attributed to the high
levels of inventory held by the enterprise. In 2007 ratio has depleted and the main reason is
because of a 19% increase in inventory and because tax had not been deducted in 2007 from
current liabilities. However, in 2008 ratio has depleted by a greater 1%. Main reason for the
depletion is that there is a 26% increase in inventory and because 39% receivables have
decreased. In 2009, however the ratio has appreciated due trade debt being increased.

This concludes that OGDCL has not been good on the whole, because of excess inventory that
makes up most of its current assets and because current liabilities have not decreased by a greater
percentage. Therefore, quick assets, that are most required for liquidity, have not been able to
cover up the current liabilities sufficiently.

CROSS SECTIONAL ANALYSIS

Current Ratio

YEAR OGDCL PEER Reasons

2007 6.2 2.3
As compared to
peer group ,
OGDCL is more Quick Ratio
2008 3.7 1.8 liquid BUT trend
appears to
YEAR OGDCL PEER Reasons
change because
2009 4.1 2.01 of recycled debt
2007 5 1.85 As compared to
peer group ,
2008 3 1.36 OGDCL is having
higher level of
2009 3.3 1.43 liquidity

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OGDCL

PROFITABILITY

Gross profit margin is a measure of profitability of a business; a measure of the ability to pay
overhead since all costs associated with obtaining and selling is subtracted out. It measures the
2007 2008 2009
Profitability ratios Current Deviation Current Deviation Current Deviation
Gross profit 70 -2 70 0 70 0
Net profit 46 -2 40 -6 43 3
Return on equity 47 -5 47 0 47 0
Return on Investment 49 -5 59 10 50 9
efficiency of the purchasing and marketing functions. According to the trend, it is observed that
sales has increased continuously by 3.7%, 25% and 4% in three of the years but the increase has
been counter by increased cost of good sold by 13%, 23% and 4%. In 2008, cost of good sold
increased the most with 57% increase in royalty and 35% increase in transportation expenses. So
the trend analysis shows that OGDCL has maintained the profit by maintaining every cost factor.

Net profit margin shows what amount of pure revenues firm is earning. The ratio for OGDCL
shows that it had been earning high profit in 2007 but the ratio since then declined in 2008 and
then increased in 2009. In 2007, Net income has decrease by 3 lac , attributed to the increase in
finance cost of 4 lac and 100% rise in operating expenses contributing deviation of -2 times from
year 2006.In 2008 the ratio has declined further with the deviation of -6 times from year 2007.
The sales had risen more than normal but the cost of earning and taxation litigation in 2008 has
caused the downfall. In 2009, rise in the profit per unit of sales has been observed which is
attributed to increase in net income by 12% by the decrease in royalty and taxation that now
constitutes 12% and 19% of sales.
Return on equity trend shows, investors investing in OGDCL are getting the same return for the
3 consecutive years. The ratios indicate the same return of 47% on the investment of common
shareholders which shows the management constant operational efficiency to generate the same
return from common share holders equity. In 2007, net income decreased by 0.7% with 6%

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OGDCL

increase in equity, attributing the decrease in the return from 2006.In 2008 and 2009 change in
net income is same as that change in equity that shows that OGDCL has developed efficient
policies that has equalized the same return in 3 years.
Return on investment measures the performance of the equity (assets) employed to generate the
income, the trend shows that the performance of the equity decrease in 2007. Then increase the
most in 2008 and then decreased. In 2007, performance of assets has decreased because of 7%
decrease in EBIT and 3% increase in assets. EBIT has decreased because of 101% increase in
operating expenses and increase in transportation expense by 1.8 million. However In 2008
performance of assets to generate income has increased since the operating income has increased
by 36% with 11% increase in assets.36% increase in EBIT in 2008 is attributed to 25% increase
in sales,4.6 million increase in other income and 10% decrease in operating income, In 2009,
ratio has decreased as the operating income has decreased by 5% while the assets have increased
by 18%,decrease in operating income is attributed to increase in operating expenses, increase in
exploration expenses.
Overall trend shows OGDCL is profitable because of better management of cost factors and
increasing demand.
DU PONT ANALYSIS:
2007 2008 2009
Net profit margin 0.45 0.39 0.42

Total assets turn over 0.82 0.96 0.86

Equity multiplier 1.28 1.28 1.37

ROE 0.47 0.47 0.47

As the data shows that the factor contributing in more proportion to the return on equity is the
equity multiplier (a measure of company leverage). It means that the company has financed more
of its assets through debt to generate the return on assets employed. Even in 2008 and 2009,
equity multiplier is proportionately more than other contributing factors.

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OGDCL

COMPONENT ANALYSIS: OGDCL net profit margin, increased in 2007 that shows the
effective planning and management while the decline is observed in 2008 (because of tax) but
they have increased their profit margin in 2009 through effective management of operating cost.
OGDCL total assets turn over has increased the most in 2008 show casting the effective
utilization of the assets employed. In 2008 the sales have increased by 25% and assets have
increased by 16% depicting the profitability. Liquidity analysis shows OGDCL is doing high
level of debt financing however the ratio has decreased in 2009 showing that OGDCL is paying
off debt.
CROSS SECTIONAL ANALYSIS:
Return on Equity
YEAR OGDCL PEER Reasons
2007 47 33.23 OGDCL return on
equity is more that of
their peer group in
2007 that return on
equity is highest that Return on Investment:
2008 47 48 shows the effective
YEAR OGDCL PEER Reasons policies and
2007 49 22.22 OGDCL operational
shows
management.
better performance In
on2008,
the ratio is lower
investment
2009 47 33.50%
because
or asset of tax
employed
litigation
then that charges.
of the But
2008 59 29.1 entirethepeer
ratio group
again in is
allhigher
of theinthree
2009 ASSET UTILIZATION
years. It shows
Asset Utilization 2007
OGDCL excellent 2008 2009
2009 50 23.28 Curren
performanceDeviatioof Curren Deviatio Curren Deviatio
generating the
highestt return on n t n t n
the assets
Accounts receivable 95.79 -12 106.14 10 141.13 35
Total asset turnover 80 0 90 10 79 -11
382.227 306.368 302.610
Total stock turnover 4 -27 1 -76 3 -4

The total asset turnover shows how a firm is performing in terms of economic utilization of
assets. It shows how a firm is using its assets to earn revenues. In the case of OGDCL, it has not
been a favorable situation. The company has been facing a low asset turnover under the years of

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OGDCL

review. A regular decline can be seen which can be improved if the current asset can be
liquidated in time. The revenue generation as is evident should also be raised. However, there
has been no deviation in 2007 because sales increased by 3.62 and even totals assets increased by
6.61% comparatively. However, in 2008 the deviation is an increase of 10 times in the ratio.
Annual sales have increased by 25.12% and total assets have increased by 16.4%; thus showing
the effective utilization of assets and effective pricing strategies used. These both are responsible
for the increase in the ratio. In 2009, the change is a decrease of 11 times in the ratio. This is
accountable to the annual sales that have increased by 4.12% whereas total assets have increased
by 18.21%; therefore assets increased more in comparable with sales showing high profit margin
of company in this year.

In 2007, ratio decreased by 27 times showing poor sales and excess inventory as thus as average
inventory has increased by 21.5% but cost of goods sold has increased by 13.4%; the inventory
increased relatively more than COGS. In 2008, however the change is a decrease of a greater
percentage of 76 times. Average inventory has increased by 54.06%. Cost of goods sold has
increased by 23.49% as royalty, operating expenses and transportation charges increased since
previous year; the inventory increased relatively double than that of COGS. However, the change
in 2009 is a decrease of a lesser percentage of 4 times. Average inventory has increased by
5.19%. Cost of goods sold has increased by 4.61%; the inventory increment is almost same as
COGS thereby depicting low increase in surplus stock than earlier years.

In 2007, the deviation of the accounts receivable turnover ratio depicts that the proportion of
sales with comparison to account receivables is less thus showing that most transactions
happened on credit and are not efficient in collecting back debts, as the ratio decreased 12% than
previous year. However, average receivables have increased 34.6% and sales have increased by
3.62%. The deviation in 2008 is an increase of 10 times in the ratio. The average receivables
have increased by 3.64% but sales have increased by a larger percentage that is, 25.12%; thus
showing that average receivables turnover in days as decreased from approx. 4 days to 3 days
and sales have increased in greater proportion. Deviation in 2009 is an increase of 35 times in the
ratio. Average receivables have decreased by 11.14%. However, sales have increased by a very

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OGDCL

lesser percentage, 4.12%; therefore most sales took place on cash though sales increment isn’t
much and turnover days have decreased from 3 days to 2.5.

Overall, OGDCL earlier illustrated high credit sales but with improvements it led to effective
turnover of receivables and few credit sales. This proves that it has been in a better capital/ debt
position as it lends less debt in the form of accounts receivables. On the other hand, OGDCL has
illustrated low stock turnover thereby implying that company has had less sales and excessive
inventory as thus. Therefore, this means it needs to efficiently manage its stock by turning stock
into relative sales and it exhibited effective utilization in 2007 and 2008 with increasing sales
and total assets respectively whereas in 2009, more asset investment than utilization of them into
high sales. This show there has been inefficiency in utilization of assets recently and concludes
that assets need to manage efficiently to give productive results.

CROSS SECTIONAL ANALYSIS:

Accounts receivable turnover

YEAR OGDCL PEER Reasons

2007 Overall
95.79 82.68 OGDCL
demonstrated Total Asset turnover
2008 106.1 106.9
that among
4 8 peer group,
YEAR
2009 OGDCL PEER Reasons
management is
2007 efficiency
Overall to
80
141.1 34.28
carry outshows
OGDCL sales
3 91.88 on credit
better use of Stock turnover
2008 assets in
comparison to
90 34.29
peers
2009
79 30.22

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OGDCL

YEAR OGDCL PEER Reasons

2007 382.227 46.4443 OGDCL

4 8 shows
2008 306.368 better

1 71.392 inventory
2009 302.610 turnover
3 126.358

LEVERAGE

2007 2008 2009

Leverage Current Deviation Current Deviation Current Deviation
Debt ratio 22.21 1.58% 27.51 23.86% 29.11 5.82%
Interest coverage
ratio 137 -97.90% 147 7.30% 88 -40%

According to the debt to assets ratio OGDCL has weak position in the consequent 3 year.
OGDCL seems to take the increasing debt that can trouble the company in the future because of
the increasing finance cost which can jeopardize the company investment opportunities by
reducing the net profit. In 2007, 23% of the company assets have been financed by the creditors
of the company which is 2% more than previous year. In 2007 debt has increased by 8.2% with
the subsequent increase of 55% in trade and other payables. In 2008 the debt ratio has increased
more with 45% increase in debt and 18% increase in assets as that of 2007. The debt increase is
proportionally more than that of assets. In 2008 the debt increase was because of 92.75%
increase in current liabilities and 30.68% in fixed debt. In 2009, 29% of the total assets OGDCL
is financed by the creditors, with the statistic of 23.69% increase in debt and 17% increase in
assets. The main reason for the increased debt ratio is the “RECYCLING DEBT” which has
increased OGDCL payables. All of the buyers of the OGDCL (i.e. Pakistan petroleum) and

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OGDCL

others have due payment from (Wapda) and other consumers that are facing financial crunch,
thus hammering the payments of OGDCL and increasing payables.
Interest coverage ratio measures the earning available to cover the interest payments. OGDCL
trend shows the ratio to increase in 2008 and then decrease in 2009.In 2007 , the ratio has
decreased or the ability has decreased because of decrease in EBIT by 7% and increase in
interest expense by 4400%.sine the debt has increased proportionally more that has jeopardize
OGDCL ability to cover interest expense with operating income. However in 2008 , interest
coverage ratio has increased by 7.30% with 28% increase in EBIT and only 18% increase in
interest expense. Increase in EBIT in 2008 is attributed to 25% increase in sales and minimal
decrease in operating expenses as that of 2007. In 2009 the ratio has decreased showing the
deviation of 40% since the EBIT has only decreased by 4% while the interest expense has
increased by 72% which is 94% more than decrease in EBIT.

So, overall trend of leverage ratio shows that the debt financing of OGDCL is increasing
because of recycling debt that is also hammering the ability of OGDCL to finance through
internal investment.

CROSS SECTIONAL ANALYSIS:

Debt to asset ratio

YEAR OGDCL PEER Reasons

2007 22.21% 52.83 Overall OGDCL
analysis shows
less debt financing
then peer group, Interest coverage ratio
2008 27.51% 52.92 even though
OGDCL debt ratio
is increasing
2009 29.11% 54.24 because of
recycled debt

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OGDCL

YEAR OGDCL PEER Reasons

2007 137 127 As compared to

peer group, OGDCL
can cover its COMMON SIZE INCOME STATEMENT
2008 147 125 interest expense
but decreases in
INCOME 2009 because
2009 of %of sales
2009 STATEMENT
88 108 2008 %of sales 2007 %of sales
reduced volume of
sales and
sale-net 1308295
production 100 1259083 1002611
79 04 100 91 100

- - - - - -
1515566 11.584281 1732018 13.756191 1087744 10.84910
royalty 7 72 7 17 3 61
- - - - - -
2267389 17.330861 1961334 15.577483 1849738 18.44920
operating expenses 3 39 5 28 8 03
- - -
- 1.1637192 - 1.1695932 - 1.085096
Transportation charges 1522489 53 1472615 3 1087931 82
- - - -
3935204 30.078862 3840614 30.503267
9 36 7 68
9147753 69.921137 8750214 69.496724 6979842 69.61659
Gross profit 0 64 7 38 9 671

2.5764991 3.0701199 3.605812

other income 3370823 57 3865536 82 3615231 941
- - -
Exploration and prospecting - 5.7017381 - 5.2521047 - 7.386985
expenditure 7459560 37 6612836 38 7406280 86
- - -
General and administration - 1.0188689 - 0.9917058 - 1.282127
expenses 1332982 82 1248640 37 1285476 2
-
0.2535837
Provision for impairment loss -319283 51
- - -
0.7078116 0.4263412 0.448389
Finance cost -926027 49 -536799 21 -449561 85
- - -
- 3.2556582 - 3.4846081 - 3.205245
Worker's profit participation fund 4259364 64 4387411 32 3213617 19
Shares of profit in associate-net of 0.0439525 0.0354861
taxation 57503 99 44680 42
8092792 61.857512 7830740 62.193994 6105872 60.89966
Profit before taxation 3 36 4 77 6 156

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OGDCL

- - - - - -
2538828 19.405613 3396929 26.979390 1542876 15.38856
Taxation 2 16 3 49 2 84
5553964 42.451899 4433811 35.214604 4562996 45.51109
Profit for the year 1 2 1 3 4 3

COMMON SIZE BALANCE SHEET

SHARE CAPITAL AND

RESERVES 2007 % 2008 % 2009 %
43,009,2 33.253 43,009,2 28.238 43,009,2 24.163
Share capital 84 357 84 09 84 551
2,438,22 1.8851 2.2999 2.0553
Capital reserve 8 573 3503064 648 3658318 226
Unappropriated 55,169,1 42.654 6390299 41.956 7950379 44.666
profit 40 956 5 024 4 961
100,616, 77.793 110,415, 72.494 126,171, 70.885
652 47 343 079 396 835
NON CURRENT
LIABILITIES
Deferred 11,023,9 8.5233 1213193 7.9653 1771049 9.9501
taxation 16 275 2 173 7 425
Deferred employee 1,423,13 1.1003 1.0035 1.1284
benefits 2 186 1528444 122 2008499 184
Provision for decommissioning 5,151,80 3.9832 4.4614 1081450 6.0758
cost 7 069 6795141 043 6 247
17,598,8 13.606 2045551 13.430 3053350 17.154
55 853 7 234 2 386
CURRENT
LIABILITIES
Trade and other 11,122,6 8.5996 1721555 11.303 1874732 10.532
payables 65 77 5 011 8 657
Provision for 2.7726 1.4271
taxation 4223048 76 2540170 228
11,122,6 8.5996 2143860 14.075 2128749 11.959
65 77 3 687 8 779
28,721,5 22.206 41,894,1 27.505 51,821,0 29.114
Total liabilties 20 53 20 921 00 165
Total Capital and 129,338, 152,309, 177,992,
Liabilities 172 100 463 100 396 100

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OGDCL

NON CURRENT
ASSETS 2007 % 2008 % 2009 %
Fixed assets
Property, plant and 216002 16.700 232296 15.247 284821 15.996
equipment 01 562 31 362 94 793
Development and production 287499 22.228 368080 24.159 490577 27.552
assets 93 544 14 88 66 897
Exploration and evaluation 636570 4.9217 767244 5.0360 877969 4.9310
assets 6 535 4 046 9 468
567159 43.850 677100 44.443 863196 48.480
00 859 89 246 59 737
294593 2.2777 290313 1.9055 296013 1.6625
Long term investments 8 019 3 455 2 342
111775 0.8642 180662 1.1858 184970 1.0388
Long term loans and receivables 5 112 0 212 7 729
0.0307 0.0715 0.0479
Long term prepayments 39821 883 108937 036 85357 401
608194 47.023 725287 47.606 912148 51.230
14 561 79 117 55 084

CURRENT ASSETS
Stores, spare parts and loose 131782 10.189 166150 10.905 174643 9.8087
tools 95 022 95 742 51 112
Stock in 0.0725 0.0996 0.0608
trade 93788 138 151782 26 108301 264
278735 21.550 407052 26.717 561400 31.530
Trade debts 15 881 99 963 92 628
153865 1.1896 233903 1.5352 263396 1.4793
Loans and advances 7 387 7 867 5 451

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OGDCL

Deposits and short term 0.2264 0.4457 0.2356

prepayments 292928 822 679165 873 419621 767
Interest 0.1957 0.1183 0.0152
accrued 253222 829 180295 412 27156 519
Other 106338 0.8221 0.4189 0.5500
receivables 9 772 638291 586 979319 266
135539 10.479 102075 6.6999 508791 2.8575
Other financial assets 59 473 16 639 7 874
595071 4.6008
Advance tax 3 946
472029 3.6495 830654 5.4522 397381 2.2318
Cash and bank balances 2 738 8 15 8 627
685187 52.976 798230 52.393 868345 48.769
58 439 28 883 40 916
129338 152351 178049
Total assets 172 100 807 100 395 100

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