3.

Group Project (Firm and Industry Analysis)

The objective of the group project is to give you an opportunity to study one company in depth. Your project should demonstrate evidence of detailed analysis of financial statement data and evidence of integrating the tools and concepts covered in the course. The deadline will be provided to you by your instructor. You are required to prepare a report (maximum 15 pages + supporting exhibits + one-page executive summary) that summarizes the results of your financial analysis, using one-inch margins, a reasonable font size, and double spacing. In addition, please make appropriate references to the source material and submit copies of any unique source material you use. Here is the suggested approach for your project. Select a listed firm in which you have a particular interest. Analyze this firms performance relative to its past performance and relative to the performance of other firms in the same industry. You will need at least 5 years worth of data to make a meaningful analysis. Data may be available from the companys website, from the Karachi Stock Exchange Library, from the internet or from the research department of a brokerage firm. After you have done some preliminary analysis, settle on a theme or thesis for your project. Ask yourself, what is the story for this firm? How would a newspaper headline for the story read? The analysis will then be used to support your position. The types of questions you might wish to address include the following: 1. How does a companys recent performance compare to that of its major competitors, taking into account any accounting differences across firms? 2. What are its performance expectations? 3. Does the company face major lawsuits? 4. Has it made unwise investments? 5. Would you recommend a buy/sell/hold on the stock given current stock prices? Why? 6. What is the companys secret? 7. In a growing/declining industry, why is the company declining/growing?

Pakistan's net oil imports are projected to rise substantially in coming years as demand growth outpaces Increases in production. Demand for refined petroleum products also greatly exceeds domestic oil Refining capacity, so nearly half of Pakistani imports are refined products. Pakistan's Pak-Arab Refinery (PARCO) became operational in late 2000, adding to the country's refining capacity and helping to Alleviate refined product import dependence. Foreign Interests : The two most significant foreign oil firms in Pakistan are BP and Eni. BP operates 43 fields in the Country with average production in the first three quarters of 2005 of 30,000 bbl/d. BP holds a 50 percent share of this production. Eni, the Italian-based firm, had a net equity production of around 50,000 bbl/d oil equivalent during 2004. Eni s main operation sites are in the Bhit and Kadanwari gas Fields in Sindh Province. Other firms operating in Pakistan include BHP Billiton (Australia) OMV (Austria), Energy required: Almost 80% of Pakistan s energy is based on oil and gas. The dependance on gas in consumption is 43%. The total consumption in Pakistan is 17.4 million tonnes of oil and 29.9 billion cubic meters (bcm) of gas respectively.

Performance in respect to its competitors.

For investors with a long-term perspective, we recommend BUY of OGDC because of favorable performance of the company. The company expects its earnings to grow in the future. OGDCL holds over a third of Pakistan's hydrocarbon reserves, and contributed more than 22 percent and 48 percent of the country's natural gas and oil production in theprevious year respectively. The relative efficiency of OGDC can be judged by the fact that its comparative cost per unit BOE is the lowest. The present growth of OGDC has primarily come through the increase in gas consumption. This is because of the perceived low cost of the gas per unit as compared to oil. As the oil reserves of OGDC are limited with an expected life of 8 years, it is predictable that the energy giant will lean towards gas to support its growth, which has a reserve life of 36 years.

INDUSTRY SWOT ANALYSIS:

STRENGTH
Oil and Gas sector in Pakistan has seen phenomenal growth since the independence in 1947 when Oil quantities produced were scarce. At that time there was no gas production. Over the

past half century the petroleum industry has played a significant role in national development by making large indigenous gas discoveries. The fuel consumption in the country has increased from 19.2 million to 20.8 million tons due to increasing Mogas and fuel oil consumption in the country.

WEAKNESS
Oil and Gas Products are regulated by Government and their Prices and Margins are also set by Government that is why OMCs have NO option to increase their profit by any ways other than increasing their Sales (Profit Margin is Fixed). Government is the biggest buyer of Oil and Gas, and because of Current tight economic situation of Pakistan government is not paying its debts on time because of which OMCs are facing tight financial positions and bearing extra financial cost on their loans.

OPPORTUNITY
The Government is formulating attractive policies to provide an investment friendly environment to the foreign companies. These policies have resulting in US dollar 605 million of foreign direct investment in the oil and gas sector for the year 2009-10. Because of continuously rising prices of Oil and Gas OMCs also get Inventory Gains on their Stock in Trade and on other Inventories.

THREATS
Oil consumption has decreased significantly in the period between July and September due to massive devastation caused by super flood in the country. Sales of the industry were affected very badly due to slowdown of economic activities in the country. Distribution expenses have also increased significantly due to the loss of routes of transportation and other infrastructure

facilities.