Oil and Gas Development Company Limited

Transcription

1 Oil and Gas Development Company Limited Conference Call on Half Year Results FY2012 (July 2011 December 2011) Presenters: Mr. Basharat A. Mirza, (Managing Director / CEO) Mr. Muhammad Rafi, (Executive Director Finance / CFO) Mr. Muhammad Riaz Khan, (Executive Director - Production) Mr. Zahid Imran Farani, (Executive Director - Exploration) Date: Thursday, 23 rd February 2012 Time: 5.00 PM (Pakistan Standard Time) Operator: Good day ladies and gentlemen and welcome to OGDCL s Half Year Financial Results for FY2012 (July December 2011) Conference Call. For your information this conference is being recorded. At this time I would like to turn the conference over to your host today, Mr. Basharat A. Mirza. Please go ahead sir. Basharat A. Mirza: Ladies and gentlemen, this is Basharat A. Mirza from OGDCL. I welcome you all to OGDCL s Half Year FY2012 results announcement conference call. I hope you must have received a presentation forwarded by our Investor Relations Department with respect to OGDCL s Half Year Results for the year I would ask you to open the presentation to page number 2 containing the disclaimer. You are advised to read the contents of the same while I pause here for a moment. I am pleased to inform you that our Company has been the largest upstream player in Pakistan for the past three decades. We enjoy the largest share of exploration acreage in the Country which is about 22% of the total awarded acreage of Pakistan. As of 30 th June 2011, we hold 51% of the Country s recoverable oil reserves and 35% of the Country s recoverable gas reserves. In terms of production, as of 31 st December 2011, OGDCL delivered 57% of Pakistan s oil output and 25% of its gas output. Our remaining recoverable reserves, as of 31 st December 2011, stood at an impressive 1,157 million barrels of oil equivalent (MMBOE) on 2P basis. The reserves are based on Page 1

2 the latest available third party reserves evaluation study by M/s Tracs International, UK minus the actual production for the period of July 2010 to December OGDCL have a portfolio of 77 fields out of which 45 fields are 100% owned and operated while 32 are non-operated fields where we act as non-operators having joint venture agreements with foreign as well as local E&P companies. We have extensive experience operating in all four provinces of the Country. Therefore, OGDCL have acquired expertise in operations, which is second to none, in all geological terrains of the Country. On the production volume side OGDCL witnessed a 3.72% increase in its net gas production and has registered a slight decline in its crude oil production when compared to last year. However, we are pleased to inform you that net oil and gas production during the month of January 2012 stood at 39,626 barrels per day (BPD) and 1,150 million cubic feet of gas per day (MMcfd). OGDCL expect that this rising trend in production will continue in the near future. During the period under review, OGDCL was able to spud seven (07) wells, one (01) exploratory and six (06) development wells and made two (02) oil & gas discoveries, namely Nashpa 2 and Zin X-1. Moving to the next slide, which is slide number 4, you will see a map which clearly shows that OGDCL is present in all the prospective areas of the Country. A provincewise break-up as well as operated / non-operated break-up of our Exploration Licences in the Country is also shown here, along with a pie chart which illustrates the provincewise percentage acreage of the Company. To carry on with the presentation, I now request Mr. Muhammad Rafi, Executive Director (Finance) & CFO, and other heads of the department to take you through the next few slides of this presentation. Page 2

3 Muhammad Rafi: Greetings, ladies and gentlemen. This is Muhammad Rafi, Executive Director (Finance) & CFO of OGDCL. Moving on to slide # 5 which reflects latest operational and financial performance of the Company. I am pleased to state that during the period under review, the Company witnessed a rising trend of profitability and improved operating performance. The net revenues of the Company increased from Rs billion to Rs billion, registering a 9.4% increase. Profit after Taxation (PAT) of the Company grew by 31.6% to Rs billion from billion, when compared with corresponding period of last year. The earnings per share of the Company increased from Rs 7.35 per share to Rs 9.67 per share during the current half year. These results are primarily attributable to increased gas production and higher realized prices of crude oil, gas and LPG which averaged at US$ / barrel, Rs / Mcf and Rs 70,811 / M.Ton respectively. Operating Profit Margin and Net Profit Margin stood at 62% and 37% respectively. The second interim dividend as announced by the Board of Directors is Rs 1.50 per share. I will now hand over the presentation to Mr. Zahid Imran Farani, who is OGDCL s head of exploration, to continue with this presentation and take you through the next slide. Zahid Imran Farani: Good day, ladies and gentlemen. I will be taking you through slide # 6. During the period under review, the Company marked fourteen (14) well locations and spudded seven (07) wells including one (1) exploratory well namely Uch Deep-1B and six (6) development wells namely Rajian-6, Uch-19, Uch-32, Uch-27, Qadirpur-43 and Qadirpur-44 Extended Reach Wells (ERW). In addition, drilling and testing of eleven (11) ongoing wells from previous fiscal year also continued during the half year. As at 31 st December 2011, the Company held the largest exploration acreage in the Country covering an area of 61,084 square kilometres. This includes 34 owned and Page 3

4 operated joint venture (JV) exploration licences. Additionally, OGDCL also have working interest ownership in seven (7) exploration blocks operated by other companies. During the period under review, the seismic crew of the Company acquired 929 L. Kms of 2D and 234 Sq. Kms of 3D seismic data. Further 1,550 L. Kms of 2D seismic data was processed and reprocessed. Now Mr. Muhammad Riaz Khan, Head of the Production / Process, will take you through the next couple of slides. Muhammad Riaz Khan: Hi, Riaz here. Now we are at slide # 7. During the period under review, the Company s net gas production during first half year increased by 3.72% owing to start of gas production from Bahu & Noorai Jagir fields coupled with improved gas production from Qadirpur, Nashpa, Mela and Chanda fields in addition to a slight increase in share of gas from non operated joint venture fields. Despite increase in crude oil production from OGDCL owned and operated fields, the Company s net production of crude oil was affected by 2.89% primarily due to unprecedented devastating floods in the Southern region. The crude oil transportation from one of our fields, Bobi Oil Complex (BOC) to refineries remained suspended during September 2011 due to deteriorated road conditions resulting from floods. In addition, a labour strike of transporters in Chanda, Mela and Nashpa fields, Annual Turnarounds (ATA) of Dakhni, Uch and Qadirpur also contributed to this small decline. LPG production during the year also witnessed a marginal decline of 2.5%. During the period under review, Nashpa 2 and Mela 3 wells were placed on production. Nashpa 2 is contributing around 6,000 BPD of crude oil with 20 MMcfd of gas while Mela 3 is producing around 480 BPD of crude oil. The drilling / testing of Rajian well # 6 have also been completed leading to production enhancement of about 800 BPD of crude oil. Page 4

5 In order to further enhance the oil and gas production base, the Company is making efforts to develop its shut in fields namely Nur, Bagla, Jakhro, Gopang, Nim & Nim West using in-house resources. With respect to various development projects, an update is provided on the next slide; KPD / TAY INTEGRATED DEVELOPMENT PROJECT: OGDCL has completed Phase-1 of KPD-TAY development project and has started supplying around of 100 MMcfd dehydrated gas to M/s Sui Southern Gas Company Limited (SSGCL) and around 1,000 BPD of condensate. Furthermore, the injection of gas into to M/s Jamshoro Joint Venture Limited (JJVL) plant has started from 10 th February 2012 for the purpose of LPG and NGL extraction to the tune of metric tonnes per day (MTD) and 500 BPD respectively. For Phase II of the said project, the Company has engaged a consultant for carrying out engineering, procurement assistance of the equipments / packages and supervision services. Sizeable production volumes are expected to be added to OGDCL s production stream on completion of Phase II. SINJHORO DEVELOPMENT PROJECT: Shifting of our plant and equipment from our Dhodak field to Sinjhoro has been started and the project will be completed in two phases. Phase-1 of the project is expected to be completed by June 2012 with an estimated production of 16 MMcfd of sales gas, 1,400 BPD of crude oil and around 50 (MTD) of LPG. Additional production of around 9 MMcfd of gas, 1,600 BPD of crude oil and 70 MTD of LPG is expected on the completion of Phase-II of the project, which is expected by December DAKHNI DEVELOPMENT PROJECT: Most of the equipments / packages have been installed under the Dakhni Expansion Project and production from the field has been increased to 52 MMcfd of gas. Sulphur Recovery Unit (SRU) and solidification unit have Page 5

6 been acquired and upon completion of the project, which is expected in March 2012, an additional production of sulphur to the tune of MTD is expected. Let s move on to slide number 9. JHAL MAGSI PROJECT: The project is under the implementation phase. 85 kilometres of gas pipeline will be laid down by M/s SSGCL and the project is expected to be completed in February UCH II DEVELOPMENT PROJECT: Under Uch-II development project, OGDCL has drilled and completed all fifteen (15) development wells. It is anticipated that the project is to be completed by February 2014 enabling OGDCL to inject 160 MMcfd of gas to Uch-II Power Limited, which will be utilized for power generation. NASHPA / MELA DEVELOPMENT PROJECT: The project is under engineering phase of installation of LPG plant and compression facility. Nashpa development project is expected to be completed by May 2013 and is anticipated to produce MMcfd of gas and MTD of LPG. Mela development project is expected to be completed by June 2013 and upon its completion, an expected production of 18 MMcfd of gas and MTD of LPG will be realized. This concludes a run-down on all our development projects, I now again would like to request Mr. Mohammed Rafi, our CFO to continue with this presentation. Muhammad Rafi: Ladies and gentlemen, we are now on slide # 10 which represents a graphical comparison of Sales, Operating expenses and Prospecting expenditure and Profit after Tax. The Sales revenue, as I mentioned earlier, increased by 9.4% during the first half year of FY2012 to Rs billion, whereas the profit increased by 31.6% to Rs Page 6

7 billion. This translates into Earnings per Share of Rs 9.67 compared with Rs 7.35 billion in the same period of the preceding year. Operating expenses increased by 24.4% on account of amortization of development and production assets, joint venture expenses, stores and supplies consumed and welfare of locals near our production fields. During the half year ended 31 st December 2011, exploration and prospecting expenditure declined by 49.6% mainly due to a decrease in the cost of wells charged as dry holes. The prevailing issue of inter-corporate debt in the industry is having a detrimental effect on OGDCL as its trade receivable as of 31 st December 2011 stood at Rs billion which included an overdue amount of Rs billion. Efforts are underway for early resolution of the issue. Moving to Slide # 11 which displays a healthy financial snapshot for our Company. As you would see here, we have been able to improve most of our key financial indicators when compared with the corresponding period. I will now hand over the presentation back to our MD & CEO Mr. Basharat Mirza for the concluding remarks. Basharat A. Mirza: OGDCL management is fully focused on achieving consistent growth in production volumes. To this end we are on constant pursuit of conducting successful exploration with a view to increase our reserve base. OGDCL is fully committed to ensure speedy development of the projects in the pipeline. We plan to achieve production and reserves growth through implementing international best practices across the operations. Page 7

8 Finally, we plan on achieving all this production growth by leaving a minimal signature on the environment and at the same time enhancing welfare of the communities where our operations are located. With this, ladies & gentleman, we conclude today s presentation and I request the operator to conduct a question and answer session for about 15 minutes. Thank you. Operator: Thank you. Today s question and answer session will be conducted electronically. If you would like to ask a question please press *1 on your telephone keypad. You may remove yourself from the queue by pressing *2. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again please press *1 to ask a question. We will take our first question from Fawad Khan from KASB. Please go ahead. Fawad Khan: Thank you sir. I have three questions. To start off with the reserve number that you have quoted in your presentation does it pertain only to the OGDCL reserves or does the reserve number also include reserves from the non-operator fields? Basharat A. Mirza: Yes, it includes OGDCL s share from non-operated joint venture fields. Fawad Khan: Ok Sir. My second question pertains to a statement by Prime Minister s Special Assistant on Petroleum & Natural Resources, which states that ministry has asked OGDC to acquire certain data processing equipment & rigs. Could you please shed some light on it? Basharat A. Mirza: OGDCL have floated tenders for the procurement of two rigs. Fawad Khan: Is OGDCL also acquiring seismic data processing equipment? Page 8

9 Basharat A. Mirza: Yes, we are already in the process of procuring data processing equipment. Fawad Khan: Could you please give us some guidelines as to what kind of CAPEX is involved on acquisition of these assets? Basharat A. Mirza: It is not possible for me to give you the estimates at the moment. Fawad Khan: Coming to the Zin block related updates, what are the future plans of the Company? Basharat A. Mirza: You see we have already made a discovery Zin X-I and we have encountered a low BTU gas. We are in the process of drilling two more wells, one shallow well and one deep well. Once these wells are drilled and tested, only then we will have a fair estimate of their reserves. Fawad Khan: Again, referring to a statement made by Prime Minister s Special Assistant on Petroleum & Natural Resources, Is OGDCL planning to increase production from phase 1 of Kunnar Pasakhi Deep Project to 125 MMcfd of gas? Basharat A. Mirza: Yes, that is correct. Fawad Khan: What is the time period of that? Basharat A. Mirza: OGDCL expects that additional 25 MMcfd of gas supply from KPD phase-1 will be injected to M/s SSGCL s system by mid of May Fawad Khan: Alright Sir. Thank you. Basharat A. Mirza: Thank you. Page 9

10 Operator: We will now take our next question from Mushal Jameel from Abassi Securities. Mushal Jameel: If you can please move to slide number 5, my question is regarding the realized prices of oil. You have mentioned that during the half year FY2011, the average realized prices for crude oil were $82.03 per barrel. At that time, Arab light crude oil prices were around $100 or more so can you tell me why average price of crude oil realized at $82.03? Muhammad Rafi: Crude oil price is determined on the basis of different concession agreements. As the international crude oil price increases, the discount applicable on that price also increases. This is the reason that when compared with the higher international crude oil prices, the net realized price remained lower during the half year ended 31 st December Mushal Jameel: So, what you are trying to say is that as international prices goes higher, the original net price is discounted on the basis of the international prices? Muhammad Rafi: Actually, there are some step discounts involved, for example up to crude oil price of $50 in some of the concessions, the discount is 25%. When, the price exceeds beyond $50, the discount increases to 50%. This is the reason that when the price is higher the net realized price is lower. Also there s some adjustment in the yield differential. i.e quality difference between the crude oil produced from OGDCL fields and Arab Light crude. Mushal Jameel: What s your outlook regarding the international oil prices in future? Basharat A. Mirza: I think it is beyond our scope. Mushal Jameel: Ok, that s all. Thank you so much. Page 10

11 Basharat A. Mirza: Thank you. Operator: We will now take our next question from Salman Vidhani from Habib Metropolitan Financial Services. Please go ahead. Salman Vidhani: Basically, my question is that, as of 31 December 2011, OGDCL has around 54 billion in cash and cash equivalents, which is nearly 1/5 th of your total asset base. So, are you planning to get into aggressive exploration activities or get these cash balances higher? Basharat A. Mirza: You have seen our plans, many of our development projects like Sinjhoro, KPD/TAY, UCH-II etc., are under implementation so the cash reserves will be used for the development of these projects. Salman Vidhani: Ok. Recently a debt swap arrangement was finalised by Government of Pakistan (GoP) and disbursements were made, so how much amount have you received after this debt swap arrangement? Muhammad Rafi: We have been successful in collecting Rs 10 billion per month on an average in the last six months or so. Salman Vidhani: If you can provide a break-up of your exploration and evaluation assets with the conference call transcript? The break-up of exploration and evaluation assets as of 31 st enclosed as Annexure A December 2011, is Operator: We will now take our next question from Naveed Vakil from AKD Securities. Please go ahead. Page 11

12 Naveed Vakil: Hello. I basically have one question. You mentioned that OGDCL plans to develop your dormant fields. Can you just rename those fields and provide us with timeline as to when these fields will be brought online and what is the expected production from these dormant fields? Muhammad Riaz Khan: Yes these shut in fields / wells are Nur, Bagla, Jakhro, Gopang, Nim & Nim West. Nur & Bagla are expected to be developed by April 2012, while the others will be put on production during current calendar year. Naveed Vakil: Can you give us an estimate of the production volume from all of them in total? Muhammad Riaz Khan: The total production from these shut in fields is around 20 MMcfd of gas, about 400 BPD of condensate/crude and 20 MTD of LPG. Naveed Vakil: Ok, thank you. Operator: We will take our next question from Hassan Rahim from ABL Asset Management. Please go ahead. Hassan Rahim: Hi, thank you everyone. My first question would be regarding the tax rate, your tax rate in the second quarter came to about 32% whereas last year it was 24.5% so can you shed some light on that? Muhammad Rafi: This is the average tax rate. It is the result of various tax rates applied to the income of each individual concession as stipulated in relevant petroleum concession agreement. The tax calculated for individual concessions is further reduced by the amount of Royalty to arrive at the basis of average tax rate. Hassan Rahim: Does it have anything to do with the flood? Page 12

13 Muhammad Rafi: No. Hassan Rahim: Ok. My second question relates to an earlier question that was asked by one of the analysts regarding drilling of more wells at Zin. Can you shed some light on reserves addition you are expecting once the wells are successfully drilled and tested? Basharat A. Mirza: Having already said that we have just drilled one exploratory well in Zin E.L. Going forward OGDCL plans to drill one shallow well and one deep well. Based on the drilling results we will be able to have a fair estimate and then we will develop the production plan. Hassan Rahim: Thank you, that s all from my side. Basharat A. Mirza: Ok. Ladies and Gentlemen, we are running out of time so let s have a last question. Operator: We will now take our last question from Ali Asghar from UBL Fund Managers. Please go ahead. Ali Asghar: Hello. My question is regarding the dividend payout and its projections going forward. Since the company has sizeable cash reserves of around Rs 55 billion, what kind of payouts could the investors expect going forward? Basharat A. Mirza: We already explained that we have many projects in hand, so the cash reserves are earmarked for those, as far as dividend is concerned it depends upon the future profitability, the liquidity of the company, and of course the approval of the Board of Directors. Ali Asghar: Is there a dividend payout policy that the Board has in mind? Page 13

14 Basharat A. Mirza: It is on the basis of the factors I have already explained. Ali Asghar: What percentage of profitability would the dividend payout be? Basharat A. Mirza: As I said it differs, it is decided by Board of Directors on a quarterly basis. Ali Asghar: Ok, thank you. Basharat A. Mirza: Thank you. Ladies and Gentlemen. Page 14

15 Annexure A EXPLORATION AND EVALUTATION ASSETS AS ON DECEMBER 31, 2011 Exploratory Wells in Progress (Rupees '000) Wholly Owned Uch Deep Well 1B 115,016 Ajuwala Well # 1 677,981 Sundrani Well # 1 1,207,859 2,000,857 Joint Ventures Chak Naurang South Well # 1 992,173 Khawaja Well # 1 1,036,676 Suleman Well # 1 799,705 Saand (Old Gulsher) Well # 1 282,945 Jabbi Well # 1 160,940 3,272,439 5,273,296 Stores held for Exploration and Evaluation assets Opening Balance 3,784,110 Additions during six months 94,025 Issuance during six months (605,035) 3,273,100 TOTAL 8,546,396 Page 15