SC SECURITIES (PVT) LTD.

Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.

C Corporate Office: 706, 7 th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi.
Tel:2412542-3
Stock Exchange Office: 441, 4 th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tel : 2432367
Email: research@scsecurities.net

From: Our research Desk

OGDCL
Target Price: PKR 182

Short Term—NEUTRAL
Long Term—BUY

Important Data

KATS Code OGDC

Current Price (Rs) 115.4
High (52 Weeks) 115.4
Low (52 Weeks) 48.65
Beta 1.4
Shares Outstanding 4,301m

Introduction
The Oil & Gas Development Company Limited (OGDCL) was created in 1961, to
undertake a comprehensive exploratory program and promote Pakistan’s oil and gas
prospects. In 1997, it was converted into a Public Limited Company. The
Government of Pakistan holds 95% stake in the company after off-loading 5% in
the market through an IPO in 2003. It holds 48% of the country’s oil reserves and
35% of total gas reserves.

Increased Production and High Oil Prices in World Market

The combination of increased production of oil and gases together with continuing
high crude oil prices have resulted in substantial growth in profits for OGDCL and
the future looks even brighter. The average daily oil production rose by 16.2% in
1Q2005 from merely 30,085bpd in FY2 004 to 34,957bpd in 1Q2005 due to the
commencement of production from the newly developed Chanda and Bobi fields.
Production is likely to increase in the coming few months as more fields will start
production.

Additional oil production of 1500bpd is expected from Chanda and 1750bpd from
Bobi in the FY2005. In addition to the development of existing fields, OGDCL is
aggressively seeking new fields; it has an excellent success ratio of 1:3. The company
plans to drill 17 exploration wells and 6 development wells in FY2005. International
exploration areas in Egypt, Syria and Libya are also being considered by OGDCL.
Keeping these things in mind we can safely say that the long-term production
growth is expected to remain high.
 SC SECURITIES (PVT) LTD.
Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.
C Corporate Office: 706, 7 th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi.
Tel:2412542-3
Stock Exchange Office: 441, 4 th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tel : 2432367
Email: research@scsecurities.net

Future Outlook
OGDCL’s PAT for the FY2005 is expected to be Rs.36.4b with EPS of Rs.8.46.
This growth seems to continue for at least few years and the picture looks good.
However, the world oil prices together with the future exploration costs are the key
to future growth in earnings.

Recommendation
With our forecasted EPS of 8.46 for the FY2005, OGDCL is currently trading at a
PE ratio of 13.4 that is almost in line with the market PE ratio. Using this as a basis,
our short-term target price comes to around Rs.114, so we rate OGDCL as
NEUTRAL for the short-term at current levels.

Based on DCF valuation, our long-term fair value comes to around Rs.182.
Therefore we may rate OGDCL as a BUY for the long-term.

DCF valuation
Discount rate
Terminal growth

8% 10% 12% 14% 16% 18%

0% 284.3 216.3 171.7 140.3 117.3 99.7
2% 364.5 260.2 198.4 157.8 129.3 108.2
3% 428.7 291.6 216.2 168.9 136.7 113.4
4% 524.9 333.4 238.5 182.3 145.3 119.3
5% 685.3 391.9 267.2 198.6 155.5 126.1
 SC SECURITIES (PVT) LTD.
Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.
C Corporate Office: 706, 7 th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi.
Tel:2412542-3
Stock Exchange Office: 441, 4 th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tel : 2432367
Email: research@scsecurities.net

Profit & Loss Account

For the year ended 30 th June FY2003A FY2004A FY2005F
Rs '000 Rs '000 Rs '000

Net Sales 45,008,279 51,293,653 71811114.2

Other Operating Revenue 61,919 32,620 29358
45,070,198 51,326,273 71840472.2

Less: Operating Expenses 8,117,042 8,083,426 8164260.26

Royalty 4,970,478 5,570,218 7408389.94
Transportation Charges 635,524 548,919 576364.95
Amortization of exploration and development expenditure 1,359,576 2,041,252 2857752.8
15,082,620 16,243,815 19006767.95
29,987,578 35,082,458 52833704.25

Less: Exploration expenditure written off 2,526,119 3,397,907 2962013

27,461,459 31,684,551 49871691.25

Less: General and administration expenses 994,730 838,818 855594.36

Financial Charges 646,672 38,468 5000.84
Worker's Profit Participation Fund 1,390,373 1,606,071 2489410.05
24,429,684 29,201,194 46521686
Other Income 1,987,402 1,314,156 1708402.8
PROFIT BEFORE TAXATION 26,417,086 30,515,350 48230088.8
Provision for taxation 5,744,000 8,100,889 11827297.94
PROFIT AFTER TAXATION 20,673,086 22,414,461 36402790.86
Unappropriated profit brought forward 31,761,423 21,087,495 26,002,595
52,434,509 43,501,956 62,405,386

APPROPRIATIONS:
Transfer to contingency reserve 913,089 295,647
Transfer to reserve for issue of bonus shares 17,531,139 0
First interim dividend @ Re 1.00 (2003: Rs 9.30) per share 9,999,659 4,300,928
Second interim dividend @ Rs 1.25 (2003: Rs 2.70) per sh are 0 7,526,625
Final dividend @ Rs 1.25 (2003: Rs 2.70) per share 2,903,127 5,376,161
31,347,014 17,499,361 26,224,568
Unappropriated profit carried forward 21,087,495 26,002,595 36,180,818

Earnings per share (Basic) - Rupees 4.81 5.21 8.46

 SC SECURITIES (PVT) LTD.
Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.
C Corporate Office: 706, 7 th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi.
Tel:2412542-3
Stock Exchange Office: 441, 4 th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tel : 2432367
Email: research@scsecurities.net

Balance Sheet
As at 30th June FY2003A FY2004A FY2005F
Rs '000 Rs '000 Rs '000

SHARE CAPITAL AND RESERVES

Authorised Share Capital 25,000,000 50,000,000 50,000,000

Issued, subscribed and paid-up capit al 10,752,321 43,009,284 43,009,284

Reserve for issue of bonus shares 32,256,963 0 0
Contingency reserve 1,363,967 1,659,614 1,955,261
Unappropriated profit 21,087,495 26,002,595 36,180,818
65,460,746 70,671,493 81,145,363

LONG TERM LOAN - Unsecured 14,751 14,751 14,751

LONG TERM PROVISIONS 4,808,113 6,850,935 7,076,903
DEFERRED LIABILITIES 8,183,119 8,714,332 9,245,545
CURRENT LIABILITIES
Creditors, accrued and other liabilities 3,551,949 4,298,623 5158347.6
Proposed dividend 2,903,127 5,376,161 7526625.4
6,455,076 9,674,784 12684973
CONTINGENCIES AND COMMITMENTS 0 0 0

84,921,805 95,926,295 110,167,535

FIXED CAPITAL EXPENDITURE

Property, plant and equipment - tangible 16,320,950 17,195,913 18055708.65
Exploration and development expenditure 16,219,246 17,935,742 19729316.2
Projects in progress 4,124,282 3,849,509 5,446,279
Stores held for capital expenditure 870,749 734,918 765,617
37,535,227 39,716,082 43,996,921

INVESTMENT IN SUBSIDARY AND ASSOCIATED COMPANIES 491,500 491,500 491,500

INVESTMENTS HELD TO MATURITY 541,948 636,227 763472.4
LONG TERM PREPAYMENTS AND RECEIVABLES 2,313,176 2,055,224 2,184,200
CURRENT ASSETS
Stocks and stocks 6,057,651 8,085,974 10,754,345
Trade debts-unsecured 12,995,933 13,127,338 14,094,086
Loans,advances, deposits, prepayments and other receivables 5,543,945 6,506,521 9,109,129
Cash and bank balances 19,442,425 25,307,429 28,773,881
44,039,954 53,027,262 62,731,442
84,921,805 95,926,295 110,167,535
 SC SECURITIES (PVT) LTD.
Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.
C Corporate Office: 706, 7 th Floor, Business Plaza, Mumtaz Hasan Road, Off. I.I. Chundrigar Road, Karachi.
Tel:2412542-3
Stock Exchange Office: 441, 4 th Floor, Karachi Stock Exchange Building, Stock Exchange Road, Karachi. Tel : 2432367
Email: research@scsecurities.net

Cash Flow Statement

For the year ended 30 th June FY2003A FY2004A FY2005F
Rs '000 Rs '000 Rs '000

Cash Flow from operating activities

Net profit before taxation 26,417,086 30,515,350 48230088.8

Adjustment for non cash items 10,719,843 11,650,314 13980376.8

Increase in stores and stocks -27,558 -1,894,567 -961,062

(Increase)/decrease in trade debts and other receivables 505,512 -51,037 -51,037
Increase/(decrease) in creditors, accrued and other liabilities -912,380 657,272 994,452
Cash generated from operations 36,702,503 40,877,332 62,192,819

Royalty paid -4,415,848 -5,910,281 -8,865,422

Staff retirement benefits paid -140,696 -165,648 -215342.4
Contribution to Worker's Profit Participation Fund -1,561,921 -1,540,373 -1,580,000
Taxes paid -10,944,034 -8,985,021 -16,566,700
-17,062,499 -16,601,323 -27,227,464
19,640,004 24,276,009 34,965,355
Cash Flow from investing activities
Proceeds from sale of fixed assets 82 27,772 25,748
Interest received 862,985 317,911 503,444
Dividend received 390,900 22,168 22,168
Fixed capital Expenditure -5,881,169 -4,402,167 -13206501
Long term prepayments -1,043 6,314 -22,197
-4,628,245 -4,028,002 -12,677,338

Cash Flow from financing activities

Repayment of long term loans -233,142 0 0
Financial charges paid -244,970 -38,468 -5000.84
Dividend paid -9,999,659 -14,344,535 -18816563.5
-10,477,771 -14,383,003 -18821564.34

Increase in cash and cash equivalents 4,533,988 5,865,004 3,466,452

Cash and cash equivalents at the beginning of the year 14,908,437 19,442,425 25,307,429
Cash and cash equivalents at the end of the year 19,442,425 25,307,429 28,773,881