OIL & Gas Development Company Limited (OGDC) is a public sector enterprise. Its shares are listed on Pakistan and London Stock Exchanges. Government of Pakistan (GOP) is the largest shareholder of the company with 85.03%shareholding while remaining 14.97% shares are being held by local and foreign individuals, institutions and corporates.
OGDC is the largest Exploration and Production (E&P) Company of the country and holds 46% of crude oil and 29%gas reserves. It also enjoys 36% market share in the LPG segment. As of 30 June 2023, OGDC’s total gross remaining recoverable 2P Reserves stood at 81 million barrels of oil and 5,393 billion cubic feet of gas with an expected useful life of 15 years. The Company also holds the largest exploration acreage of 87,002 sq.km representing 37% of the Country’s total area under exploration. This perhaps is the biggest advantage but the Company has failed to capitalize on it due to various issues that will come under discussion in the later part of this article.
OGDC management takes great pride in achieving an all-time high profit for the year ended June 30, 2023 where profit before and after tax was reported at Rs. 384 billion and Rs. 225 billion respectively. In line with high profitability EPS of Rs. 52.23 was also all time high. Despite phenomenal growth in revenue, OGDC in all 3 segments of production (oil, gas and LPG) witnessed a drop of 7.97%, 7.98% and 12.08% respectively. In fact, this profit was all due to some external factors like global surge in oil and gas prices, massive devaluation of PKR, all time high interest rates and accounting profit of around Rs.100 billion. The only silver lining in OGDC’s performance in the year 22-23 was its Reserve Replacement Ratio of 149%.
The overall performance of OGDC in terms of production and liquidity management was quite subdued in the last six years. Instead of gaining any meaningful increase, the Company has witnessed a steep decline in its production. However during this period OGDC did make a sizeable discovery in Wali Block with total 2P recoverable reserves of oil and gas equivalent to 55 BOEs. However, this block is partially operational.
OGDC produced 14,867 thousand barrel of oil, 373,192 MMcfof gas and 250,984 tons of LPG in 2017-18. However, six years down, the production has dropped to 11,432 thousand barrels of oil and 278,903 MMcfof gas showing a massive decrease of 30.04% and 33.80% respectively. However LPG production at 261,798 tons witnessed a small increase of 4.30%.
OGDC’s total receivables for the year ended June 30, 2023 were Rs. 770 billion, 1.86 times high to its annual sales of Rs. 414 billion. This menace has posed serious liquidity issues, resulting in a development hemorrhage and inability to announce any significant amount of cash dividend for its shareholders, a real bad omen especially for the individual shareholders. The GOP, despite being a majority shareholder, has completely ignored this sensitive issue and was more than happy to collect Rs. 279 billion in the shape of taxes, royalty, GST, Petroleum Levy, Excise duty and dividends from the Company during FY22-23.
OGDC’s below par performance is a reflection of current economic hardships. Due to falling exports, workers’ remittances and an all-time high import bill the Pakistani foreign exchange reserves have dwindled dramatically. OGDC could have saved the day for the country by having a more focused approach towards new discoveries. Nevertheless years of inapt and inconsistent policies of the successive governments have now become a strong stumbling block. OGDC right now lacks vision, will, professional skills and financial muscles to overcome this hurdle.
OGDC’s current Board of Directors (BoD) and management is a further testimony of GoP’s non-serious attitude and policies. The Company is without a permanent CEO for the last 3 year. The incumbent acting CEO is in office since February 2023. This writer does not want to cast any doubts on his professional skills and business acumen but it is a hard fact that he is a lawyer by education. Prior to his elevation, he was holding the office of Company Secretary dealing with legal and other regulatory issues only. The overall composition of 9-member BoD is more intriguing. Ideally speaking, the BoD should have been headed by a seasoned oil and gas professional. However, it is headed by a career banker since 2020. Four non-executive directors are direct government nominees who have made their way to this position by virtue of working in the Ministry of Petroleum.
They may be competent but the fact remains that no one among them has practically worked in oil and gas sector. Out of three remaining independent directors only one director is from relevant field while a lawyer and a lady entrepreneur from the Khyber-Pakhtunkhwa are holding the remaining two slots. The Board even lacks the services of a Chartered Accountant who could have added value and required skills to the overall work and objective of the Board’s Audit Committee. It will be interesting to note that this Committee is being headed by a director who happens to be a lawyer. This situation appears to be a compromise on effective and strong governance. OGDC has acknowledged this fact in its Statement of Compliance which is an integral part of its Annual Accounts for the year ended June 30, 2023.
OGDC is a listed company with 33,346 shareholders. It’s a national pride with huge strategic value and untapped potential. The present caretaker government right now is putting all energies on a very ambitious privatization plan of PIA must give due consideration and attention to the companies like OGDC who are in a state of despondency for the last so many years. The caretaker Minister for Energy must find some time and sit with the management and BoD of OGDC and work out a comprehensive plan to resolve its multifarious issues. While resolution of long outstanding receivables issue may be beyond his limits but in the meantime the objective he can achieve with relative ease is to appoint a full-time CEO having relevant education, experience and strong administrative skills ASAP. His next immediate task is to reconstitute existing BoD by bringing in some good names from E&P Sector with sound financial knowledge as well. This is a must requirement to put the OGDC on recovery path and enable it to deliver as per its potential and worth. Any delay will result in a national loss that must be prevented at all costs.
—The writer is an independent financial analyst and a former banker.
Email: [email protected]
views expressed are writer’s own.
