OGDCL Faces Circular Debt, Security and Gas Curtailments Issues
Staff Report:
Oil and Gas Development Company Limited (OGDCL) is facing a key challenge of buildup of previous circular debt, security environment and forced curtailment of gas by SNGPL and Uch Power.
Key challenges the company faces include Local procurement rules by PPRA, the buildup of previous circular debt, forced curtailment of gas by SNGPL and UCH Power and the security environment.
Topline Securities hosted the Pakistan Energy Conference 2024, where the first session featured Oil & Gas Development Company (OGDC). The speaker for this session was Mr. Mohammad Anas Farook, CFO of OGDC.OGDC & PPL Cash Collection Ratios Surpass 100% in 1QFY25
OGDC’s cash collection ratio improved to 121% in 1QFY25. Management expects this positive trend to continue, as they believe that under the IMF program, the government will announce timely gas price adjustments to meet the revenue requirements of Sui companies.
Management also highlighted that, given the strong recovery, investors can expect improvements in dividends. However, the actual announcement will depend on the board’s decision.
Various steps are under consideration to address the buildup of previous circular debt.
The ongoing feasibility study and project financing for the Reko Diq project are expected to be completed by December 2024.
OGDC drilled 13 wells in FY24, compared to a total of 60 wells drilled by the industry. Going forward, OGDC plans to add 3 new discoveries to the system this year, in addition to Nur West-1, which was added under the tight gas policy in July 2024.
Regarding the Abu Dhabi Block-5, the drilling of two appraisal wells has been completed, and the drilling of an exploration well is currently in progress.
OGDC’s oil production stood at 33,117 bpd in FY24. If there had been no curtailments, production would have been 33,495 bpd. Similarly, OGDC’s gas production was 717 mmcfd, and without curtailments, it would have been 771 mmcfd.
Management noted a natural decline of 7-8% in oil production and 10-12% in gas production. However, they are targeting production improvements despite this decline.
The total oil reserves of the country stand at 243 MMBBL, with OGDC holding a 51% share. In gas, the total reserves are 18,472 BCF, and OGDC holds a 32% share.
Bettani-2 will start producing in January 2025, and the company is also planning to conduct a 3D seismic survey in Bettani-3.
Regarding the policy of selling 35% of gas from new fields to third parties, it is still pending approval from the Cabinet Committee on Energy.
Management highlighted that in the past, OGDC made a significant discovery in ZIN of low BTU gas but did not put it into production due to commercial viability concerns. However, management is now considering options to bring ZIN gas to the UCH plant, though this will take the medium to long term.
