Press Release
VIS Reaffirms Ratings of Oil & Gas Development Company Limited
Karachi, December 23, 2022: VIS Credit Rating Company Limited (VIS) has reaffirmed entity ratings of Oil & Gas Development Company Limited (OGDCL) at ‘AAA/A-1+’ (Triple A/A-One Plus). The medium to long-term rating of ‘AAA’ denotes highest credit quality, with negligible risk factors, being only slightly more than for risk-free debt of Government of Pakistan (GoP). The short-term rating of ‘A-1+’ denotes highest certainty of timely payment, liquidity factors are outstanding and safety is just below risk-free short-term obligations of GoP. Outlook on the assigned ratings is ‘Stable’. The previous rating action was announced on December 17, 2021.
The assigned ratings take into account ownership structure of OGDCL, as more than 2/3rd shareholding is held by the Government of Pakistan (GoP). All nominations on the Board of Directors are made by the GoP. Currently, the Company’s Board comprises 11 directors including Chairman and Managing Director/CEO. In line with best practices, at least one-third of the board comprises independent directors. The ratings also reflect systemic importance of the Company to the national economy as the largest upstream Oil and Gas Company in Pakistan. OGDCL has an assured product off-take amid excess demand of oil & gas vis-à-vis local supply. The business risk profile of the Company is viewed as low, as evident from robust margins, providing considerable cushion against volatility in international oil prices. In view of natural depletion of oil and gas resources as well as to augment reserves base, the Company remains focused on its exploration-led growth strategy, while in the outgoing year, the Company has made strategic investment in Reko Diq mining project to diversify revenue base towards extraction of copper and gold reserves. Moreover, planned exploration and evaluation activities are underway in offshore block-5 in Abu Dhabi, which was awarded to the consortium including OGDCL, PPL (operator), MPCL and GHPL by ADNOC on August 31, 2021.
Ratings take into account low financial risk profile of the Company as evident from debt-free capital structure and strong liquidity profile. The Company continues to manage its capital expenditure requirements through internal cash flows. However, rising trend in industry wide inter-corporate debt is viewed as a concern, with trade debts as a proportion of assets rising notably on a timeline. Nevertheless, as the same are due directly or indirectly from GoP, VIS assumes the credit risk profile of the same to be very low, from a national scale rating purview.
For further information on this rating announcement, please contact Mr. Arsal Ayub CFA at 042-35723411-13 (Ext. 215) and/or the undersigned at 021-35311861-66 (Ext. 207) or email at info@vis.com.pk
Sara Ahmed
Director
VIS Entity Rating Criteria: Corporates (August 2021)
https://docs.vis.com.pk/docs/CorporateMethodology202108.pdf