Press Release

JCR-VIS Assigns Entity Ratings to Oil and Gas Development Company Limited

Karachi, April 28, 2017: JCR-VIS Credit Rating Company Limited (JCR-VIS) has assigned entity ratings of ‘AAA/A-1+’ (Triple A/A-One Plus) to Oil & Gas Development Company Limited (OGDCL). Outlook on the assigned ratings is ‘Stable’.

The ratings assigned to OGDCL primarily draws comfort from the control and majority shareholding structure of the Company with around three-fourth shares held by the Government of Pakistan (GoP). Business profile of the Company remains strong emanating from the strategic importance of the Company in the oil and gas sector of the country having largest petroleum exploration and production operations and assured product off-take as country’s petroleum requirements remains in excess of local production. The ratings also take into account sound financial risk profile of the institution reflected by a debt free capital structure. The Company continues to face circular debt issue with large amounts of overdue receivables carried on the balance sheet; however liquidity profiles remain adequate as healthy margins and adequate cash flow generation enables the Company to meet its expenditure requirements indigenously.

In view of the prolonged depressed international oil prices, the Company has accelerated its exploration and production related activities recording its highest ever gross crude oil production of 50,354 barrels per day on November 28, 2016. Average daily net saleable crude, LPG and Sulphur production has also depicted an increasing trend. Some development projects are underway which are expected to mitigate the impact of natural decline in reserves.

Depressed prices of oil in the recent years have impacted OGDCL’s financial performance witnessed by net profit of the Company declining to Rs. 60b during FY16 (FY15: Rs. 87.2b). In the 1HY17, the profitability indicators of the Company exhibited a stabilizing trend with gross margins and net margins placed at 53.1% and 37%, respectively (FY16 at 54% and 36.8%). The Company maintains a strong dividend payout ratio averaging 36% over the last five years.

Aging profile of the receivables depict a weak position in view of the non-servicing of the GoP guaranteed PPTFC issued in Sep-12 to settle circular debts. The management is making efforts to expedite the collection of receivables. Nonetheless, overall liquidity profile remains adequate with internal cash flows considered sufficient to meet expenditure requirements. Moreover, approaching maturity of sizeable PIBs, carried on balance sheet, provide comfort to the liquidity assessment of the institution.

Board member comprises senior GoP officials and prominent businessmen from the private sector which bring diversified experience to the Board. The Board has instituted a strong corporate governance framework.

For further information on this rating announcement, please contact the undersigned at 021-35311861-70 or Mr. Waqas Munir, FRM at 042-35723411-13 (Ext: 8010).



Javed Callea
Advisor

JCR-VIS Entity Rating Criteria Industrial Corporate (May, 2016)
http://www.jcrvis.com.pk/kc-meth.aspx

Information herein was obtained from sources believed to be accurate and reliable; however, VIS Credit Rating Company Limited (VIS) does not guarantee the accuracy, adequacy or completeness of any information and is not responsible for any errors or omissions or for the results obtained from the use of such information.VIS , the analysts involved in the rating process and members of its rating committee do not have any conflict of interest relating to the rating(s)/ranking(s) mentioned in this report.VIS is paid a fee for most rating assignments. This rating/ranking is an opinion and is not a recommendation to buy or sell any securities. Copyright 2017 VIS Credit Rating Company Limited . All rights reserved. Contents may be used by news media with credit to VIS .