JCR-VIS Reaffirms Entity Ratings of Oil and Gas Development Company Limited at AAA/A-1+

Karachi, February 22, 2018 (PPI-OT): JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the medium to long-term entity rating of Oil and Gas Development Company Limited (OGDCL) at ‘AAA’ (Triple A) and short-term entity rating at A-1+ (A One Plus). Outlook on the assigned rating is ‘Stable’. The previous rating action was announced on October 31, 2017.

The assigned ratings of OGDCL reflect its shareholding structure with around three-fourth shares held by the Government of Pakistan (GoP). Business risk is considered low on account of the Company’s strategic importance in the oil and gas sector of the country; OGDCL is the industry leader in E and P sector of Pakistan and has assured product off-take as country’s petroleum requirements remain in excess of local production. The ratings also take into account low financial risk profile of the institution as reflected by a debt free capital structure. The Company continues to face issue related to inter-corporate debt with large amounts of overdue receivables carried on the balance sheet; however, liquidity profile remains adequate as healthy margins and adequate cash flow generation enables the Company to meet its expenditure requirements, indigenously.

During FY 2016-17, average daily production of crude oil, LPG and sulphur has depicted an increase while average daily production of gas remained largely steady. Few development projects are under progress which are expected to optimize crude oil, gas and LPG production in the near future. During the period under review, the Company signed MoU with a Russian E and P company, Gazprom International, aimed at mutual cooperation and use of state of the art technology for production enhancement in Company’s operated fields.

During the period under review, increase in sales volume of crude oil and LPG, recovery in international oil prices and positive exchange rate variance mainly resulted in higher revenues and ultimately higher gross and net margin for the Company. Overdue trade receivables remained outstanding, an outcome of prevailing inter-corporate debt. The government guaranteed instrument PPTFCs, issued in 2012 in order to provide temporary relief against trade debt, continues to remain non-performing; though sovereign guarantee provides comfort against related principal and mark-up. Nonetheless, overall liquidity profile remains strong as internal cash flows are considered sufficient to meet expenditure requirements. Moreover, cash balance and highly liquid short-term investments provide comfort to the liquidity assessment of the institution.

The equity base of the Company continues to expand on account of partial profit retention. Given strong internal capital generation, OGDCL remains debt free despite considerable working capital requirements. The management team of the Company comprises professionals having extensive experience in oil and gas sector. The Board members comprise senior GoP officials and prominent businessmen from the private sector which bring diversified experience to the Board.

For more information, contact:
CFA
JCR-VIS Credit Rating Company Limited
VIS House, 128/C,
25th Lane off Khayaban-e-Ittehad,
Phase VII, DHA, Karachi
Tel: +92-21-35311861-72
Fax: +92-21-35311873
Email: sobia@jcrvis.com.pk