Pakistan Credit Rating Agency Limited assigns entity ratings to Oil and Gas Development Company Limited

Lahore, February 29, 2016 (PPI-OT): PACRA has assigned a long-term entity rating of ‘AAA’ (Triple AAA) and short-term rating of ‘A1+’ (A One Plus) to Oil and Gas Development Company Limited (OGDCL). Outlook on the assigned ratings is stable. These are the highest ratings on respective entity ratings scale. These ratings denote the lowest expectation of credit risk emanating from an exceptionally strong capacity for timely payment of financial commitments.

The ratings reflect OGDCL’s strategic importance to the Government of Pakistan (GoP) for being the largest upstream Oil and Gas company in Pakistan having predominant share of recoverable hydrocarbons reserves and exploration acreage. Moreover, the Company is the leading contributor in the Country’s major hydrocarbon mix production and its oil and gas production continues to render foreign exchange savings. The company’s joint venture operations give further business penetration.

The ratings incorporate robust financial profile of the company as reflected from debt-free balance sheet, strong liquidity, and access to capital markets for raising capital in case of need. Being part of oil chain, the company is exposed to circular debt issue. Gas distribution companies – SSGCL and SNGPL – are main contributors towards trade debt. Although amicable resolution of the matter is critical, sustainable solution is yet to be reached. OGDCL’s business risk is low.

In cognizance of declining oil prices, the company’s absolute profitability has dropped; however, it remained sizeable when compared to the planned financial requirements. OGDCL’s management is pursuing an aggressive exploration and production strategy with the aim to make successful discoveries to enhance oil and gas reserves and production volumes which would support the business bottom-line. Over the years, significant reserves have been built up along with regular investment income stream. The ratings also incorporate predominant sovereign ownership structure – owned by GoP (~75%).

The ratings are dependent on sustained competitive positioning of the company, while upholding good governance practices. Continued dip in international oil prices influencing business margins and prevailing inter-corporate circular debt issue in the oil and gas industry of Pakistan remain key business concerns. OGDCL is making vigorous efforts in order to expedite the payment of outstanding amounts. GoP is also pursuing for timely settlement.

For more information, contact:
Hammad Rashid
Analyst
The Pakistan Credit Rating Agency Limited (PACRA)
Awami Complex, FB1, Usman Block New Garden Town,
Lahore – Pakistan
Tel: +9242 586 9504 -6
Fax: +9242 583 0425
Email: hammad.rashid@pacra.com
Web: www.pacra.com