06 March 2004	Saturday	14 Muharram 1425

KARACHI, March 5: Almost everyone at the stock market is bullish on Oil and Gas Development Company Limited (OGDCL). The Privatization Commission did not sell it cheap.

The five per cent shares from government's stake in the company were offered for public subscription at Rs32 per share in mid-November. With the break-up value that worked out at Rs14.93 at the end of June 2003, the offer was at over two times the book value.

Including the greenshoe option, the government raised Rs6.9 billion from the IPO, which was the biggest stock offering in the 50-year history of the KSE. The IPO also attracted a record number of 98,000 small investors, each earning an incredible return of 65 per cent in less than three months. Investors who procrastinated lost the opportunity.

The OGDCL stock has underperformed the market by five to seven per cent since its formal listing. Market pundits and analysts are, nonetheless, placing various fair values on the stock over six months to a year run. Though none of them is lower than the current price of Rs52.50, guesstimates range as wide as Rs54 to Rs85.

Those who are looking at the lower side are uneasy over the volatility of international oil prices, which have direct bearing on company earnings. But optimists such as Tanvir Abid, head of research at Jahangir Siddiqui Capital Markets, is confident of a target price of approximate Rs65, based on company's earnings potential.

OGDCL announced six months to December 31, 2003 results on February 25, reporting 10.7 per cent growth in earnings to Rs9.73 billion, from Rs8.78 billion in the comparable period last year.

On annualized earning per share of Rs4.52, the OGDCL stock is currently trading on price-to-earnings (p/e) multiple of 11.6. Supposing the full year dividend comes up at Rs3.30, it would represent cash yield of 6.4 per cent. Mr Abid pointed out that OGDCL was a growth story and investors were focused more on capital gains than dividend yield.

Market's consensus view was that improvement in earnings in 1H04 had been on the back of higher output and firm petroleum prices. Mr Abid recalled that petroleum prices had maintained a rising trend during 2QFY04 on the back of Opec production cuts, low US inventories and the seasonal increase in demand during winter.

Jahangir Siddiqui Capital Market report on OGDCL stated that the company held the largest share of hydrocarbon reserves in the country. On an overall basis, OGDCL held an approximately 39 per cent share in total oil and gas reserves in Pakistan.

The company also has the largest exploration and production portfolio with 35 operated fields and 15 non-operated interests. OGDCL's oil and gas based on FY2002 statistics (assuming current output rate and no new discoveries) were expected to last for 19 and 37 years, respectively.

Moreover, OGDCL's strong financial performance had also resulted from enhanced output from the largest selling product, i.e gas in domestic economy. Domestic gas demand continues to outstrip supply, resulting in strong demand.

This was also partially reflected by the aggressive capital expenditure plan embarked by the Sui twins, Sui Northern and Sui Southern, that are OGDCL's major customers.

Global Securities said the biggest impact in 2H04 would be a 50 per cent enhancement in production of Qadirpur field, which constitutes over 33 per cent of OGDCL's total gas production. "The company also has aggressive exploration plan for FY04, targeting drilling of 18 wells versus 15 in FY03," said Global Securities.

First Capital Securities observed that the international crude oil price outlook was a bit murky as prices seemed to follow a tapering off path following seasonal peak in winter. "However, we do not expect Opec prices to fall below $28 per barrel for a prolonged period post-April," stated First Capital.

Faisal Jiwani, analyst at Capital One Equities, stated that for 2H04, he expected OGDCL to increase its production from one of its gas fields, which would further improve company's sales. He pointed out that cost margin had stood at 33 per cent in the 1H04, which was previously 35 per cent, thus increasing gross margin (before exploration expenditure) by two per cent during the period under review.