Project On

Analysis of financials of Oil and Gas Company limited
Submitted to: Burhan Shah

Submitted by: Mu mtaz Ali Hulio MBA 3rd

Deportment of Administrative Sciences Quaid-i-Azam University Islamabad

Acknowledgements
I wish to thank Almighty Allah the most beneficent and merciful for enabling me to reach here and use His sources to complete my project. I am also grateful to Burhan Shah who gave me opportunity to enhance my capabilities. This project is very helpful for me because, I have learnt a lot by applying theoretical knowledge in practical field. In addition, we wish to say thanks to our parents to support us and encourage us at every step.

PURPOSE OF THE STUDY
This report is based on study carried out for the fulfillment of the subject (AFS) requirement of the Master in business administration at the Quaid-iazam University Islamabad. The purpose of the study is to gather and analyze the data with respects to the knowledge of classroom lectures to the real life situations.

SCOPE OF THE STUDY
The scope of my work is focused on the financial conditions of OGDCL. This report contains the ratio, vertical and horizontal analysis. During the project, the observation was focused on financial trends, position, and condition of OGDCL.

LIMITATION OF THE STUDY
No matter how efficiently an analysis is conducted, it cannot be perfect in all respects. This analysis was conducted in accordance with the objectives of the study. The analysis may not include broad explanations of facts and figures due to the nature of the study. Second: limitation, which affects the study, is the availability of required data was problem all the documents and files are kept strictly under lock and key due to their confidential nature. Third: the problem of short time period also makes the analysis restricted as one cannot properly understand and thus analyze all the data just in limited time period.

MERITS OF THE STUDY
The study done will benefit the AFS students in particular and all type of Management students in general, because the analysis section of this report comprehensively encompasses all respects of OGDCL. Furthermore, OGDCL Head office Islamabad may also benefit from the recommendations made at the end of the report.

INTRODUCTION
Before the existence of OGDCL, exploration activities were carried out under the label of Pakistan Petroleum Ltd (PPL) and Pakistan Oilfields Ltd (POL). In 1952, PPL discovered a giant gas field at Sui in Baluchistan. This discovery generated massive interest in exploration and five major foreign oil companies entered into concession agreements with the Government. During the 1950s, these companies carried out widespread geological and geophysical surveys and drilled 47 exploratory wells. As a result, a few small

gas fields were discovered. Despite these gas discoveries, exploration activity after having reached its peak in mid-1950s, declined in the late fifties. Private Companies whose main objective was to earn profit were not interested in developing the gas discoveries especially when infrastructure and demand for gas was non-existent. With exploration activity at its lowest ebb several foreign exploration contracting companies terminated their operation and either reduced or relinquished land holdings in 1961.

Establishment of OGDC
On 04 March 1961, the Government of Pakistan signed a long- term loan agreement with the USSR, where by Pakistan received 27 million to finance the equipment and services of Soviet experts for exploration. Subsequently, OGDC was created under an Ordinance dated 20th September 1961 and was charged with was prime responsibility to undertake a well thought out and systematic exploratory programs and to plan and promote Pakistan's oil and gas prospects. As an instrument of policy in the oil and gas sector, the Corporation followed the Government instructions in matters of exploration and development. The day to day management was however, vested in a five-member Board of Directors appointed by the Government. In the initial stages the financial resources were arranged by the GOP as the OGDC lacked the ways and means to raise the risk capital. The first 10 to 15 years were devoted to development of manpower and building of infrastructure to undertake much larger exploration programmes. Later, in July 1989, as the company progressed as a result of major oil and gas discoveries, the Government offloaded the Company from the Federal Budget and allowed it to manage its activities with self generated funds. The year 1989-90 was the company's first year of self-financing. Today, OGDCL is the largest Exploration and Production Company in Pakistan, listed on all three exchanges of the country as well as the London Stock Exchange.

Initial Successes:
A number of donor agencies such as the World Bank, Canadian International Development Agency (CIDA) and the Asian Development Bank provided the momentum through assistance for major development projects in the form of loans and grants. OGDC's intensive efforts were very successful as they resulted in a number of major oil and gas discoveries between 1968 and 1982. Two oil fields were discovered in 1968 which paved the way for further exploratory work in the North. During the period 1970-75, the Company reformed the strategy for updating its equipment base and undertook a very aggressive work programme. This resulted in discovery of a number of oil and gas fields in the Eighties, thus giving the Company a measure of financial

independence. These include the Thora, Sono, Lashari, Bobi, Tando Alam & Dhodak oil/condensate fields and Pirkoh, Uch, Loti, Nandpur and Panjpir gas fields which are commercial discoveries that testify to the professional capabilities of the Corporation.

VISION STATEMENT
To be a leading multinational Exploration and Production Company

MISSION STATEMENT
To become the leading provider of oil and gas to the country by increasing exploration and production both domestically and internationally, utilizing all options including strategic alliances To continue realign ourselves to meat the expectations of our stockholders through the best management practices, the use of the latest technology, and innovation for sustainable growth, while being sociably responsible.

CORE VALUES:
• • • • • Merit Integrity Teamwork safety Dedication Innovation

GOALS: FINANCIAL GOALS:
• • • Build strategic reserves for future growth and expansion Growth and superior returns to all stockholders Double the value of the company in the next five years

• • •

Make the investment decisions by ranking projects on the bases of best economic indicators Maximize profit by investing surplus funds in profitable avenues Reduce cost and time overrun to improve performance results

LEARNING AND GROWTH GOALS:
• • • • • Motivate our work force, and enhance their technical, managerial and business skills through modern HR practices Acquire, learn and apply state of the art technology Emphasis organizational learning and research through the effective use of knowledge management system Fill the competency gap with in the organization by attracting and retaining the best professionals Attain full autonomy in financial and decision making matters

CUSTMERS GOALS:
• • • Continuously improve quality of service and responsiveness to maintain a satisfied customer base Improve the reliability and efficiency of supply to the customers Be a responsible corporate citizen

INTERNAL PROCESS GOALS:
• • • • • • • Evolve consensus through consultative progress inter-linking activities of all deportments Excel in the exploration, development and commercialization Synergize through effective business practices and teamwork Have well defined SOP’s with specific ownership and accountabilities Improve internal business decision making and strategic planning through state of the art MIS Improve internal control Periodic business process reengineering

Liquidity Analysis
Ratio Current Ratio Acid Test Ratio A/R Turnover Inventory Turn Over 2005 5.35 5.33 3.59 500.30 2006 7.09 7.06 4.28 422.25 85.36 0.86 2007 6.65 6.69 3.81 332.58 95.79 1.10 2008 3.72 3.76 3.44 253.03 106.14 1.14 2009 4.08 4.10 2.59 363.36 141.13 1.00

A/R turn over in 101.59 Days Inventory turn over in days 0.73

Liquidity ratios:
Liquidity reflects the ability of company to meet its short term obligations using assets that are most readily converted into the cash. Assets that may

be converted into cash in a short period of time are referred as liquid assets that are listed in financial assets as current assets. Current assets are often referred as a working capital because these assets represent resources needed for the day to day operations of the company’s long term, capital investments. Current assets are used to satisfy short term obligations. The amount by which current assets exceed current liabilities is referred as the net working capital.

Current ratio: Current asset/ Current liabilities Acid test ratio: current assets – inventory / c liabilities

16 14 12 10 8 6 4 2 0 2005 2006 2007 2008 2009

Acid Test Ratio Current Ratio

Current ratio has improved last year as the traditional value of the current ratio is 2. In 2008 the current ratio of OGDCL was 3.72 last year in 2009 it improved to 4.08The current ratio of the OGDCL has remained greater then 2 during the 5 years, which bears the testimony of the better liquidity position of the company. As if we compare current ratios of OGDCL from 2006 to 2009 then

A/R turnover: Inventory turnover:

600 500 400 300 200 100 0 2005 2006 2007 2008 2009 A/R Turnover Inventory Turn Over

A/R Turnover in days Inventory turnover in days
160 140 120 100 80 60 40 20 0 2005 2006 2007 2008 2009 A/R turn over in Days Inventory turn over in days

Long Term Debt Ratio Analysis
Ratio Debt Ratio Debt equity Ratio Debt to Tangible Net Worth 2005 0.27 0.37 2.68 2006 0.23 0.29 3.32 2007 0.31 0.39 1.85 2008 0.27 0.38 1.76 2009 0.29 0.41 1.49

Times Interest 8246.1 6594.53 Earned 4 Fixed Charge Coverage 8246.1 6594.53 4

136.33

148.26

88.39

136.33

148.26

88.39

Debt ratio Debt to equity ratio Debt to tangible net worth
3.5 3 2.5 2 1.5 1 0.5 0 2005 2006 2007 2008 2009 Debt Ratio Debt equity Ratio Debt to Tangible Net Worth

Time interest earned: Fixed charge coverage:

9000 8000 7000 6000 5000 4000 3000 2000 1000 0

Times Interest Earned Fixed Charge Coverage

2005

2006

2007

2008

2009

Profitability ratios
Ratio Return on assets 2005 26.78 2006 36.28 52.10 40.21 47.83 77.08 77.08 67.59 71.53 189.03 2007 34.03 46.09 36.89 43.43 75.75 75.75 60.84 69.04 176.04 2008 30.68 54.55 34.34 40.83 87.12 87.12 62.62 69.50 187.49 2009 33.63 49.56 38.24 46.95 79.22 79.22 62.54 69.92 159.90

Return on 39.83 operating A Return on 30.09 Investment Return on 36.65 total equity Total assets 60.72 turn over Operating 60.72 A/turnover Net profit margin 65.60

Gross profit 67.31 margin Fixed 148.04 assets turn over

Investor ratios:

Ratio

2005

2006 10.65 23.59

2007 10.61 24.86

2008 11.54 25.67

2009 12.91 29.34

Earning 7.68 per share Book 20.94 value per share Dividend 0.98 payout R Degree of 1.00 financial leverage % of 2.28 retained earning Dividend 11.63 yield Price earning ratio 8.40

0.85 1.00

0.86 1.01

0.92 1.01

0.64 1.01

15.49

14.45

7.86

36.10

6.58

7.51

7.64

10.49

12.84

11.39

12.06

6.09

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