Dedication

Business Plan

OIL AND GAS DEVELOPMENT COMPANY LIMITED Head Office Islamabad

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SUBMITTED BY

Mumtaz Ali Saeed Ahmed Hakim Ali Ayaz Ali MBA-4th “A” SUBMITTED TO Mr. Basharat Ahmed Session 2009-2011

Quaid-i-Azam School of Management Sciences Quaid-i-Azam University Islamabad

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This project is dedicated To the Almighty Allah and His Holy Prophet (P.B.U.H) May Allah Bless the Persons who guide the people for the path of Allah.

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ACKNOWLEDGMENT

We would take this opportunity to thank Mr. Basharat Ahmed, our teacher for the course of Business Policy at the Quaid-i-Azam School of Management Science, Quaid-i-Azam University Islamabad, for his valuable support and encouragement which he has offered. His words of wisdom will always be remembered, and We are convinced that the knowledge of Business policy And Strategy that he has imparted to all of us would go a long way in making us good managers and help us all through our professional career.

This report cannot be solely attributed to our combined effort but it is indeed the joint effort of many friends and well wishers. There were times in the course of preparing this report when things were tough and the future seemed dark. It could not have been possible to write it, without the immense help of a few individuals to whom we would like to offer my gratitude.

In particular we would like to thank Mr. Abdual Raziq Khatak (Personnel Officer HR Policy Department), of OGDCL for his immense contribution towards this report. Without his corporation and the amount of time he gave us, this report would not have existed.

Thanks a lot! Mumtaz Ali Saeed Ahmed 4

Ayaz Ali Hakim Ali 5 .

48% of total oil and 37% of total gas reserves. Historically. 155 exploratory wells have been drilled by OGDCL in the country since its inception leading to 49 discoveries. OGDCL is one of the principal explorers and producers of oil and gas in the country. 33 of which were of oil and 16 gases. OGDCL not only carries out exploration and development activities on its own but has also entered into joint ventures for oil and gas exploration. OGDCL is 100% owner in two concessions. Presently. In 1952.Executive Summary OGDCL is one of the leading Exploration and Production Company in the Oil and Gas Industry of Pakistan. OGDCL now holds the largest shares of oil and gas reserves in the country. HR Policy) for collection of required information we observed the working activities held at the Head office. Today. (PPL) and Pakistan Oilfields Ltd. (POL). In addition. PPL discovered a giant gas field at Sui in Balochistan. 6 . OGDCL has grown into a technically and commercially viable organization For preparing an effective business plan of OGDCL we visited Head office Located at Islamabad and met Abdul Raziq Khattak (Personnel Officer. it is the operator as well as a working interest owner in 16 concessions and partner in another 19 concessions operated by other oil companies. Since it development. exploration activities in the country were carried out by Pakistan Petroleum Ltd. Prior to OGDCL's emergence. Its percentage share of the total oil and gas production in Pakistan is 34% and 28% respectively. and have included all the essential information which is the main requirement of preparing Business Plan.e. We have prepared eight chapters in our Business Plan of OGDCL. i.

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Establishment of OGDC To revive exploration in the energy sector the Government of Pakistan signed a long-term loan Agreement on 04 March 1961 with the USSR. declined in the late fifties. 1.Chapter No: 1 Introduction 1. whereby Pakistan received 27 million Rubles to finance equipment and services of Soviet experts for exploration. With exploration activity at its lowest ebb several foreign exploration contracting companies terminated their operation and either reduced or relinquished land holdings in 1961. (PPL) and Pakistan Oilfields Ltd. exploration activity after having reached its peak in mid-1950s. Company History 1. these companies carried out extensive geological and geophysical surveys and drilled 47 exploratory wells. vested in a five-member Board of Directors appointed by the Government. (POL). the Corporation followed the Government instructions in matters of exploration and development.1. Prior to OGDCL Prior to OGDCL's emergence. The Corporation was charged with responsibility to undertake a well thought out and systematic exploratory program and to plan and promote Pakistan's oil and gas prospects. PPL discovered a giant gas field at Sui in Balochistan. exploration activities in the country were carried out by Pakistan Petroleum Ltd. The day to day management was however. 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. a few small gas fields were discovered. Pursuant to the Agreement. OGDC was created under an Ordinance dated 20th September 1961. This discovery generated immense interest in exploration and five major foreign oil companies entered into concession agreements with the Government. As a result. As an instrument of policy in the oil and gas sector. During the 1950s. In the initial stages 8 . In 1952.2. Despite these gas discoveries.

due to major oil and gas discoveries in the eighties. Canadian International Development Agency (CIDA) and the Asian Development Bank provided the impetus through assistance for major development projects in the form of loans and grants. The financial year 198990. OGDC's concerted efforts were very successful as they resulted in a number of major oil and gas discoveries between 1968 and 1982. This resulted in discovery of a number of oil and gas fields in the Eighties. 1. Nandpur and Panjpir gas fields which are commercial discoveries that testify to the professional capabilities of the Corporation. Toot oil field was discovered in 1968 which paved the way for further exploratory work in the North. The obvious initial target during the first year of self-financing was to generate sufficient resources to maintain the momentum of exploration and development at a pace envisaged in the Public Sector Development Programme (PSDP) as well as to meet its debt servicing obligations. the Company reformed the strategy for updating its equipment base and undertook a very aggressive work programme. the Government in July 1989. off-loaded the Company from the Federal Budget and allowed it to manage its activities with self generated funds. Lashari. The first 10 to 15 years were devoted to development of manpower and building of infrastructure to undertake much larger exploration program. Transition to a self financing entity Noting the Company's success. Uch.4.3. Initial Successes A number of donor agencies such as the World Bank. 1. thus giving the Company a measure of financial independence. Bobi. During the period 1970-75. was OGDC's first year of self-financing. Tando Alam & Dhodak oil/condensate fields and Pirkoh. It was a great challenge for OGDC. Loti. OGDC not only generated enough internal funds to 9 . Sono.the financial resources were arranged by the GOP as the OGDC lacked the ways and means to raise the risk capital. These include the Thora.

10 . In addition OGDCL has 35 mining and Development & Production Leases.f. Since it development. 1. efficient and competitive structure. OGDCL has grown into a technically and commercially viable organization. OGDCL now holds the largest shares of oil and gas reserves in the country. It has been incorporated as a Public Limited Company w. Services of the Company’s highly qualified and skilled expertise in the fields of geology and geophysics are frequently availed by the local and foreign oil companies. and was known as OGDC (Oil & Gas Development Corporation).e. Its percentage share of the total oil and gas production in Pakistan is 34% and 28% respectively.e. 23 October 1997 and is now known as OGDCL (Oil & Gas Development Company Ltd. 48% of total oil and 37% of total gas reserves.6. OGDCL has an extensive database. which are operated by it besides having working interest ownership in 28 non-operated Mining and Development & Production Leases.5. besides seeking opportunities abroad. OGDCL explores and exploits indigenous resources for optimum production of oil and gas. OGDCL was a statutory Corporation. It also leases out its drilling rigs to the private sector and carries out seismic surveys and data processing on contract for these companies on extremely competitive rates. 1. i.). Development With a balanced. Conversion into Public Limited Company Prior to 23 October 1997.meet its debt obligations but also invested enough resources in exploration and development to increase the country's reserves and production. OGDCL has the largest acreage position in Pakistan and currently operates 17 exploration concessions and holds non –operated working interest in another 7 exploration concessions.

Exploration Production Historically.3. Crude Oil Crude oil is the mixture of petroleum liquids and gases (including impurities such as sulphur) that is pumped out of the ground by oil wells. The major gas fields of the company are Dakhni. Main production Oilfields of the company are Dakhni. 33 of which were of oil and 16 gases. Bobi. In addition. home heating fuel. OGDCL is 100% owner in two concessions. Kunner and Bobi. 2. OGDCL not only carries out exploration and development activities on its own but has also entered into joint ventures for oil and gas exploration. Qadirpur. The major fields of the company having LPG production facilities are Dakhni. GAS A mixture of hydrocarbon compounds and small quantities of various nonhydrocarbons existing in the gaseous phase or in solution with crude oil in natural underground reservoirs. Product Lines The main product lines of the company are as under: 2.2. Toot & Rajian. Sadkal.2. Dhodak. 2. Liquefied Petroleum Gas (LPG) A mixture of hydrocarbons found in natural gas and produced from crude oil. OGDCL is one of the principal explorers and producers of oil and gas in the country.2. Chanda. Dhodak. Pirkoh and Uch. and motor vehicle fuel.1. 155 exploratory wells have been drilled by OGDCL in the country since its inception leading to 49 discoveries. Today. 2. Presently. Tandoalam. it is the operator as well as a working interest owner in 16 concessions and partner in another 19 concessions operated by other oil companies.Chapter No: 2 Products and Services 2. 11 .1.2. Panjpir.2. Nandpur. Dhodak. used principally as a feedstock for the chemical industry.

2.7. 2.6. Naphtha is the residual product of the company and is extracted from various oil / gas fields. pharmaceuticals and other products. Attock 12 . This product is extracted from various oil fields of the company. kerosene. This residual product is extracted from various oil fields of the company.2. and generally used as a fuel for lighting etc. Naphtha Naphtha is a group of various volatile flammable liquid hydrocarbon mixtures used primarily as feedstock in refineries and petrochemical industry. Solvent Oil A simple or complex liquid mixture of hydrocarbons that can be refined to yield gasoline. and various other products. extracted from various oil fields of the company. The sulphur is produced at the Dakhni oil & Gas field near Jand.2. Kerosene Oil Kerosene oil has been distilled from petroleum. Sulphur A yellow mineral extracted from petroleum for making fertilizers. 2. diesel fuel.2.4.2. It is also used in solvent applications.2. 2. High Speed Diesel Oil It is the hydrocarbon Oil suitable for use as fuel in Compression Ignition Engines.5.8. 2.

Sukkur. 13 . Organizational Structure 3. A Board of Directors comprising twelve Directors. In functional structure provision of economies of scale is present with in the functional department. Blue Area Islamabad and Regional Offices are located in Karachi and Multan. On the basis of functions. The OGDCL has been re-organized during the last few years. OGDCL can broadly be divided in to following three companies:  Corporate  Exploration & Production (E& P)  Technical Services OGDCL has a traditional type of structure i. Besides this OGDCL has its Liaison Offices in Hyderabad. functional structure having a CEO at the top followed by the BOD. All policy related issues are dealt by the board of Directors that is headed by a nonexecutive Chairman and a full time Managing director. it now operates much purely as Oil Company does. divisions are made in the head office structure that are inter connected with the field structure. which consists of 01 Chairman. policies and affairs of the Company vests in a Board of Directors. Main Offices OGDCL Head Office is situated at Jinnah Avenue. Emphasis is on Professional Competence and getting things done. MD is responsible for operational and other activities. It helps getting in depth knowledge and skill development.e.Chapter No: 3 ORGANIZATION 3. and Quetta for operational activities. all of whom are nominated by the Ministry of Petroleum and Natural Resources.1. responsible for policy related issues. The general direction. Supervising each other work is easy and cooperation among the members is increased due to group performance. 10 Directors and 01 Managing Director (MD).

OGDCL Regional Office. Zuberi Director Mr. Islamabad 9. Korangi 11. OGDCL Liaison Office. Oil & Gas Training Institute. OGDCL Base Store. 3. Jinnah Avenue Islamabad. Kot Sarang 13. Karachi 10. Islamabad. Quetta 6. Tariq Faruque Director Syed Amir Ali Shah Director Mr. Sukkur 7. Rawalpindi & Karachi 14. Islamabad.3. Khadiji. Multan 5. 3. Pirkoh Gas Company Private Limited. Islamabad. The main offices located throughout Pakistan 1. OGDCL Base Store. Islamabad 15. 2. OGDCL Workshops. OGDCL Regional Office. OGDCL Base Store. Kaiser Bengali Director 14 . Kot Addu 12. OGDCL West Wharf Office. Fahd Shaikh Director Dr. Board of Directors Mr.2. Mohammad Naeem Malik MD/CEO Mr. OGDCL Liaison Office. Karachi 8. Shafi Chamber.3. OGDCL Base Store. Medical Centers. OGDCL Base Store. Imtiaz Kazi Chairman Mr. Karachi 4. Wasim A. OGDCL Head Office.

Career Planning Cell 11. Finance & Accounts 10. MAIN DEPARTMENTS 3. Material Management Internal Audit 9. Ahmed Bakhsh Lehri Director Senator Mir Wali Muhammad Badini Director Syed Masieh-ul-Islam Director 3. Security System Support 5.4. E&P DEPARTMENTS 1. Legal OGTI 6. Personnel Aviation 4. Communication G & R Lab 7. CORPORATE DEPARTMENT 1. Process 15 .2.4. Supply Chain Management Secretariat 8.4.1. Exploration Studies & Research 3.Mr. Exploration Prospect Generation 2. Environment Protection & Safety 3. Production 5. Human Resource Department Corporate Affairs 3. Exploitation 4. Administration Medical 2.

Logistic 12. Drilling 2. Geological /Geophysical 10. Stimulation 9.4. Engineering/Workshops 3. Seismic Data Processing 11. Well Services Department 5. Cementation 6.3. TECHNICAL SERVICES DEPARTMENT 1. Mud Engineering 4. Geological Well Supervision 7. Data Logging 16 .3. Wire line Logging 8.

PPL was incorporated in June 1950 with the Burmah Oil Company (renamed Burmah Castrol) and GoP as its principal shareholders. Adhi and Mazarani. The company’s total staff strength is about 2. As the leading oil and gas group in Central Europe. PPL’s head office is located in Karachi. Miano. The Company’s holds operatorship of major oil and gas fields including Sui. while its non-operated portfolio includes interests in the Qadirpur. the Privatization Commission (PC) is proceeding with a strategic sale of 51% shareholding in PPL along with transfer of management control. In Pakistan. 4.Chapter No: 4 Market Analysis 4. Kandhkot. EUR 18 billion. After more than 50 years of successful operations PPL continues to be a prominent E&P player in Pakistan with: Sui. with Group sales of EUR 15. as well as market capitalization of approx.1.1. Pakistan’s oldest and largest gas field discovered and operated by PPL. On behalf of the Government of Pakistan (GoP). 17 . Pakistan Petroleum Limited (PPL) Pakistan Petroleum Limited (PPL) is one of the pioneer exploration and production (E&P) companies in Pakistan oil and gas sector.226 employees in 2005. OMV is active in Refining and Marketing (R&M) in 13 countries and in Exploration and Production (E&P) OMV is active in 18 countries on five continents.536 employees including 640 management staff and 1. Sawan and Tal fields. OMV Pakistan OMV (Pakistan) is a 100% subsidiary of OMV Aktiengesellschaft which is Austria’s largest listed industrial company.896 non-management staff. OMV has been active as an operator and partner since 1990.1. contributing 25% of Pakistan’s gas production. Major Competitors 4.2.6 billion and a workforce of 5.1.

In the years to date OMV (Pakistan) has established itself as the largest international gas producer in Pakistan with an operated volume of more than 110. It came about by the end of 1993. OMV is. consisting of OMV Pakistan as the Operator. In 2005. This represents about 16% of the total gas produced in Pakistan. OMV is pursuing new projects in other parts of Pakistan. also actively expanding its exploration operations.e. To further meet raw gas requirements development drilling was continued successfully for both fields. OMV remained quite aggressive on new developments and Kadanwari plant gas processing capacity was enhanced to 232 MMscfd while Sawan plant capacity has been enhanced to 400 MMscfd. from the field named Sawan. In a record nineteen months from the ground-breaking ceremony in January 2002 of the Sawan Gas Plant.000 barrels of oil equivalent per day from Kadanwari-Miano and Sawan fields. just three years after OMV came to Pakistan. The second major breakthrough came five years later i. again in the same area of Sindh. Hardy Oil & Gas (now ENI group).The company was incepted as part of a Joint Venture. the exploration group has acquired extensive seismic data. 18 . The first significant achievement was the discovery of the Miano gas reservoir in the Thar Desert of Sindh province. OMV was able to sell its raw gas by July 2003. in 1998. Parallel to the Sawan development OMV also took over the operator-ship of the Kadanwari Gas Processing Plant on 1stJanuary 2003 from Lasmo. and Oil & Gas Development Company Limited (OGDCL). including a mega-3D seismic survey covering more than 1000 sq.Km area in and around our Gambat and Latif blocks. currently ENI. Pakistan Petroleum Limited (PPL). Besides these activities carried out in OMV Pakistan’s core area. Sawan was and still is one of the largest discoveries of gas reserves in Pakistan.

In 2001 the region was importing an average of 13.89mn b/d by 2014.000 square kilometres. standards and most importantly. Oil imports are growing rapidly. The principal importers will be China. Japan. The latest Pakistan Oil & Gas Report from BMI forecasts that the country will account for 1. Safety and Environmental standards are parallel to the highest international level and second to none in the local perspective. because demand growth is outstripping the pace of supply expansion. Supply and demand Oil & gas. Strategically located at the foot of Central Asia. Regional oil production was around 8. one of the vibrant sectors. For Sawan plant. 4. of which 21 are multinational.21mn b/d by 2014. The Government of Pakistan has issued over 100 licences for exploration of around 28. while providing 0. OMV has strong commitment to reduce emissions to the environment.As a Multinational company. achieved very high level of growth in a few years. are presently exploiting reserves in the country. In terms of natural gas. Our Health. Pakistan’s share of gas consumption in 2010 is 19 . Pakistan offers great opportunity for them and has an estimated resource potential of 200 trillion cubic feet of natural gas and over40 million barrels of oil. Regional oil use of 21. Pakistan's potential as a big business opportunity is highlighted by the fact that over 25 oil companies.42mn barrels per day (b/d) in 2001 is set to reach a forecast 30. which implies net imports rising from around 81bcm to 104bcm. preliminary study is being initiated. To achieve the same an “Emission Reduction” project has been initiated for Kadanwari Plant. the local laws. India and South Korea. production should reach 522bcm in 2014.07mn b/d. to date Pakistan has only discovered 15% of its total oil reserves and in turn has become major importer of oil and petroleum products. OMV is very conscious of its adherence to its outlined policies. By 2014 the only net exporter will be Malaysia.32mn b/d by 2014. This is forecast to reach 21. However.2.51% of Asia Pacific regional oil demand by 2014.77% of its supply.35mn b/d in 2001 and is forecast to average slightly to 8. This is thanks to many Asian gas producers being major exporters.

20 .95%. while its share of production is put at 9.05% of supply.66%. with the country accounting for 8.7. By 2014.16%. its share of gas consumption is forecast to be 6.

1.4. dynamic and growing E & P Company. regional Pakistani E & P Company. recognized for its people. Corporate Mission “Our mission is to become a competitive.1. Corporate core values  Merit  Integrity  Team Work  Safety  Dedication  Innovation 5.Chapter No 5: Business Strategies and Implementation 5.4. Corporate Vision “To be a leading. rapidly enhancing our reserves through world class workforce. partnerships and performance” 5.2. best management practices and technology and maximizing returns to all stakeholders by capturing high value business opportunities within the country and abroad. Financial  Build strategic reserves for future growth/expansion  Growth and superior returns to all stakeholders 21 .3. Corporate Goals 5. while being a responsible corporate citizen” 5.

Customer  Continuously improve quality of service and responsiveness to maintain a satisfied customer base  Improve reliability and efficiency of supply to the customer  Be a responsible corporate citizen 5.4.  Acquire.  Make investment decisions by ranking projects on the basis of best economic indicators  Maximize profits by investing surplus funds in profitable avenues  Reduce cost and time overruns to improve performance results. Double the value of the company in the next five years.4.3.4.  Fill the competency gap within the organization by attracting and retaining best professionals.  Emphasize organizational learning and research through effective use of knowledge management systems.2.4. managerial and business skills through modern HR practices. development and commercialization  Be transparent in all business transactions  Synergize through effective business practices and teamwork  Have well-defined SOP’s with specific ownerships and accountabilities 22 . 5. Internal processing goals  Evolve consensus through consultative process inter-linking activities of all departments  Excel in exploration. and enhance their technical.  Attain full autonomy in financial and decision making matters. Learning and Growth  Motivate our work force. 5. learn and apply state-of-the-art technology.

namely the geographic concentration of its reserves base within Pakistan. will be a major factor in allowing it to control its low cost structure.5. Maintain Low Cost Operations: OGDCL’s operating environment. allowing the Company to utilize its significant reserves base and capitalize on the strong economic growth and accelerating energy demand in Pakistan. 5. In order to achieve this goal. the Company seeks to execute the following strategies. Exploit Exploration Opportunities: by building the Company’s future reserves portfolio through its large onshore exploration acreage. OGDCL’s primary objective is to enhance its reserves and production profile and ultimately maximize value for shareholders. Improve internal business decision making and strategic planning through state-of-the-art MIS  Improve internal controls  Periodic business process reengineering. During the fiscal year 200809 target of drilling is 52 wells. Business strategy As the leading exploration and Production Company in Pakistan. Figure: Business and Functional Strategies Accelerate Production Growth: by continuing to accelerate production growth through utilizing cutting edge technologies. Within Pakistan. the Company’s 23 .

leading position also enables it to access economies of scale across its significant reserves base and operations. perform repetitive jobs and follow a hierarchal structure for promotion.1. therefore the training of the employees became necessary.6. The distribution strategy of OGDCL is focused to specific distributors which are on there panels for different schemes. It has its own training and development institution under the label of Oil and Gas Training Institute (OGTI). OGDCL has its separate HR division which include different department for compliance of HR strategies in organization. Human Resource Strategy Currently OGDCL has low skilled employees who receive low pay. 5.6. Marketing Strategy OGDCL use market development strategy in order to capture the larger share of its existing market for current products through market saturation and penetration. Young and fresh professionals are being hired in order to help organization revamp its strategic path effectively. Functional Strategies 5. located in Islamabad. Work team are lacking however the diversity in terms of geographic and age is present which is also need of its operations. Pursue Selective International Expansion: while domestic expansion remains OGDCL’s core focus. 24 . The employees in OGDCL were not very much computer literate but as information systems were planned to be installed. Basic objective of OGDCL is development and profit making. Currently the contingent workforce trend is increasing in OGDCL. Keeping in view the competition it also some times goes for product development where new products are developed for the existing market. the Company intends to grow and diversify its portfolio through selective international expansion in the medium to long-term. 5.2.6.

6.5.5% of the equity with an additional green-shoe option (A green shoe option can provide additional price stability to a security issue because the underwriter has the ability to increase supply and smooth out price fluctuations if demand surges) up to 2. This department also keeps track of developments in global as well as domestic public policy relevant to OGDCL’s business environment including the practices and role of competitors and the necessary dissemination of this information within OGDCL and the external/agencies.4. Besides that Exploration study and Research department of OGDCL also operates under task force Exploration and Production division that facilitates the new technological advancement in Oil and Gas sector to be practically incorporated in field. So OGDCL not only generate enough 25 . Initially 2. The said Offer received an overwhelming response from the general public and was recorded as a landmark transaction in the history of Pakistan’s capital markets. On the other hand it undertakes research on subjects that facilitates/promotes business and economic planning. The early warning system of the dynamic MIS provides number of reports to the authorized users of head office.3.5% of equity was offered to the general public. At the first the OGDCL was fully funded by the Government of Pakistan. Later on Government of Pakistan disinvested part of its shareholding in the company in 2003.5. Now. All OGDCL offices have been centrally connected to the head office data center located in Islamabad. Research and Development Strategy OGDCL has a research and planning division under which operates research and planning department.6. 5. Information Technology Function With the passage of time the Management Information System (MIS) became an integral part of the organizations therefore OGDCL also has to incorporate an appropriate information system to improve its efficiency.6. the OGDCL being Public Company follow same trend of generating funds through issuing of shares in the public. Financial Strategy Oil and Gas Company limited (OGDCL) is a specialized exploration and production of oil and gas areas of the country. 5.

26 .internal funds to meet its debt obligations but also invested enough resources in exploration and development to increase the country's reserves and production.

monitoring compliance with the best practices of Corporate Governance. promote operational efficiency. strong production base and largest exploration acreage spread over all four provinces and off-shore.Chapter No 6: Financial analysis 6. JCR-VIS Credit Rating Company Limited (JCR-VIS) has reaffirmed the entity ratings of Oil and Gas Development Company Limited (OGDCL) at ‘AAA/A-1+’ (Triple A/A One Plus).2. The Management of the Company also understands its role and responsibilities as leading national E&P Company with largest oil and gas reserves. Business Risks and Challenges Being an exploration and production company. Internal Audit function also exists in the Company serving as an effective appraisal of internal controls which are meant to have methods and measures in place to safe guard the assets. check the accuracy and reliability of its accounting data. 6. and encourage adherence to prescribed managerial policies. there has been no gearing on books. The strong financial profile of the company can be established from the fact that despite significant capital expenditure requirement in the E&P sector. effective and comply with applicable laws and regulations and professional best practices.1. OGDCL is exposed to operational and non operational risks associated with E&P business which may unfavourably affect its operations and financial performance. The Management and the Board of Directors are well aware of their responsibilities in this regard and ensue that an appropriate system exists in the Company for the identification and management of the business risks. Credit Rating OGDCL has shown sustainable growth in business volume over the years. 27 . Audit Committee of the Board in accordance with its terms of reference also ascertain that the internal control system including financial & operational controls and accounting system are adequate. Outlook on the medium to longterm rating is ‘Stable’.

3. Exploration and Drilling Risks The different sedimentary basins in Pakistan represent very complex tectonics and deformation styles. To maintain a good success ratio is also a vital element which can only be achieved with efficient professional 28 . Crude Oil Price Crude oil pricing in Pakistan is based on a basket of Arabian crude adjusted for yield differential and freight adjustment. Change in international oil prices is largely uncontrollable and OGDCL is vulnerable to increase/decrease in such prices. However.Management is committed to cope with the given challenges within its ambit of controls with its strong core of trained and experienced professionals. the gas sales which amount around 50% of Company’s revenue are less prone to this risk.2.2. 6. Exchange Rate Risk Rs/US$ parity decline has a positive impact on OGDCL’s earnings as crude revenue is tied to US$ based pricing mechanism based on international crude prices with suitable yield differential and number of gas fields have wellhead pricing in US$ terms.1. 6. acquisition of geological and geophysical data. sound equipment base and sound financial position. The in-depth knowledge of petroleum systems present in these basins is imperative. Key operational and non-operational risks which can influence the operations of the Company are as follows: 6.2. In addition. delineation of drillable prospects and their drilling are all important aspects in hydrocarbon exploration.2. gas prices of certain fields are capped at fixed crude oil / HSFO prices and are affected only in case the international crude oil price falls below the capped price. Decline in prices of crude oil have a negative impact on the Company’s earning performance. The selection of potential exploration blocks. Rs/US$ parity decline has a negative impact on the Company’s earnings since most of the material including drilling material. plant & equipment used in oil and gas industry are imported to meet operational requirements.

As easy-to-drill structures are vanishing. The Company is also utilizing experienced professionals and latest technologies in selection of acreage. fire and other safety hazards. interpretation of seismic data and selection of exploratory well site. As the Company is committed to adhere to the best Health. Exploration risks include selection of incorrect exploration acreage. lateral wells and drilling in complex geological settings. Legislation OGDCL’s revenues are subject to change in Petroleum Policies. Risk of un-successful drilling has an adverse affect on Company’s earnings and growth. heavy rains. Changes in legislation. These risks are addressed by the Management while making the investment decisions. regulations. These generally offer incentives to local & foreign E&P companies to increase exploration efforts. Petroleum Policy in effect at the time of a particular discovery determines the underlying revenues from such field.5.teams and systematic working. inaccuracies in acquisition. Environmental Risks OGDCL is vulnerable to environmental changes including earth quakes. taxation. Safety and Environment (HSE) practices.2. royalty and pricing mechanism may affect the Company’s operational and financial performance. floods etc. the drilling operations are also facing many challenges such as deep wells.2. There is always a risk of success / failure in drilling exploratory wells. acquisition and processing of seismic data etc.4. processing. The Company is also exposed to variety of hazards during the drilling process including well blow out. that may materially impact production at various fields resulting into adverse impact on company’ revenues and profitability. 6. fishing. the compliance 29 . expertise in reservoir engineering is in place to manage pertinent risks. The Management is well aware of these risks and is taking into consideration these facts while planning and executing the exploration and drilling targets. Though this risk is reduced in case of development fields. which are usually promulgated after every five years. planning and executing Company’s exploration and development plans. 6.

to changes in environmental regulations relating to HSE could result into higher cost to the Company. Profitability Over the years. So seems there is increase in the profitability position of the company rather then decrease. 6.3. in FY 2009 it was Rs 55. It follows the trend of increasing profitability since last financial years as in FY 2008 the profitability was Rs 44.18.34.54 and FY 2010 it is Rs 59. the OGDCL’s main source of funding has been funds generated by itself through its production of oil and gas products. If we put glance over the profitability of the OGDCL from its financial statements then we will come to know that the Company possesses strong profitability position. 30 .

Petroleum policy of oil and gas industry in Pakistan is designed with a focus on promoting private sector investment in oil and gas sector. OMV has also pointed out medium term growth potential in Pakistan’s reserves.5 Billion.Chapter No: 7 Industry analysis 7. Pakistan oil and gas industry is going through a process of transition as it is experiencing a new wave of privatization. 01 is a major achievement of this sector.1. The demand for natural gas is exceeding supply due to increased usage in the domestic. Pakistan Oil and Gas Industry Pakistan’s produces about 60. Instance of gas and condensate discovery in oil and gas development limited company (OGDCL) in Exploratory Pakhro WELL No. The balance amount is imported at a staggering cost of US$2. Reports of oil and gas industry of Pakistan revels this Country’s current average daily oil and production is about 3800 net barrels and natural gas of 73 net million 31 . Aware of rich oil and gas reserves. Austria’s OMV is credited with discovery of Taijal 1 exploratory well. In view of the increasing demand and the current decline in production this cost is going to increase substantially over the next couple of years. The Privatisation of the units in the oil and gas sector will not only increase the operational efficiency of these units but also contribute towards new injection of investment. The Government of Pakistan has announced its intention of privatizing 37% 0f its 75% stake in Qadirpur gas field and also transferring management responsibility to private companies. oil and gas industry of Pakistan is putting in steady efferts to make best utilization of resources and build a strong production base.000 barrels of oil per day which only meets approximately one sixth of the country’s current oil requirement. Pakistan does not have the necessary infrastructure to cope with the increasing volumes of imported oil and requires substantial investment to support this infrastructure. Apart from this. industrial and power generation sectors.

creating a qualitatively improved infrastructure in oil and gas industry. The Policy. off shore areas and the Baluchistan Basin. development of an efficient and transparent management. could not arouse sufficient interest to attract interest in the downstream sectors. Policy The Petroleum Policy of 1994 assisted in the development of the upstream sector.cubic feet. The Policy focuses on mobilization of greater resources and promotion of private sector investment in the oil and gas sector. petroleum ministry of Pakistan reported high trade deficit due to major gap between import and export value. storage and infrastructure on the basis of commercial 32 . Efforts are being made to exploit the existing energy resources to build a strong indigenous exploration and production base. The privatization of SNGPL and SSGCL is under process. promotion of self-reliance through accelerated exploitation of energy resources and minimum environmental degradation.2. A new package for offshore exploration has been prepared for attracting exploration investment in off-shore areas which has so far remained relatively limited. 7. The import of LPG has been liberalized to promote investment in import of LPG. however. a number of far-reaching measures have been taken which include attracting private foreign investment. The 1997 Petroleum Policy is based on a review of the 1994 Policy and offers major incentives in the upstream and downstream petroleum sector. These efforts are directed at achieving cost effectiveness. Gas Regulatory Authority and Petroleum Regulatory Board are planned to be established for privatization. Pakistan government aims at formulating policies to reduce import dependence and promote self reliance by triggering exploitation. A separate Holding Company. including a package based on production sharing arrangements for offshore areas. In addition. deregulation of downstream petroleum marketing sector and rationalization of prices and LPG allocation. reduction in import dependence. Despite such a huge potential.

 There is slow promotion of employees which decreases performance  In the OGDCL there is lack of check and balance Opportunities: 33 .  It has long experienced and technical staff involving number of geologist. SWOT Analysis Strengths:  OGDCl is the largest Oil and Gas Exploration and Production Company of the Pakistan.  It possesses dynamic and strong financial position due to waste experience in the field.  It possesses large number of fields of oil and gas along with quality process and procedures.opportunities and risk. Weaknesses:  In OGDCL Lack of marketing expertise  It possesses government influence in the functions such as hiring or firing of management. This would facilitate those areas of the country.2. 7. which are not yet connected with pipeline network.

34 . Threats:  OGDCL is vulnerable to environmental changes including earth quakes. royalty and pricing mechanism may affect the Company’s operational and financial performance.  It can increase its sales and production by increasing and explorating number of oil and gas fields in the potential regions of the Pakistan. taxation. floods etc. that may materially impact production at various fields resulting into adverse impact on company’ revenues and profitability. regulations.  Petroleum Policy in effect at the time of a particular discovery determines the underlying revenues from such field. OGDCL can generate huge amount of funds being Blue Chip Company and having huge investment potential by attracting number of national and international potential investors. heavy rains. Changes in legislation.

Mauritania. OGDCL needs to enhance its reserves and to focus on. OGDCL must look beyond geographical boundaries for E & P opportunity. Future financial out look Following the good governance policy of the government. OGDCL is also trying hard to recover its circular debt of billions of rupees so that these can be invested in further exploration and production purpose. 8.2. OGDCL must also look at seamless development of new discoveries in shortest possible time which will add substantially to the production base to the Company. Mozambique. Turkey and Yemen.1. The main source of funds available to OGDCL is retain earning and through the investor’s investrnent. Libya. Efforts should be continuing towards formulation of joint ventures with leading E & P companies both within the country and abroad. Mali. With technical prowess in on-shore exploration and production it must change focus to a more challenging area i. Oman.Chapter No: 8 Future out look. the Board of Directors and the management has been entrusted the full autonomy to achieve corporate objectives of the company. China. With a formidable presence in the length and breadth of the country. offshore exploration. and strengthen core business (E & P) functions by incorporating international best practices and innovative thinking in Company culture. It should also plan to actively pursue overseas joint ventures with companies in Algeria. Keeping in mind the given objectives. Review and improvement of internal policies and processes should be also on the agenda in addition to further enhancing corporate goodwill through focused CSR activities for the benefit of the communities that OGDCL interacts with. Recommendation and Conclusion 8. which in turn will ensure continuous reserves additions. Egypt. 35 .e. Operational future outlooks OGDCL has a strong vision and passion to contribute to the E & P sector to help enhance energy security of Pakistan. The Company must plan to optimize its concessions portfolio to support aggressive exploration activities.

0 11.000 1. Similarly these trends are expected to continue with an estimated 9% percent factor highlighted in the below chart. whereas the figures till 2016 are estimated at factor 9% in relation to year 2010.It is estimated that the number of investors who will get benefits from investing there their investment will increase in the next five years.000 .0 2.000 2.845 . The cash flow position of the OGDCL 36 .500 .3 0.4301.000 .0 00 0 2 016 20 5 1 2 014 20 13 2012 20 11 2010 20 09 S lesR a evenue Note: The figures for the year 2009 and 2010 are actual.534 billion and in FY2009 was Rs 130.425 .30 4. Financial Viability OGDCL being blue chip is the largest oil and gas production and exploration company of the Pakistan.6 93.4 24 2.9 57 1.125 billion compared to Rs 55.641 billion last year.60 1 0 .461 billion. Depicting an increase of 9% in FY2010 the OGDCl has target to grow its sales revenue in up coming year Rs 155.4 9 06 2.177. The OGDCL has posted higher revenue in the last few years.000 1.3.36. 59.000 .794 billion) is inclusive of favorable financial impact of Rs 5. Products sales revenue during the FY2010 was Rs 142.000 2.500 . Values are in billion (000) 3. It also estimated that the number of new fields will be will be searched out in different parts of the country having large amount of oil and gas in order to boost up the sales and revenue.55 3.000 5 00.79 0 1. A number of new programs are planed to attract the potential investors.193 33 . In the year 2010 the bank earns an after tax net profit of Rs.8321. 8.539.

40 2008-2009 0.000 2007-2008 78.52 0.000 69.70 0.425.758.00 1.819.000 30.16 0.840.665.000 60. The strong financial position represents sound management policies by the Company’s management.000 59.47 0.338.000 91.287.14 0.477.71 0.651.48 0.122.49 0.928.400 Assets Growth Sales Growth Horizontal Analysis Current Assets Non Current Assets Current Liabilities Non Current Liabilities Share Equity Total Assets Sales Gross Profit Net Profit 2006-2007 0. the same would result in higher cash flows and returns.445.71 1.177. The financial forecasting for the next five years is shown in the below chart.000 109.000 45.843.387.867.000 0.965.46 2007-2008 0.42 37 .414.371.828.07% 12.000 21.12 0.70 0.is stable and effectively managed.48 0.300.518.00 1.000 17.641.300.000 228.42 Average 0.000 150.53 0.798. As OGDCL is explorating new fields in the different parts of the country. of Shares Average Historic Financial Statements 2006-2007 68.396.000 34.231.000 11.17 0.251188748 87.629.674.392.13 0.00 1.486.539.634.000 19.00 1.254.42 2009-2010 0.14 0.171.157.182136566 130.000 129.396.314.429.70 0.613.500.09 0.000 49.992.28582825 142.04291822 91.300.928.089.851.00 0.568.000 4.856.322.00 0.00 1.000 21.000 0.433.530.000 108.928.540.000 4.964.652.69 1.164145006 125.53 0.298.579.000 157.00 0.000 4.829.125.00 0.261.400 100.855.935.622.15 0.863.400 2009-2010 120.400 21.928.498.78 1.000 72.00 0.191.533.51 0.000 0.12 0.000 36.598.000 0.52 0.000 55.201.000 126.47 0.15 0.70 0.800.78% 2008-2009 86.172.511.73 1.354.300.089293905 100.608. Statements Current Assets Non Current Assets Current Liabilities Non Current Liabilities Share Equity Total Assets Growth in Assets Sales Growth in Sales Gross Profit Net Profit No.73 1.000 0.000 0.834.433.616.000 177.000 4.000 100.593.

Table of Next five years forecast 38 .

Human Resource Planning OGDCL with human strength of over 10. As result substantial growth in the oil and gas demand is estimated this would contribute to a major portion in the GDP of the country. Safety & Environment. Health. Information Technology and Petroleum Management.000 employees is involved in translating its strength into tangible results. This will provide sustainable and more vigilant human man power and is a milestone for achieving objectives of the company. The establishment of an effective appraisal and employee evaluation system is also a major milestone yet to be achieved in the next five years 8. 39 . procedures and programmes.2. at the right time with the right pay and the working environment to enhance creativity and productivity in the workplace. The ultimate objective is to have the right people in the right place. As to meet the goals and objectives of OGDCL in next five years. fair and consistent manner through the development and implementation of appropriate policies. Operational future out look 8. Induction of the young graduates for running the business operations of the company is in an important phase of modernization.1. The workforce is spread all across the Country and playing crucial role to achieve its targets. The objective of continuous training and development of these professionals is achieved through Oil and Gas Training Institute (OGTI).4. effective training and development programs are planed. Business Development and Marketing Strategy In the next five years the OGDCL is planning to increase the number of oil and gas fields in other parts of the country and also establishing value for the investors. HR function is committed to implement a corporate human resource strategy which supports the Company’s Business Plan by effectively and efficiently serving the needs and interests of the Company’s line departments in a transparent. OGTI works closely with various departments of OGDCL and other E & P companies to help meet their training requirements.4. These programmes included courses on technical subjects.8.4.

It can increase its market share as there is unmet demand of oil and gas present but this can be only possible if its strategies are successfully implemented. It also need a cultural and structural change which cant be bring about in one day but is possible gradually and slowly.As the OGDCL is considered pioneer in the exploration and production of oil and gas in the country. There should be a proper program for this purpose keeping the less skilled workers. 8. Following the Financial and HR functional strategy it can over come its problems. Conclusion OGDCL is blue chip Company being largest oil and gas Production and Exploration Company of the country. Working system at OGDCL is still manual more over the record and book keeping is still in registers.5. 40 . Although it is shifting to centralized data base system but this process must be catalyst. it has also planned to increase the use of technology in the exploration and production of products. OGDCL should take steps in order to motivate the workers for using the latest technology in order to increase the oil and gas production and exploration. 8. • • As OGDCL is also political influenced. • • The fields. As the major business operation of the OGDCL is exploration and production so its smooth operations depend on timely recovery. To reduce the circular debts OGDCL has to close the chapter of the political influence. regions and the head office must connect with each other through effective and efficient computer system. Operational and management targets • OGDCL has to improve its recovery system in order to meet the future fund requirements. To enhance the operations and capturing market it has reformulated its strategic path and redefined its mission and vision. It has very attractive opportunities as its name is very well established in field being the blue chip.4.

41 .

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