Dedication

Business Plan

OIL AND GAS DEVELOPMENT COMPANY LIMITED Head Office Islamabad

1

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

2

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.

3

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 .

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

7 .

In 1952.Chapter No: 1 Introduction 1. 1. (POL). PPL discovered a giant gas field at Sui in Balochistan. Despite these gas discoveries. In the initial stages 8 .1. vested in a five-member Board of Directors appointed by the Government. exploration activities in the country were carried out by Pakistan Petroleum Ltd. Company History 1. (PPL) and Pakistan Oilfields Ltd. declined in the late fifties. With exploration activity at its lowest ebb several foreign exploration contracting companies terminated their operation and either reduced or relinquished land holdings in 1961. the Corporation followed the Government instructions in matters of exploration and development. As an instrument of policy in the oil and gas sector. Pursuant to the Agreement. OGDC was created under an Ordinance dated 20th September 1961. a few small gas fields were discovered. Prior to OGDCL Prior to OGDCL's emergence. exploration activity after having reached its peak in mid-1950s. As a result. 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. During the 1950s. 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. The day to day management was however.2. 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. This discovery generated immense interest in exploration and five major foreign oil companies entered into concession agreements with the Government. these companies carried out extensive geological and geophysical surveys and drilled 47 exploratory wells. whereby Pakistan received 27 million Rubles to finance equipment and services of Soviet experts for exploration.

Tando Alam & Dhodak oil/condensate fields and Pirkoh. The financial year 198990. Uch. Lashari.3.4. Bobi. 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. This resulted in discovery of a number of oil and gas fields in the Eighties. Nandpur and Panjpir gas fields which are commercial discoveries that testify to the professional capabilities of the Corporation. was OGDC's first year of self-financing. Transition to a self financing entity Noting the Company's success. Sono.the financial resources were arranged by the GOP as the OGDC lacked the ways and means to raise the risk capital. 1. It was a great challenge for OGDC. OGDC's concerted efforts were very successful as they resulted in a number of major oil and gas discoveries between 1968 and 1982. Toot oil field was discovered in 1968 which paved the way for further exploratory work in the North. OGDC not only generated enough internal funds to 9 . thus giving the Company a measure of financial independence. the Company reformed the strategy for updating its equipment base and undertook a very aggressive work programme. Loti. 1. the Government in July 1989. The first 10 to 15 years were devoted to development of manpower and building of infrastructure to undertake much larger exploration program. These include the Thora. off-loaded the Company from the Federal Budget and allowed it to manage its activities with self generated funds. Initial Successes A number of donor agencies such as the World Bank. 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. During the period 1970-75. due to major oil and gas discoveries in the eighties.

besides seeking opportunities abroad. 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. 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. 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. Conversion into Public Limited Company Prior to 23 October 1997. OGDCL now holds the largest shares of oil and gas reserves in the country. In addition OGDCL has 35 mining and Development & Production Leases.e. which are operated by it besides having working interest ownership in 28 non-operated Mining and Development & Production Leases. i.f.).5. efficient and competitive structure. Development With a balanced. It has been incorporated as a Public Limited Company w. Since it development. Its percentage share of the total oil and gas production in Pakistan is 34% and 28% respectively. OGDCL has grown into a technically and commercially viable organization. OGDCL explores and exploits indigenous resources for optimum production of oil and gas. and was known as OGDC (Oil & Gas Development Corporation). 1.6. OGDCL has an extensive database. 23 October 1997 and is now known as OGDCL (Oil & Gas Development Company Ltd. 10 . OGDCL was a statutory Corporation. 48% of total oil and 37% of total gas reserves.meet its debt obligations but also invested enough resources in exploration and development to increase the country's reserves and production. 1.e.

1. Kunner and Bobi. OGDCL is one of the principal explorers and producers of oil and gas in the country. Liquefied Petroleum Gas (LPG) A mixture of hydrocarbons found in natural gas and produced from crude oil. home heating fuel.1. 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. Main production Oilfields of the company are Dakhni. 11 . Exploration Production Historically. used principally as a feedstock for the chemical industry. In addition. 2. Presently. 2. Qadirpur. OGDCL not only carries out exploration and development activities on its own but has also entered into joint ventures for oil and gas exploration. and motor vehicle fuel. 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.2. 33 of which were of oil and 16 gases. Bobi. Tandoalam.2. 155 exploratory wells have been drilled by OGDCL in the country since its inception leading to 49 discoveries. Product Lines The main product lines of the company are as under: 2. Toot & Rajian. Today. 2.2.3. Sadkal. Panjpir. 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. Dhodak. Nandpur. Pirkoh and Uch. The major gas fields of the company are Dakhni.2. Dhodak. Chanda.2.Chapter No: 2 Products and Services 2. The major fields of the company having LPG production facilities are Dakhni. OGDCL is 100% owner in two concessions. Dhodak.

and generally used as a fuel for lighting etc. extracted from various oil fields of the company. 2. pharmaceuticals and other products. kerosene. Naphtha Naphtha is a group of various volatile flammable liquid hydrocarbon mixtures used primarily as feedstock in refineries and petrochemical industry.2. The sulphur is produced at the Dakhni oil & Gas field near Jand.2. Naphtha is the residual product of the company and is extracted from various oil / gas fields. Solvent Oil A simple or complex liquid mixture of hydrocarbons that can be refined to yield gasoline. Kerosene Oil Kerosene oil has been distilled from petroleum.4. 2. It is also used in solvent applications. High Speed Diesel Oil It is the hydrocarbon Oil suitable for use as fuel in Compression Ignition Engines. and various other products. 2. diesel fuel.2.8.6. Sulphur A yellow mineral extracted from petroleum for making fertilizers. This product is extracted from various oil fields of the company.5.2. Attock 12 .2. 2.7. This residual product is extracted from various oil fields of the company.2.

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

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

4. E&P DEPARTMENTS 1. Exploration Prospect Generation 2. Environment Protection & Safety 3. Ahmed Bakhsh Lehri Director Senator Mir Wali Muhammad Badini Director Syed Masieh-ul-Islam Director 3. Material Management Internal Audit 9.Mr. Human Resource Department Corporate Affairs 3.4. Legal OGTI 6. CORPORATE DEPARTMENT 1.1. Supply Chain Management Secretariat 8. Exploration Studies & Research 3. Exploitation 4. Communication G & R Lab 7. Administration Medical 2. Finance & Accounts 10.4. Career Planning Cell 11. Security System Support 5. Production 5. MAIN DEPARTMENTS 3.2. Personnel Aviation 4. Process 15 .

Wire line Logging 8. Seismic Data Processing 11.3.4. Geological /Geophysical 10. Geological Well Supervision 7. Cementation 6. Data Logging 16 . TECHNICAL SERVICES DEPARTMENT 1. Stimulation 9. Logistic 12. Mud Engineering 4. Drilling 2.3. Engineering/Workshops 3. Well Services Department 5.

The Company’s holds operatorship of major oil and gas fields including Sui. Major Competitors 4. As the leading oil and gas group in Central Europe. In Pakistan. OMV Pakistan OMV (Pakistan) is a 100% subsidiary of OMV Aktiengesellschaft which is Austria’s largest listed industrial company. Miano. EUR 18 billion.Chapter No: 4 Market Analysis 4.6 billion and a workforce of 5. while its non-operated portfolio includes interests in the Qadirpur. 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.1.536 employees including 640 management staff and 1.1. Kandhkot.2.226 employees in 2005.896 non-management staff. as well as market capitalization of approx. On behalf of the Government of Pakistan (GoP). contributing 25% of Pakistan’s gas production. with Group sales of EUR 15. Adhi and Mazarani.1. 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. Pakistan’s oldest and largest gas field discovered and operated by PPL. OMV has been active as an operator and partner since 1990. Sawan and Tal fields. the Privatization Commission (PC) is proceeding with a strategic sale of 51% shareholding in PPL along with transfer of management control. The company’s total staff strength is about 2. 4. PPL was incorporated in June 1950 with the Burmah Oil Company (renamed Burmah Castrol) and GoP as its principal shareholders. PPL’s head office is located in Karachi.1. 17 . After more than 50 years of successful operations PPL continues to be a prominent E&P player in Pakistan with: Sui.

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

The latest Pakistan Oil & Gas Report from BMI forecasts that the country will account for 1.2.07mn b/d. By 2014 the only net exporter will be Malaysia. Safety and Environmental standards are parallel to the highest international level and second to none in the local perspective. Regional oil use of 21.51% of Asia Pacific regional oil demand by 2014. are presently exploiting reserves in the country. because demand growth is outstripping the pace of supply expansion. Japan.35mn b/d in 2001 and is forecast to average slightly to 8. production should reach 522bcm in 2014. Our Health. Pakistan's potential as a big business opportunity is highlighted by the fact that over 25 oil companies.000 square kilometres. achieved very high level of growth in a few years. Strategically located at the foot of Central Asia. Regional oil production was around 8. OMV has strong commitment to reduce emissions to the environment. to date Pakistan has only discovered 15% of its total oil reserves and in turn has become major importer of oil and petroleum products. To achieve the same an “Emission Reduction” project has been initiated for Kadanwari Plant.89mn b/d by 2014. The principal importers will be China.As a Multinational company.32mn b/d by 2014. Oil imports are growing rapidly. OMV is very conscious of its adherence to its outlined policies. 4. 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. However. while providing 0.77% of its supply. which implies net imports rising from around 81bcm to 104bcm. one of the vibrant sectors. standards and most importantly. In 2001 the region was importing an average of 13. For Sawan plant. India and South Korea.42mn barrels per day (b/d) in 2001 is set to reach a forecast 30. In terms of natural gas. of which 21 are multinational. This is thanks to many Asian gas producers being major exporters. The Government of Pakistan has issued over 100 licences for exploration of around 28. the local laws. preliminary study is being initiated.21mn b/d by 2014. This is forecast to reach 21. Supply and demand Oil & gas. Pakistan’s share of gas consumption in 2010 is 19 .

with the country accounting for 8.05% of supply.7.66%. its share of gas consumption is forecast to be 6.16%. while its share of production is put at 9.95%. By 2014. 20 .

Chapter No 5: Business Strategies and Implementation 5. Financial  Build strategic reserves for future growth/expansion  Growth and superior returns to all stakeholders 21 . partnerships and performance” 5.4. Corporate Vision “To be a leading. best management practices and technology and maximizing returns to all stakeholders by capturing high value business opportunities within the country and abroad.4. rapidly enhancing our reserves through world class workforce.2. while being a responsible corporate citizen” 5. dynamic and growing E & P Company. Corporate Goals 5.1. recognized for its people. Corporate Mission “Our mission is to become a competitive. Corporate core values  Merit  Integrity  Team Work  Safety  Dedication  Innovation 5.3. regional Pakistani E & P Company.1.

 Double the value of the company in the next five years.2. 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. 5. Internal processing goals  Evolve consensus through consultative process inter-linking activities of all departments  Excel in exploration.4.  Attain full autonomy in financial and decision making matters.  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. 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 .  Emphasize organizational learning and research through effective use of knowledge management systems.4.4.4.  Fill the competency gap within the organization by attracting and retaining best professionals. and enhance their technical.  Acquire. learn and apply state-of-the-art technology. 5. Learning and Growth  Motivate our work force.3.

Figure: Business and Functional Strategies Accelerate Production Growth: by continuing to accelerate production growth through utilizing cutting edge technologies. 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. In order to achieve this goal. Maintain Low Cost Operations: OGDCL’s operating environment. During the fiscal year 200809 target of drilling is 52 wells. 5. Within Pakistan. will be a major factor in allowing it to control its low cost structure. Business strategy As the leading exploration and Production Company in Pakistan. the Company’s 23 . Exploit Exploration Opportunities: by building the Company’s future reserves portfolio through its large onshore exploration acreage. allowing the Company to utilize its significant reserves base and capitalize on the strong economic growth and accelerating energy demand in Pakistan. the Company seeks to execute the following strategies. namely the geographic concentration of its reserves base within Pakistan.5.

Functional Strategies 5. Young and fresh professionals are being hired in order to help organization revamp its strategic path effectively. the Company intends to grow and diversify its portfolio through selective international expansion in the medium to long-term. Work team are lacking however the diversity in terms of geographic and age is present which is also need of its operations. Human Resource Strategy Currently OGDCL has low skilled employees who receive low pay. Keeping in view the competition it also some times goes for product development where new products are developed for the existing market. The distribution strategy of OGDCL is focused to specific distributors which are on there panels for different schemes.6. 5. located in Islamabad. It has its own training and development institution under the label of Oil and Gas Training Institute (OGTI). 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. 5.2.leading position also enables it to access economies of scale across its significant reserves base and operations. therefore the training of the employees became necessary. perform repetitive jobs and follow a hierarchal structure for promotion. 24 .6.1. OGDCL has its separate HR division which include different department for compliance of HR strategies in organization. Pursue Selective International Expansion: while domestic expansion remains OGDCL’s core focus. Currently the contingent workforce trend is increasing in OGDCL. Basic objective of OGDCL is development and profit making. The employees in OGDCL were not very much computer literate but as information systems were planned to be installed.6.

6. 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. All OGDCL offices have been centrally connected to the head office data center located in Islamabad.3.4. Financial Strategy Oil and Gas Company limited (OGDCL) is a specialized exploration and production of oil and gas areas of the country. Research and Development Strategy OGDCL has a research and planning division under which operates research and planning department. At the first the OGDCL was fully funded by the Government of Pakistan.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. On the other hand it undertakes research on subjects that facilitates/promotes business and economic planning. 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.5.6. the OGDCL being Public Company follow same trend of generating funds through issuing of shares in the public. 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. 5. Later on Government of Pakistan disinvested part of its shareholding in the company in 2003. 5. The early warning system of the dynamic MIS provides number of reports to the authorized users of head office.5. 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. Now.5% of equity was offered to the general public. So OGDCL not only generate enough 25 . Initially 2.6.

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

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. strong production base and largest exploration acreage spread over all four provinces and off-shore. 6. Credit Rating OGDCL has shown sustainable growth in business volume over the years. 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. The Management of the Company also understands its role and responsibilities as leading national E&P Company with largest oil and gas reserves. The strong financial profile of the company can be established from the fact that despite significant capital expenditure requirement in the E&P sector. check the accuracy and reliability of its accounting data. effective and comply with applicable laws and regulations and professional best practices. 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). 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. and encourage adherence to prescribed managerial policies.Chapter No 6: Financial analysis 6. there has been no gearing on books. Outlook on the medium to longterm rating is ‘Stable’. 27 . promote operational efficiency. monitoring compliance with the best practices of Corporate Governance.2.1. Business Risks and Challenges Being an exploration and production company. OGDCL is exposed to operational and non operational risks associated with E&P business which may unfavourably affect its operations and financial performance.

sound equipment base and sound financial position. Crude Oil Price Crude oil pricing in Pakistan is based on a basket of Arabian crude adjusted for yield differential and freight adjustment.1. 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. The selection of potential exploration blocks. Decline in prices of crude oil have a negative impact on the Company’s earning performance. Change in international oil prices is largely uncontrollable and OGDCL is vulnerable to increase/decrease in such prices. To maintain a good success ratio is also a vital element which can only be achieved with efficient professional 28 . delineation of drillable prospects and their drilling are all important aspects in hydrocarbon exploration. Key operational and non-operational risks which can influence the operations of the Company are as follows: 6.3. acquisition of geological and geophysical data. 6. plant & equipment used in oil and gas industry are imported to meet operational requirements.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. Rs/US$ parity decline has a negative impact on the Company’s earnings since most of the material including drilling material. The in-depth knowledge of petroleum systems present in these basins is imperative.2.2.2. Exploration and Drilling Risks The different sedimentary basins in Pakistan represent very complex tectonics and deformation styles. In addition. 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. However.2.

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

the OGDCL’s main source of funding has been funds generated by itself through its production of oil and gas products. It follows the trend of increasing profitability since last financial years as in FY 2008 the profitability was Rs 44. in FY 2009 it was Rs 55. 30 . Profitability Over the years.to changes in environmental regulations relating to HSE could result into higher cost to the Company. So seems there is increase in the profitability position of the company rather then decrease.18.34.54 and FY 2010 it is Rs 59. 6.3. 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.

OMV has also pointed out medium term growth potential in Pakistan’s reserves. Petroleum policy of oil and gas industry in Pakistan is designed with a focus on promoting private sector investment in oil and gas sector.000 barrels of oil per day which only meets approximately one sixth of the country’s current oil requirement. Pakistan Oil and Gas Industry Pakistan’s produces about 60. Austria’s OMV is credited with discovery of Taijal 1 exploratory well. Pakistan does not have the necessary infrastructure to cope with the increasing volumes of imported oil and requires substantial investment to support this infrastructure. 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.Chapter No: 7 Industry analysis 7.5 Billion. industrial and power generation sectors.1. The demand for natural gas is exceeding supply due to increased usage in the domestic. 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 . oil and gas industry of Pakistan is putting in steady efferts to make best utilization of resources and build a strong production base. 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. 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. Instance of gas and condensate discovery in oil and gas development limited company (OGDCL) in Exploratory Pakhro WELL No. Aware of rich oil and gas reserves. Apart from this. Pakistan oil and gas industry is going through a process of transition as it is experiencing a new wave of privatization. The balance amount is imported at a staggering cost of US$2. 01 is a major achievement of this sector.

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

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

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

the Board of Directors and the management has been entrusted the full autonomy to achieve corporate objectives of the company. Keeping in mind the given objectives.Chapter No: 8 Future out look. With technical prowess in on-shore exploration and production it must change focus to a more challenging area i. Operational future outlooks OGDCL has a strong vision and passion to contribute to the E & P sector to help enhance energy security of Pakistan.e. It should also plan to actively pursue overseas joint ventures with companies in Algeria. Recommendation and Conclusion 8. which in turn will ensure continuous reserves additions. OGDCL must look beyond geographical boundaries for E & P opportunity.2. Efforts should be continuing towards formulation of joint ventures with leading E & P companies both within the country and abroad. OGDCL needs to enhance its reserves and to focus on. and strengthen core business (E & P) functions by incorporating international best practices and innovative thinking in Company culture. Egypt. Mozambique. With a formidable presence in the length and breadth of the country. Turkey and Yemen. 35 . 8. The main source of funds available to OGDCL is retain earning and through the investor’s investrnent. Mauritania. Future financial out look Following the good governance policy of the government. offshore exploration. China. 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. The Company must plan to optimize its concessions portfolio to support aggressive exploration activities. Mali. 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.1. Oman. 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. Libya.

534 billion and in FY2009 was Rs 130.6 93.000 2.79 0 1.3.30 4.193 33 . Depicting an increase of 9% in FY2010 the OGDCl has target to grow its sales revenue in up coming year Rs 155.0 11.794 billion) is inclusive of favorable financial impact of Rs 5. 8.9 57 1.4301.000 2.177.36.4 24 2. In the year 2010 the bank earns an after tax net profit of Rs.641 billion last year. 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. Similarly these trends are expected to continue with an estimated 9% percent factor highlighted in the below chart.It is estimated that the number of investors who will get benefits from investing there their investment will increase in the next five years.125 billion compared to Rs 55.0 2. 59.3 0.500 .000 1.000 . The OGDCL has posted higher revenue in the last few years.425 .8321. A number of new programs are planed to attract the potential investors.500 .000 1.539. Products sales revenue during the FY2010 was Rs 142.60 1 0 . Financial Viability OGDCL being blue chip is the largest oil and gas production and exploration company of the Pakistan. whereas the figures till 2016 are estimated at factor 9% in relation to year 2010.55 3.845 .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.000 5 00.000 .461 billion. Values are in billion (000) 3.4 9 06 2. The cash flow position of the OGDCL 36 .000 .

828.433.15 0.000 55.593.287.000 30.000 21. 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.00 1.665. the same would result in higher cash flows and returns.46 2007-2008 0.965.000 4.164145006 125.000 108.855.171.000 69.000 157.819.000 34.70 0.48 0.71 0.14 0.000 228.28582825 142.49 0.396.445.613.758.71 1.433.000 129.540.652.392.651.000 59.000 49.579.00 0.00 0.598.07% 12.00 1.518.498.000 150.539.608.851.172.500.000 0. The strong financial position represents sound management policies by the Company’s management.13 0.42 2009-2010 0.616.396.000 21. As OGDCL is explorating new fields in the different parts of the country.000 109.964.000 100.000 36.261.000 0.322.47 0.182136566 130.511.12 0.000 17.400 21.000 91.42 Average 0.51 0.928.634.000 11.40 2008-2009 0.70 0.16 0.000 4.000 45.000 19.52 0.928.00 0.354.867.000 0.400 2009-2010 120.798.629.843.568.000 2007-2008 78.14 0.00 1.400 100.00 1.231.800.177.928. of Shares Average Historic Financial Statements 2006-2007 68.73 1.314.400 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 0.000 0.000 126.78% 2008-2009 86.125.17 0. The financial forecasting for the next five years is shown in the below chart.69 1.674.486.829.251188748 87.157.477.300.00 1.12 0.000 0.000 72.122.992.52 0.300.089.000 4.300.928.04291822 91.425.641.48 0.338.856.00 0.000 0.73 1.42 37 .300.70 0.622.70 0.530.863.000 4.298.000 177.371.is stable and effectively managed.089293905 100.191.254.000 60.429.53 0.00 0.840.201.834.935.387.533.09 0.78 1.53 0.414.47 0.15 0.

Table of Next five years forecast 38 .

These programmes included courses on technical subjects.2.000 employees is involved in translating its strength into tangible results.4. Health. Human Resource Planning OGDCL with human strength of over 10. As to meet the goals and objectives of OGDCL in next five years. 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. fair and consistent manner through the development and implementation of appropriate policies. Operational future out look 8. The ultimate objective is to have the right people in the right place. Induction of the young graduates for running the business operations of the company is in an important phase of modernization. effective training and development programs are planed.8. Safety & Environment.4. 39 . The workforce is spread all across the Country and playing crucial role to achieve its targets. 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. The objective of continuous training and development of these professionals is achieved through Oil and Gas Training Institute (OGTI). OGTI works closely with various departments of OGDCL and other E & P companies to help meet their training requirements. 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. Information Technology and Petroleum Management.1. at the right time with the right pay and the working environment to enhance creativity and productivity in the workplace. This will provide sustainable and more vigilant human man power and is a milestone for achieving objectives of the company. procedures and programmes. 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.4.

it has also planned to increase the use of technology in the exploration and production of products. There should be a proper program for this purpose keeping the less skilled workers. Although it is shifting to centralized data base system but this process must be catalyst. As the major business operation of the OGDCL is exploration and production so its smooth operations depend on timely recovery. It also need a cultural and structural change which cant be bring about in one day but is possible gradually and slowly. Working system at OGDCL is still manual more over the record and book keeping is still in registers. To enhance the operations and capturing market it has reformulated its strategic path and redefined its mission and vision. To reduce the circular debts OGDCL has to close the chapter of the political influence. It has very attractive opportunities as its name is very well established in field being the blue chip. 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. 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. Conclusion OGDCL is blue chip Company being largest oil and gas Production and Exploration Company of the country. 40 . • • The fields. Following the Financial and HR functional strategy it can over come its problems.4.5. 8. • • As OGDCL is also political influenced. 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.As the OGDCL is considered pioneer in the exploration and production of oil and gas in the country.

41 .

Sign up to vote on this title
UsefulNot useful