IGI Securities Limited -Flash Note

Karachi, December 29, 2017 (PPI-OT): Oil and Gas Exploration Companies – OGDC: Discovery of Hydrocarbons in Exploratory Well Dhok Hussain-01 (Baratai Block)

According to notice issued on PSX by Oil and Gas Development Company Limited (OGDC), the company (operator of Baratai Block) has discovered oil and gas reserves in exploratory well Dhok Hussain-01 (Baratai Block) to the tune of 15.4 mmcfd of gas and 360 bopd of condensate.

Production from well will be priced under Petroleum Policy 2012 (PP12).

OGDC holds 97.5% stake in the block, while Khyber Pakhtunkhwa Oil and Gas Company Limited (KPOGCL) holds 2.5% stake.

Based on our estimate, we expect annualized earnings impact of PKR 0.26/share (1.1% of FY19F earnings) for OGDC based on oil price assumption of USD 60/bbl.

To note, Baratai block is located in KPK which holds key significance for OGDC as it is situated next to Nashpa and Tal Block which accounts for nearly 40% and 13% of Pakistan’s total oil reserves, respectively. Thus, further drilling in Baratai block is likely to have high significance for the company and holds high probability of further discoveries.

To highlight, recent discovery of sizeable reserves by POL in Ikhlas block (Jhandial-01) is also located nearby.

Recommendation

We maintain “BUY” call on OGDC with our Dec-18 target price of PKR 195/share, offering +20% upside from its last closing. The company is currently trading at FY18E P/E of 8.6x and offers a dividend yield of 4.0%.

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