Financial Analysis Of Ogdcl And Ssgcl

DEDICATION To our Parents, whose encouragement and prayers are remained with me during the whole session of MBA. • To our respected teachers, whose guidance and • Cooperation helped me in achieving this important milestone. • To everyone who has participated in any manner during preparation & compilation of this report. •

INDUSTRY RELATED TO GAS About industry PETROLIUM (rock oil from the Latin Petra, rock or stone and petroleum oil) occurs widely in the earth as gas, liquid, semi solid or solid or in more then one of these states at a single place. Chemically any petroleum is an extremely complex mixture of hydrocarbon compound with minor amounts of nitrogen, oxygen and sulpher as impurities. Chester in his dictionary of mineral, defines petroleum as “MINERAL HYDROCARBONS” over millions of years plant and animal remains fall to the floor of shallow seas recede the plant materials is covered by sediment layer, such as slit, sand, clay & other plant material. Buried deep beneath layer of rock, the organic material partially decomposes, under an absence of oxygen into petroleum that eventually seeps into the spaces between rock layers. As the earth’s tectonic plate’s move the rock is bent or wrapped into folds or it “breaks” along fault lines. Allowing the petroleum to collect in pools. Early man was not unfamiliar with crude oil. In the Middle East escaping petroleum gases burned continuously giving rise to fire worship.

COMPANIES BEING CHOSEN FOR ANALYSES 1. 2.

OGDCL (oil and gas development company ltd.) SSGCL (sui southern gas company ltd)

ABOUT OGDCL Overview: PRIOR TO OGDCL Prior to OGDCL's emergence, exploration activities in the country were carried out by Pakistan Petroleum Ltd. (PPL) and Pakistan Oilfields Ltd. (POL). In 1952, PPL discovered a giant gas field at Sui in Balochistan. This discovery generated immense interest in exploration and five major foreign oil companies entered into concession agreements with the Government. During the 1950s, these companies carried out extensive geological and geophysical surveys and drilled 47 exploratory wells. As a result, a few small gas fields were discovered. Despite these gas discoveries, exploration activity after having reached its peak in mid-1950s, declined in the late fifties. Private Companies whose main objective was to earn profit were not interested in developing the gas discoveries especially when infrastructure and demand for gas was non-existent. With exploration activity at its lowest ebb several foreign exploration contracting companies terminated their operation and either reduced or relinquished land holdings in 1961.

ESTABLISHMENT OF OGDC To revive exploration in the energy sector the Government of Pakistan signed a long-term loan Agreement on 04 March 1961 with the USSR, whereby Pakistan received 27 million Rubles to finance equipment and services of Soviet experts for exploration. Pursuant to the Agreement, OGDC was created under an Ordinance dated 20th September 1961. The Corporation was charged with responsibility to undertake a well thought out and systematic exploratory programme and to plan and promote Pakistan's oil and gas prospects. As an instrument of policy in the oil and gas sector, the Corporation followed the Government instructions in matters of exploration and development. The day to day management was however, vested in a five-member Board of Directors appointed by the Government. In the initial stages the financial resources were arranged by the GOP as the OGDC lacked the ways and means to raise the risk capital. The first 10 to 15

years were devoted to development of manpower and building of infrastructure to undertake much larger exploration programmes.

CONVERSION INTO PUBLIC LIMITED COMPANY Prior to 23 October 1997, OGDCL was a statutory Corporation, and was known as OGDC (Oil & Gas Development Corporation). It has been incorporated as a Public Limited Company w.e.f. 23 October 1997 and is now known as OGDCL (Oil & Gas Development Company Ltd.).

INITIAL PUBLIC OFFERING Government of Pakistan disinvested part of its shareholding in the company in 2003. Initially 2.5% of the equity with an additional green-shoe option upto 2.5% of equity was offered to the general 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.

OGDCL VISION To be a leading, regional Pakistani E & P Company, recognized for its people, partnerships and performance.

OGDCL MISSION Our mission is to become a competitive, dynamic and growing E & P Company, rapidly enhancing our reserves through world class workforce, best management practices and technology and maximizing returns to all stakeholders by capturing high value business opportunities within the country and abroad, while being a responsible corporate citizen.

ABOUT SSGCL Overview: Sui Southern Gas Company (SSGC) is Pakistan's leading integrated gas Company. The company is engaged in the business of transmission and distribution of natural gas besides construction of high pressure transmission and low pressure distribution systems. SSGCL transmission system extends from Sui in Balochistan to Karachi in Sindh comprising over 3,200 KM of high pressure pipeline ranging from 12 - 24" in diameter. The distribution activities covering over 1200 towns in the Sindh and Balochistan are organized through its regional offices. An average of about 357,129 million cubic feet (MMCFD) gas was sold in 2006-2007 to over 1.9 million industrial, commercial and domestic consumers in these regions through a distribution network of over 29,832 Km. The company also owns and operates the only gas meter manufacturing plant in the country, having an annual production capacity of over 550,150 meters. The Company has an authorized capital of Rs. 10 billion of which Rs 6.7 billion is issued and fully paid up. The Government owns the majority of the shares which is presently over 70%.

The Company is managed by an autonomous Board of Directors for policy guidelines and overall control. Presently, SSGC's Board comprises of 14 members. The Managing Director/Chief Executive is nominee of GOP and has been delegated with such powers by the Board of Directors as are necessary to effective conduct the business of the company.

Company Vision:

Company Mission

FINANCIAL STATEMENTS OF BOTH THE COMPANIES The financial data of both the companies with reference to the financial year ended 30th of June 2007.

PROFIT AND LOSS ACCOUNTS

OGDCL Profit and Loss Account for the year ended 30 June 2007

2007 (Rupees ‘000)

2006 (Rupees ‘000)

Sales - net

100,261,191

96,755,382

Royalty

(10,877,443)

(10,872,443)

Operating expenses

(18,497,388)

(15,045,654)

(1,087,931)

(942,163)

(30,462,762)

(26,860,260)

69,798,429

69,895,122

3,615,231

4,247,881

Exploration and prospecting expenditure

(7,406,280)

(3,680,707)

General and administration expenses

(1,285,476)

(1,071,979)

(449,561)

(9,973)

Workers' profit participation fund

(3,213,617)

(3,469,017)

PROFIT BEFORE TAXATION

61,058,726

65,911,327

(15,428,762)

(19,943,604)

45,629,964

45,967,723

10.61

10.69

Transportation charges

Gross profit Other income

Finance costs

Taxation PROFIT FOR THE YEAR Earnings per share - basic and diluted (Rupees) The annexed notes 1 to 40 form an integral part of these financial statements. Chairman and Chief Ex ecutiv e

SSGCL

Balance sheets of companies

OGDCL Balance Sheet as at 30 June 2007 2007

2006

(Rupees ‘000) SHARE CAPIT AL AND RESER VES Share capital Capital reserve Unappropriated profit NON CURRENT LIABILITIES

43,009,284

43,009,284

2,438,228

2,219,027

55,169,140

49,541,966

100,616,652

94,770,277

11,023,916

10,010,991

Deferred taxation

1,423,132

1,420,245

Deferred employee benefits

5,151,807

4,221,756

17,598,855

15,652,992

11,122,665

7,174,483

Provision for decommissioning cost CURRENT LIABILITIES Trade and other payables

-

Provision for taxation

3,716,958 11,122,665

10,891,441

129,338,172

121,314,710

CONTINGENCIES AND COMMITMENTS The annexed notes 1 to 40 form an integral part of these financial statements. Chairman and Chief Ex ecutiv e 52 Note 2007

2006 (Rupees ‘000)

NON CURRENT ASSETS Fixed assets

1,321,600,201

20,253,248

Property, plant and equipment

1,428,749,993

21,653,562

Development and production assets - intangible

156,365,706

4,348,142

56,715,900

46,254,952

Long term investments

162,945,938

2,758,912

Long term loans and receivables

171,117,755

1,391,552

39,821

58,021

60,819,414

50,463,437

1,813,178,295

11,032,754

Exploration and evaluation assets

Long term prepayments CURRENT ASSETS Stores, spare parts and loose tools Stock in trade Trade debts Loans and advances Deposits and short term prepayments Interest accrued Other receivables Other financial assets

93,788

65,608

1,927,873,515

24,498,986

201,538,657

1,301,759

21,292,928

300,260

253,222

464,982

221,063,389

790,122

2,313,553,959

31,209,932

Advance tax

115,950,713

Cash and bank balances

244,720,292

1,186,870

68,518,758

70,851,273

129,338,172

121,314,710

SSGCL Balance Sheet As at 30 June 2007

EQUITY AND LIABILITIES Share capital and reserves Authorised share capital 1,000,000,000 ordinary shares of Rs. 10 each Issued, subscribed and paid-up capital Reserves Gain on remeasurement of available-for-sale securities Unappropriated profit

Non-current liabilities Long-term financing Long-term deposits Deferred tax Employee benefits Deferred credit Current liabilities Current portion of long-term financing Trade and other payables Interest and mark-up accrued Short-term borrowings Taxation - net

2007 (Rupees in «000)

2006

10,000,000 6,711,743 2,488,662 223,189

10,000,000 6,711,743 2,488,662 243,608

315,309 9,738,903

897,457 10,341,470

12,581,455 Ω2,363,629 Ω 3,879,261 Ω999,142 Ω2,976,905 Ω22,800,392

8,725,052 Ω2,089,427 Ω3,204,634 Ω904,405 Ω2,245,530 Ω17,169,048

2,286,481 24,794,330 1,134,421 1,000,000 165,362 29,380,594

1,519,483 16,210,231 674,716 1,164,753 19,569,183

Contingencies and commitments 61,919,889

47,079,701

The annexed notes 1 to 52 form an integral part of these financial statements. TECHNOLOGY Empowered Change

ASSETS Non-current assets Property, plant and equipment Intangible assets Long-term investments Long-term loans and advances Long-term deposits Current assets Stores, spares and loose tools Stock-in-trade Customers' installation work-in-progress

2007 (Rupees in «000)

2006

31,333,811 62,102 236,818 114,404 3,050 31,750,185

24,899,887 56,267 257,237 121,994 3,126 25,338,511

1,022,165 368,903 144,317

1,012,057 Ω281,362 Ω281,363

Trade debts Loans and advances Trade deposits and short-term prepayments Interest accrued Other receivables Taxation - net Cash and bank balances

16,118,951 95,117 106,464 6,295 Ω7,039,853 ΩΩ5,267,639 Ω30,169,704 61,919,889

Ω281,364 Ω281,365 Ω281,366 Ω281,367 Ω281,368 Ω281,369 Ω281,370 Ω281,371 47,079,701

CCASH FLOWS OF THE COMPANIES

OGDCL Cash Flow Statement for the year ended 30 June 2007

CASH F LOWS FROM OPER ATING ACTIVITIES Profit before taxation Adjustments for: Depreciation Amortization of development and production assets Royalty Workers' profit participation fund Provision for employee benefits Unwinding of discount on provision for decommissioning cost Interest income Unrealized gain on investments at fair value through profit or loss Dividend income Gain on disposal of property, plant and equipment Interest income on long term receivables Provision for slow moving and obsolete stores Provision for doubtful advances Working capital changes (Increase)/decrease in current assets: Stores, spare parts and loose tools Stock in trade Trade debts Deposits and short term prepayments Advances and other receivables Increase/(decrease) in current liabilities: Trade and other payables Cash gener ated fr om oper ations Royalty paid Employee benefits paid Payments to workers' profit participation fund - net Income taxes paid NET CASH FROM OPERATING ACTIVITIES Cash f lows from inv esting activities Fixed capital expenditure Interest received Dividends received Purchase of investments

Note 2007 (Rupees ‘000)

2006

61,058,726

65,911,327

2,978,442 3,637,369 10,877,443 3,213,617 184,852 443,699 (3,064,607) (60,386) (300,653) (32,628) (61,573)

2,370,871 3,339,729 10,872,443 3,469,017 243,906 -

(5,430) 78,868,871

(3,389,616) (21,523) (398,970) (26,282) (82,752) 47,452 (1,997) 82,333,605

(2,145,541) (28,180) (3,374,529) 7,332 86,035

(3,502,052) (33,204) (5,971,412) (36,540) (58,194)

1,207,365 74,621,353 (9,768,793) (327,302) (3,469,017) (24,083,508) (37,648,620) 36,972,733

1,162,437 73,894,640 (10,297,744) (1,349,931) (3,380,011) (14,231,431) (29,259,117) 44,635,523

(16,444,905) 3,466,000 300,653 (450,000)

(11,917,891) 3,119,077 398,970 (440,063)

-

Proceeds from encashment of investments Proceeds from disposal of property, plant and equipment Long term prepayments NET CASH USED IN INVESTING ACTIVITIES CASH F LOWS FROM F INANCING ACTIVITIES Dividends paid NET CASH USED IN FINANCING ACTIVITIES Net decr ease in cash and cash equiv alents Cash and cash equiv alents at beginning of the y ear CASH AND CASH EQUIV ALENTS AT END OF THE Y EAR

73,341 35,130 18,200 (13,001,581)

12,140 31,184 (16,182) (8,812,765)

(38,154,089) (38,154,089) (14,182,937) 32,177,279 3,417,994,342

(41,444,703) (41,444,703) (5,621,945) 37,799,224 32,177,279

SSGCL Cash Flow Statement For the year ended 30 June 2007 CASH FLOWS FROM OPERATING ACTIVITIES Profit before taxation Adjustments for: Depreciation Amortization of intangible assets Finance cost Provision against impaired inventory Provision against impaired debts Provision / (reversal of provision) for compensated absences Provision for post retirement medical and free gas supply facilities (Reversal of provision)/provision for retirement benefits Recognition of income against deferred credit Dividend income Profit / interest on bank deposits Depreciation on transfers of fixed assets Gain on sale of fixed assets Working capital changes Cash generated from operations Retirement benefits paid Tax recovered / (paid) Financial charges paid Service charges received from new customers Long-term deposits received - net Long-term loans and advances Long-term deposits Net cash generated from operating activities CASH FLOWS FROM INVESTING ACTIVITIES Capital expenditure Proceeds from sale of fixed assets Dividend received Profit / interest on bank deposits Net cash used in investing activities

2007 rupees in 000

2006 rupees in 000

1,335,225

1,720,226

2,248,374 39,417 1,778,740 30,150 238,410 20,250

2,226,382 43,358 1,390,460 7,314 172,895 (18,680)

92,955 (45,506) (231,771) (5,889) (95,158) (1,327) (17,120) 5,386,750 38,902,184 6,288,934 (18,950) 351,429 (1,482,845) 963,146 274,202 5,717 76 6,381,709

97,181 119,314 (184,504) (5,826) (110,212) (607) (20,524) 5,436,777 1,520,371 6,957,148 (75,895) (555,558) (1,001,707) 638,670 282,732 9,507 1,332 6,256,229

(8,565,797) 20,179 5,889 97,100 (8,442,629)

(5,393,118) 36,254 10,577 109,433 (5,236,854)

CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from local currency loans Proceeds raised from issue of Islamic Sukuk Bonds Repayment of local currency loans Repayment of redeemable capital Consumer finance received Repayment of consumer finance Repayment of foreign currency loans Dividend paid Net cash generated from financing activities

2,992,234 2,987,686 (1,090,456) (416,330) 100,383 (28,116)

(250,000) (749,415) 42,176 (16,839) (445,711) (998,900) 581,311

(866,731) 3,678,670 Ω

Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year

3,000,000 -

Ω 1,617,750 2,649,889 394,267,639

1,600,686 1,049,203 2,649,889

Analysis on the cash flow statements of companies After the analysis of the cash flows of both the companies we can see that the OGDCL generate its cash from the operating activities and using it in both the investing as well as in financing activities and On the other hand SSGCL is generating its major part of cash from the financing activities and using it in the investing activities to expand the business. Although it generates the cash from operating activities but as compared to financing activities it’s too much low.

Loss Ac

Brief analysis of OGDCL & SSGCL LIQUDITY POSITION CURRENT RATIO:

Current Ratio

=

Current Assets Current Liabilities

OGDCL $68,518,758 $11,122,66 5

=

6.16

SSGCl $30,169,704

=

1.03

$29,380,584 There are 6.16 current assets against one current liability. While SSGCL has only 1.03 current assets against one current liability. There is huge difference between the both companies to pay their short term obligations. OGDCL has strong ability as compared to SSGCL to meet its short term liability .

LIQUDITY RATIO Quick Ratio

=

Current Assets – Inventory Current Liabilities

OGDCL $68,518,758 $93,788 $11,122,665

=

6.15

=

1.01

SSGLC $30,169,704 $368,903 $29,380,594

Again OGDCL has great advantage to meet its short term liabilities over SSGCL. OGDCL has 1.5 quick asset against 1 liability while SSGCL has only 1.01 quick assets against 1 current liability.

ASSET TURN OVER POSITION INVENTORY TUNOVER RATIO: Inventory Turnover Ratio

=

Total Sales Average Inventory

OGDCL $100,261,19 1 $93,788

= 1069.02

SSGCL $69,084,40 3 $368,903

= 187.27

in the inventory context ogdcl has 881.75 times more inventory turnover as compared to ssgcl. But over all both has good inventory turnover because of their highly desirable product in the domestic market.

TOTAL ASSET TURNOVER RATIO Total Assets Ratio

OGDCL $100,261,19 1 $129,338,17 2

= 0.775

SSGCL $69,084,40 3 $61,919,88 9

= 1.12

=

Total Sales Total Assets

According to the ratios calculated OGDCL has .775 and SSGCL has 1.12 total asset turnover which shows that ssgcl utilizing its total assets more efficiently than ogdcl.

PROFITABILITY RATIOS RETURN ON TOTAL ASSETS: Return on Assets Ratio

=

Net Income Average Total Assets

OGDCL $45,629,964 $129,388,17 2

=

0.35

SSGCL $290,379 $61,919,88 9

= 0.00469

According to above data ogdcl has 35% and ssgcl has .46% ROA. This is again showing that ogdcl has better return on their assets.

RETURN ON ETUITY RATIO: Return on Equity Ratio

OGDCL $45,629,964 $100,616,65 2

=

0.45

SSGCL $290,379 $9,738,90 3

= 0.030

=

Net Income Average Owners' Equity

In this computation ssgcl has very less ROE than ogdcl which shows that ogdcl is earning more income on the invested money by the owners.

NET PROFIT MARGIN RATIO: Profit Margin Ratio

=

Net Income Total Sales

OGDCL $45,629,964 $100,261,19 1

=

0.46

SSGCL $290,379 $69,084,40 3

= 0.00420

Again there is huge difference between the profit margins. Which shows that ssgcl is merely covering their cost not generating enough money to give good return to owners.

EARNING PER SHARE RATIO: Earnings per Share Ratio =

OGDCL $45,629,96 4 $4,300,928

= 10.61

SSGCL $290,37 9 $671,17

= 0.43

Net Income Average Number of Common Shares

4 According to the above data ogdcl earning 10.61 per share while ssgcl just earning .43 per share which shows the strong position and good reputation in the market. It may be due to their non competitor environment in oil sector in Pakistani market.

CAPITAL STRUCTURE AND SOLVENCY POSITION TOTAL DEBT RATIO: Total Debt Ratio =

Total Liabilities Total Assets

OGDCL $28,721,520 $129,388,17 2

=

0.22

SSGCL $52,180,98 6 $61,919,88 9

= 0.84

Ogdcl has only 22% liability of total assets while ssgcl has 84% liabilities of their total assets which is showing the ogdcl is 78% and ssgcl 16% equity financed.

INTEREST COVERAGE RATIO: Interest Coverage = Ratio

OGDCL $61,508,28 7 $449,561

= 136.82

SSGCL $3,113,96

= 1.75

Earnings Before Interest and Taxes Interest Expense

5 $1,778,74 0 The above calculation showing that ogdcl are generating enough money beyond their needs for meeting long term obligations and also showing their strong ability to pay long term debts.

TOTAL DEBT TO EQUITY RATIO: Debt/Equity Ratio

=

Total Liabilities Owners' Equity

OGDCL $28,721,520 $100,616,65 2

=

0.29

SSGCL $52,180,98 6 $9,738,903

= 5.36

Ogdcl has very good capital structure because of their main portion of the financing by equity. Overall ogdcl has strong solvency position.

MARKET MEASURES EARNING PER SHARE RATIO: Earnings per Share Ratio =

Net Income Average Number of Common Shares

OGDCL $45,629,96 4 $4,300,928

= 10.61

SSGCL $290,37 9 $671,17 4

= 0.43

According to the above data ogdcl earning 10.61 per share while ssgcl just earning .43 per share which shows the strong position and good reputation in the market. It may be due to their non competitor environment in oil sector in Pakistani market.

MARKET PRICE TO EARNING RATIO: Price to Earnings Ratio

OGDCL $44

=

4.15

=

Market Price per Share Earnings per Share

$11

SSGCL $13.15 $0.43

= 30.58

BOOK VALUE OF COMMON STOCK: book value of common stock

=

Common stock equity No of outstanding C/S

OGDCL $100,616,65 2 4,300,928

=

$23.3 9

SSGCL $9,738,90 3 671,174

= $14.51

In the books of accounts ogdcl has 23.39 and ssgcl 14.51 value of share again ogdcl is better here also

CONCLUSION AND INFERENCES The success of OGDCL depends upon the professional competence of its work force. OGDCL has engaged top professionals in Geology, Drilling, Engineering and petroleum.According to above Liquidity analysis it has been cleared that ogdcl has strong ability to meet their short term obligation than ssgcl.Interest coverage ratio and their capital structure(ogdcl 78%Equity financed N ssgcl6%Equity financed) is also showing their very strong solvency position.Ogdcl also efficiently utilizing their assets but not very good when it will compared to the ssgcl.if we take a look on the market measures again ogdcl is earning a very high return on the invested money and also has a very good book value as compared to the ssgcl.ogdcl is also earning good aswell as more than ssgcl In short ogdcl has overall better financial condition than ssgcl If we take look at at cash flow statement of both companies we can see that the OGDCL generate its cash from the operating activities and using it in both the investing as well as in financing activities and On the other hand SSGCL is generating its major part of cash from the financing activities and using it in the investing activities to expand the business. Although it generates the cash from operating activities but as compared to financing activities it’s too much low.