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Project

On
Analysis of financials of Oil and Gas
Company limited

Submitted to:
Burhan Shah

Submitted by:
Mu
mtaz Ali Hulio

MBA 3rd

Deportment of Administrative
Sciences
Quaid-i-Azam University
Islamabad
Acknowledgements
I wish to thank Almighty Allah the most beneficent and
merciful for enabling me to reach here and use His sources
to complete my project. I am also grateful to Burhan Shah
who gave me opportunity to enhance my capabilities. This
project is very helpful for me because, I have learnt a lot by
applying theoretical knowledge in practical field. In addition,
we wish to say thanks to our parents to support us and
encourage us at every step.
PURPOSE OF THE STUDY
This report is based on study carried out for the fulfillment of the subject
(AFS) requirement of the Master in business administration at the Quaid-i-
azam University Islamabad. The purpose of the study is to gather and analyze
the data with respects to the knowledge of classroom lectures to the real life
situations.
SCOPE OF THE STUDY
The scope of my work is focused on the financial conditions of OGDCL. This
report contains the ratio, vertical and horizontal analysis. During the project,
the observation was focused on financial trends, position, and condition of
OGDCL.

LIMITATION OF THE STUDY


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

MERITS OF THE STUDY


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

INTRODUCTION
Before the existence of OGDCL, exploration activities were carried out under
the label of Pakistan Petroleum Ltd (PPL) and Pakistan Oilfields Ltd (POL). In
1952, PPL discovered a giant gas field at Sui in Baluchistan. This discovery
generated massive interest in exploration and five major foreign oil
companies entered into concession agreements with the Government.

During the 1950s, these companies carried out widespread geological and
geophysical surveys and drilled 47 exploratory wells. As a result, a few small
gas fields were discovered. Despite these gas discoveries, exploration activity
after having reached its peak in mid-1950s, declined in the late fifties. Private
Companies whose main objective was to earn profit were not interested in
developing the gas discoveries especially when infrastructure and demand
for gas was non-existent. With exploration activity at its lowest ebb several
foreign exploration contracting companies terminated their operation and
either reduced or relinquished land holdings in 1961.

Establishment of OGDC

On 04 March 1961, the Government of Pakistan signed a long- term loan


agreement with the USSR, where by Pakistan received 27 million to finance
the equipment and services of Soviet experts for exploration. Subsequently,
OGDC was created under an Ordinance dated 20th September 1961 and was
charged with was prime responsibility to undertake a well thought out and
systematic exploratory programs and to plan and promote Pakistan's oil and
gas prospects.

As an instrument of policy in the oil and gas sector, the Corporation followed
the Government instructions in matters of exploration and development. The
day to day management was however, vested in a five-member Board of
Directors appointed by the Government. In the initial stages the financial
resources were arranged by the GOP as the OGDC lacked the ways and
means to raise the risk capital. The first 10 to 15 years were devoted to
development of manpower and building of infrastructure to undertake much
larger exploration programmes. Later, in July 1989, as the company
progressed as a result of major oil and gas discoveries, the Government off-
loaded the Company from the Federal Budget and allowed it to manage its
activities with self generated funds. The year 1989-90 was the company's
first year of self-financing. Today, OGDCL is the largest Exploration and
Production Company in Pakistan, listed on all three exchanges of the country as well
as the London Stock Exchange.

Initial Successes:

A number of donor agencies such as the World Bank, Canadian International


Development Agency (CIDA) and the Asian Development Bank provided the
momentum through assistance for major development projects in the form of
loans and grants. OGDC's intensive efforts were very successful as they
resulted in a number of major oil and gas discoveries between 1968 and
1982. Two oil fields were discovered in 1968 which paved the way for further
exploratory work in the North. During the period 1970-75, the Company
reformed the strategy for updating its equipment base and undertook a very
aggressive work programme. This resulted in discovery of a number of oil
and gas fields in the Eighties, thus giving the Company a measure of financial
independence. These include the Thora, Sono, Lashari, Bobi, Tando Alam &
Dhodak oil/condensate fields and Pirkoh, Uch, Loti, Nandpur and Panjpir gas
fields which are commercial discoveries that testify to the professional
capabilities of the Corporation.

VISION STATEMENT

To be a leading multinational Exploration and Production Company

MISSION STATEMENT

To become the leading provider of oil and gas to the country by


increasing exploration and production both domestically and internationally,
utilizing all options including strategic alliances

To continue realign ourselves to meat the expectations of our


stockholders through the best management practices, the use of the latest
technology, and innovation for sustainable growth, while being sociably
responsible.

CORE VALUES:

• Merit

• Integrity

• Teamwork safety

• Dedication

• Innovation

GOALS:

FINANCIAL GOALS:

• Build strategic reserves for future growth and expansion

• Growth and superior returns to all stockholders

• Double the value of the company in the next five years


• Make the investment decisions by ranking projects on the bases of
best economic indicators

• Maximize profit by investing surplus funds in profitable avenues

• Reduce cost and time overrun to improve performance results

LEARNING AND GROWTH GOALS:

• Motivate our work force, and enhance their technical, managerial and
business skills through modern HR practices

• Acquire, learn and apply state of the art technology

• Emphasis organizational learning and research through the effective


use of knowledge management system

• Fill the competency gap with in the organization by attracting and


retaining the best professionals

• Attain full autonomy in financial and decision making matters

CUSTMERS GOALS:

• Continuously improve quality of service and responsiveness to


maintain a satisfied customer base

• Improve the reliability and efficiency of supply to the customers

• Be a responsible corporate citizen

INTERNAL PROCESS GOALS:

• Evolve consensus through consultative progress inter-linking activities


of all deportments

• Excel in the exploration, development and commercialization

• Synergize through effective business practices and teamwork

• Have well defined SOP’s with specific ownership and accountabilities

• Improve internal business decision making and strategic planning


through state of the art MIS

• Improve internal control

• Periodic business process reengineering


Liquidity Analysis

Ratio 2005 2006 2007 2008 2009

Current Ratio 5.35 7.09 6.65 3.72 4.08

Acid Test Ratio 5.33 7.06 6.69 3.76 4.10

A/R Turnover 3.59 4.28 3.81 3.44 2.59

Inventory Turn 500.30 422.25 332.58 253.03 363.36


Over

A/R turn over in 101.59 85.36 95.79 106.14 141.13


Days

Inventory turn 0.73 0.86 1.10 1.14 1.00


over in days

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

Current ratio: Current asset/ Current liabilities

Acid test ratio: current assets – inventory / c liabilities

16
14
12
10
Acid Test Ratio
8
Current Ratio
6
4
2
0
2005 2006 2007 2008 2009

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

Inventory turnover:

600

500
400
A/R Turnover
300 Inventory Turn Over
200
100

0
2005 2006 2007 2008 2009

A/R Turnover in days

Inventory turnover in days

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

Long Term Debt Ratio Analysis

Ratio 2005 2006 2007 2008 2009

Debt Ratio 0.27 0.23 0.31 0.27 0.29

Debt equity 0.37 0.29 0.39 0.38 0.41


Ratio

Debt to 2.68 3.32 1.85 1.76 1.49


Tangible Net
Worth
Times Interest 8246.1 6594.53 136.33 148.26 88.39
Earned 4

Fixed Charge 8246.1 6594.53 136.33 148.26 88.39


Coverage 4

Debt ratio

Debt to equity ratio

Debt to tangible net worth

3.5
3
2.5 Debt Ratio
2
Debt equity Ratio
1.5
1 Debt to Tangible Net
0.5 Worth

0
2005 2006 2007 2008 2009

Time interest earned:

Fixed charge coverage:


9000
8000
7000
6000
5000
Times Interest Earned
4000
Fixed Charge Coverage
3000
2000
1000
0
2005 2006 2007 2008 2009

Profitability ratios
Ratio 2005 2006 2007 2008 2009

Return on 26.78 36.28 34.03 30.68 33.63


assets

Return on 39.83 52.10 46.09 54.55 49.56


operating A

Return on 30.09 40.21 36.89 34.34 38.24


Investment

Return on 36.65 47.83 43.43 40.83 46.95


total equity

Total assets 60.72 77.08 75.75 87.12 79.22


turn over

Operating 60.72 77.08 75.75 87.12 79.22


A/turnover

Net profit 65.60 67.59 60.84 62.62 62.54


margin

Gross profit 67.31 71.53 69.04 69.50 69.92


margin

Fixed 148.04 189.03 176.04 187.49 159.90


assets turn
over
Investor ratios:

Ratio 2005 2006 2007 2008 2009

Earning 7.68 10.65 10.61 11.54 12.91


per share

Book 20.94 23.59 24.86 25.67 29.34


value per
share

Dividend 0.98 0.85 0.86 0.92 0.64


payout R

Degree of 1.00 1.00 1.01 1.01 1.01


financial
leverage

% of 2.28 15.49 14.45 7.86 36.10


retained
earning

Dividend 11.63 6.58 7.51 7.64 10.49


yield

Price 8.40 12.84 11.39 12.06 6.09


earning
ratio