OGDC continues to trade at undemanding valuations even as crude oil prices witness a 45% CYTD increase. Going forward, the oil demand outstripping production in 2022 is expected to be contained by strengthening US$. We therefore, incorporate oil prices for FY22/23 at US$68/60 per bbl and USD PkR exchange rate of 163/171 in our projections.

OGDC stands out in the E and P sector with a diversified production base, where c. 70% of oil and gas production emanating from 6 and 3 fields, respectively, as opposed to more concentrated production base of other players.

While participation in Abu Dhabi’s offshore block 5 exploration concession agreement may keep exploratory expenditure elevated, the stock is still trading at undemanding valuations (FY22/23 P/E of 3.6/3.7x), underscoring our Buy stance (TP: PkR156/sh).

Meanwhile, structural reforms in energy chain may likely result in higher payouts from OGDC. The GoP has projected dividend expectation from OGDC at PkR15/sh in FY22 budget – possible if PHPL uses cash inflow from GoP to buy back TFCs from OGDC, opening up payout potential for the latter.