VIS reaffirms entity ratings of OGDC

December 21, 2023 (MLN): The VIS Credit Rating Company Limited (VIS) has reaffirmed the entity ratings of Oil & Gas Development Company Limited (PSX: OGDC) at ‘AAA’ for long-term and ‘A-1+’ for short term with a stable future outlook, latest press release issued by VIS showed.

A medium to long-term rating of 'AAA' denotes the highest credit quality; the risk factors are negligible, being only slightly more than for the risk-free Government of Pakistan’s debt.

Whereas, a short-term rating of 'A-1+' denotes the highest certainty of timely payment; short-term liquidity, including internal operating factors and/or access to alternative sources of funds, is outstanding and safety is just below risk-free government’s short-term obligations.

To recall, the previous rating action was announced on December 23, 2022.

OGDCL, which is the national oil and gas company of Pakistan stands as a preeminent leader due to its highest exploration acreage, oil and gas reserves and production output in the country.

The company was established in 1961 as a Public Sector Corporation and converted into a Public Limited Company in 1997.

The company made its debut on the Pakistan Stock Exchange in 2003 and expanded its reach to the London Stock Exchange in 2006.

Business operations primarily involve exploration, development and production of oil and gas resources in Pakistan, as well as related activities. Its major clients are refineries, gas distribution companies, and power generation companies.

The assigned ratings take into account the ownership structure of OGDCL, as the majority shareholding is held by the GoP. All nominations on the Board of Directors are made by the GoP.

In line with best practices, at least one-third of the board comprises independent directors. Ratings also incorporate the low business risk profile of the company, as evidenced by robust margins, providing a considerable cushion against volatility in international oil prices.

Assessment of financial risk profile exhibits low risk, maintaining a debt-free capital structure and a strong liquidity position.

While the rising trend of inter-corporate debt within the industry remains a concern, the company's trade debts, which are largely owed by the GoP owned/controlled entities are considered to have very low credit risk, from a national scale rating purview.

In view of the natural depletion of oil and gas resources as well as to augment the reserves base, OGDCL remains focused on its exploration-led growth strategy.

Furthermore, in line with its business diversification plan, the company has entered into definitive agreements with the Federal Government, Government of Baluchistan, GHPL, PPL and Barrick Gold Corporation for extraction of gold and copper reserves from Reko Diq.

Moreover, planned exploration and evaluation activities are underway in offshore block-5 in Abu Dhabi. MOUs have also been signed with various industry players to explore opportunities in green field refinery, hydrogen and geo-thermal energy for business sustainability.

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