VIS reaffirms entity ratings of OGDCL

December 04, 2024 (MLN): VIS Credit Rating Company Limited (‘VIS’) has reaffirmed the entity ratings of Oil & Gas Development Company Limited (OGDCL) at ‘AAA/A1+’ (Triple A/A One Plus).

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

A short-term rating of 'A1+' suggests the strongest likelihood of timely repayment of short-term obligations with outstanding liquidity factors.

Outlook on the assigned ratings remains ‘Stable’. The previous rating action was announced on December 20, 2023.

OGDCL is Pakistan's largest national oil and gas company. The Company is the Country's leader in terms of exploration acreage, oil and gas reserves, and production contribution.

It was founded as a Public Sector Corporation in 1961 and later converted to a Public Limited Company in October 1997.

In October 2003, the Company was listed on the Pakistan Stock Exchange, and its Global Depository Shares began trading on the London Stock Exchange in December 2006.

The primary business of OGDCL is the exploration, development, and production of oil and gas resources and related activities. Crude Oil, Gas, Liquefied Petroleum Gas (LPG), and Sulphur are products in the portfolio.

OGDCL supplies crude oil and condensates to refineries for processing, while gas is supplied to gas distribution companies, power generation companies, and the fertilizer industry.

Assigned ratings take into account the business risk profile of Pakistan’s oil and gas exploration sector, assessed as medium to low. This reflects a balance between resource potential and operational challenges.

The sector benefits from steady domestic demand and strategic importance while facing risks related to resource depletion, circular debt exposure, and the complexities of developing unconventional resources.

OGDCL's strong business risk profile stems from its leading position in oil and gas, robust reserves, exploration-driven growth, and diversification into unconventional resources, global projects, and mining.

Assigned ratings also incorporate the financial risk profile of Oil and Gas Development Company Limited (OGDCL), characterized by a debt-free capital structure, strong liquidity, and consistent cash flow generation.

In FY 2024, OGDCL's sales grew due to favorable exchange rates, while profitability was aided by associate contributions and tax reversals, offsetting higher costs and lower finance income.

The Company’s ability to fund significant capital expenditures internally and maintain a healthy liquidity position mitigates risks associated with circular debt.

Trade receivables remain high, although improved collection rates and government initiatives to address circular debt support liquidity stability.

Sufficient reserves underpin the Company’s operational sustainability, with exploration-led growth and diversification strategies reinforcing its resource base.

Going forward, the assigned ratings will remain sensitive to OGDCL’s ability to address challenges related to circular debt, sustain profitability margins, and maintain strong liquidity metrics.

Management’s commitment to exploration-led growth and diversification, alongside efforts to enhance operational efficiencies and recover receivables, will be important in supporting the ratings.

Moreover, continued adherence to environmental and governance standards will further influence the Company’s ratings.

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