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Dedication

Business Plan

OIL AND GAS DEVELOPMENT COMPANY

LIMITED

Head Office Islamabad

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SUBMITTED BY

Mumtaz Ali

Saeed Ahmed

Hakim Ali

Ayaz Ali

MBA-4th A

SUBMITTED TO

Mr. Basharat Ahmed

Session 2009-2011

Quaid-i-Azam School of Management

Sciences

Quaid-i-Azam University Islamabad

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This project is dedicated

To the Almighty Allah and His

Holy Prophet (P.B.U.H)

May Allah Bless the Persons whoguide

the people for the path of Allah.

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ACKNOWLEDGMENT

We would take this opportunity to thank Mr. Basharat Ahmed,

our teacher for the course of Business Policy at the Quaid-i-Azam

School of Management Science, Quaid-i-Azam University

Islamabad, for his valuable support and encouragement which he has

offered. His words of wisdom will always be remembered, and We are

convinced that the knowledge of Business policy And Strategy that he

has imparted to all of us would go a long way in making us good

managers and help us all through our professional career.

This report cannot be solely attributed to our combined effort but it

is indeed the joint effort of many friends and well wishers. There were

times in the course of preparing this report when things were tough and

the future seemed dark. It could not have been possible to write it,

without the immense help of a few individuals to whom we would like to

offer my gratitude.

In particular we would like to thank Mr. Abdual Raziq Khatak

(Personnel Officer HR Policy Department), of OGDCL for his

immense contribution towards this report. Without his corporation and

the amount of time he gave us, this report would not have existed.

Thanks a lot!

Mumtaz Ali

Saeed Ahmed

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Ayaz Ali

Hakim Ali

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Executive Summary

OGDCL is one of the leading Exploration and Production Company in the

Oil and Gas Industry of Pakistan. 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. Historically, 155

exploratory wells have been drilled by OGDCL in the country since its

inception leading to 49 discoveries, 33 of which were of oil and 16 gases.

OGDCL not only carries out exploration and development activities on its

own but has also entered into joint ventures for oil and gas exploration.

Presently, OGDCL is 100% owner in two concessions. In addition, it is the

operator as well as a working interest owner in 16 concessions and

partner in another 19 concessions operated by other oil companies.

Today, OGDCL is one of the principal explorers and producers of oil and

gas in the country.

OGDCL now holds the largest shares of oil and gas reserves in the

country, i.e. 48% of total oil and 37% of total gas reserves. Its percentage

share of the total oil and gas production in Pakistan is 34% and 28%

respectively. Since it development, OGDCL has grown into a technically

and commercially viable organization

For preparing an effective business plan of OGDCL we visited Head office

Located at Islamabad and met Abdul Raziq Khattak (Personnel Officer, HR

Policy) for collection of required information we observed the working

activities held at the Head office. We have prepared eight chapters in our

Business Plan of OGDCL, and have included all the essential information

which is the main requirement of preparing Business Plan.

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Chapter No: 1 Introduction

1. Company History

1.1. 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.

1.2. 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 program 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

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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

program.

1.3. Initial Successes

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

Development Agency (CIDA) and the Asian Development Bank provided the

impetus through assistance for major development projects in the form of loans and

grants. OGDC's concerted efforts were very successful as they resulted in a number

of major oil and gas discoveries between 1968 and 1982. Toot oil field wasdiscovered 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.

1.4. Transition to a self financing entity

Noting the Company's success, due to major oil and gas discoveries in the eighties,

the Government in July 1989, off-loaded the Company from the Federal Budget and

allowed it to manage its activities with self generated funds. The financial year 1989-

90, was OGDC's first year of self-financing. It was a great challenge for OGDC. The

obvious initial target during the first year of self-financing was to generate sufficient

resources to maintain the momentum of exploration and development at a pace

envisaged in the Public Sector Development Programme (PSDP) as well as to meet

its debt servicing obligations. OGDC not only generated enough internal funds to

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Chapter No: 2 Products and Services

2.1. Exploration Production

Historically, 155 exploratory wells have been drilled by OGDCL in the countrysince its inception leading to 49 discoveries, 33 of which were of oil and 16 gases.

OGDCL not only carries out exploration and development activities on its own but

has also entered into joint ventures for oil and gas exploration. Presently, OGDCL is

100% owner in two concessions. In addition, it is the operator as well as a working

interest owner in 16 concessions and partner in another 19 concessions operated by

other oil companies. Today, OGDCL is one of the principal explorers and producers

of oil and gas in the country.

2.2. Product Lines

The main product lines of the company are as under:

2.2.1. Crude Oil

Crude oil is the mixture of petroleum liquids and gases (including impurities such as

sulphur) that is pumped out of the ground by oil wells. Main production Oilfields of

the company are Dakhni, Dhodak, Bobi, Tandoalam, Chanda, Toot & Rajian.

2.2.2. GAS

A mixture of hydrocarbon compounds and small quantities of various non-

hydrocarbons existing in the gaseous phase or in solution with crude oil in natural

underground reservoirs. The major gas fields of the company are Dakhni, Dhodak,

Qadirpur, Nandpur, Panjpir, Pirkoh and Uch.

2.2.3. Liquefied Petroleum Gas (LPG)

A mixture of hydrocarbons found in natural gas and produced from crude oil, used

principally as a feedstock for the chemical industry, home heating fuel, and motor

vehicle fuel. The major fields of the company having LPG production facilities are

Dakhni, Dhodak, Sadkal, Kunner and Bobi.

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2.2.4. Naphtha

Naphtha is a group of various volatile flammable liquid hydrocarbon mixtures used

primarily as feedstock in refineries and petrochemical industry. It is also used in

solvent applications. Naphtha is the residual product of the company and is extracted

from various oil / gas fields.

2.2.5. Solvent Oil

A simple or complex liquid mixture of hydrocarbons that can be refined to yield

gasoline, kerosene, diesel fuel, and various other products. This product is extracted

from various oil fields of the company.

2.2.6. Kerosene Oil

Kerosene oil has been distilled from petroleum, and generally used as a fuel for

lighting etc. This residual product is extracted from various oil fields of the

company.

2.2.7. High Speed Diesel Oil

It is the hydrocarbon Oil suitable for use as fuel in Compression Ignition Engines;

extracted from various oil fields of the company.

2.2.8. Sulphur

A yellow mineral extracted from petroleum for making fertilizers, pharmaceuticals

and other products. The sulphur is produced at the Dakhni oil & Gas field near Jand,

Attock

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Chapter No: 3 ORGANIZATION

3. Organizational Structure

3.1. Main OfficesOGDCL Head Office is situated at Jinnah Avenue, Blue Area Islamabad and

Regional Offices are located in Karachi and Multan. Besides this OGDCL has its

Liaison Offices in Hyderabad, Sukkur, and Quetta for operational activities. A Board

of Directors comprising twelve Directors, all of whom are nominated by the

Ministry of Petroleum and Natural Resources, responsible for policy related issues.

All policy related issues are dealt by the board of Directors that is headed by a non-

executive Chairman and a full time Managing director. The general direction,

policies and affairs of the Company vests in a Board of Directors, which consists of

01 Chairman, 10 Directors and 01 Managing Director (MD). MD is responsible for

operational and other activities. The OGDCL has been re-organized during the last

few years; it now operates much purely as Oil Company does. Emphasis is on

Professional Competence and getting things done.

OGDCL can broadly be divided in to following three companies:

Corporate

Exploration & Production (E& P)

Technical Services

OGDCL has a traditional type of structure i.e. functional structure having a CEO at

the top followed by the BOD. On the basis of functions, divisions are made in the

head office structure that are inter connected with the field structure. In functional

structure provision of economies of scale is present with in the functional

department. It helps getting in depth knowledge and skill development. Supervising

each other work is easy and cooperation among the members is increased due to

group performance.

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3.2. The main offices located throughout Pakistan

1. OGDCL Head Office, Jinnah Avenue Islamabad.

2. Pirkoh Gas Company Private Limited, Islamabad.

3. OGDCL Regional Office, Shafi Chamber, Karachi

4. OGDCL Regional Office, Multan

5. OGDCL Liaison Office, Quetta

6. OGDCL Liaison Office, Sukkur

7. OGDCL West Wharf Office, Karachi

8. OGDCL Base Store, Islamabad

9. OGDCL Base Store, Khadiji, Karachi

10. OGDCL Base Store, Korangi

11. OGDCL Base Store, Kot Addu

12. OGDCL Base Store, Kot Sarang

13. Medical Centers, Islamabad, Rawalpindi & Karachi

14. OGDCL Workshops, Islamabad

15. Oil & Gas Training Institute, Islamabad.

3.3. Board of Directors

Mr. Imtiaz KaziChairman

Mr. Mohammad Naeem MalikMD/CEO

Mr. Tariq FaruqueDirector

Syed Amir Ali ShahDirector

Mr. Wasim A. ZuberiDirector

Mr. Fahd ShaikhDirector

Dr. Kaiser BengaliDirector

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Mr. Ahmed Bakhsh LehriDirector

Senator Mir Wali Muhammad BadiniDirector

Syed Masieh-ul-IslamDirector

3.4. MAIN DEPARTMENTS

3.4.1. CORPORATE DEPARTMENT

1. Administration Medical

2. Human Resource Department Corporate Affairs

3. Personnel Aviation

4. Security System Support

5. Legal OGTI

6. Communication G & R Lab

7. Supply Chain Management Secretariat

8. Material Management Internal Audit

9. Finance & Accounts

10. Career Planning Cell

11. Environment Protection & Safety

3.4.2. E&P DEPARTMENTS

1. Exploration Prospect Generation

2. Exploration Studies & Research

3. Exploitation

4. Production

5. Process

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3.4.3. TECHNICAL SERVICES DEPARTMENT

1. Drilling

2. Engineering/Workshops

3. Mud Engineering

4. Well Services Department

5. Cementation

6. Geological Well Supervision

7. Wire line Logging

8. Stimulation

9. Geological /Geophysical

10.Seismic Data Processing

11. Logistic

12. Data Logging

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Chapter No: 4 Market Analysis

4.1. Major Competitors

4.1.1. Pakistan Petroleum Limited (PPL)Pakistan Petroleum Limited (PPL) is one of the pioneer exploration and production

(E&P) companies in Pakistan oil and gas sector. On behalf of the Government of

Pakistan (GoP), the Privatization Commission (PC) is proceeding with a strategic

sale of 51% shareholding in PPL along with transfer of management control.

PPL was incorporated in June 1950 with the Burmah Oil Company (renamed

Burmah Castrol) and GoP as its principal shareholders. After more than 50 years of

successful operations PPL continues to be a prominent E&P player in Pakistan with:

Sui, Pakistans oldest and largest gas field discovered and operated by PPL,

contributing 25% of Pakistans gas production. The Companys holds operatorship

of major oil and gas fields including Sui, Kandhkot, Adhi and Mazarani, while its

non-operated portfolio includes interests in the Qadirpur, Miano, Sawan and Tal

fields.

PPLs head office is located in Karachi. The companys total staff strength is about

2,536 employees including 640 management staff and 1,896 non-management staff.

4.1.2. OMV Pakistan

OMV (Pakistan) is a 100% subsidiary of OMV Aktiengesellschaft which is Austrias

largest listed industrial company, with Group sales of EUR 15.6 billion and a

workforce of 5,226 employees in 2005, as well as market capitalization of approx.

EUR 18 billion. As the leading oil and gas group in Central Europe, OMV is active

in Refining and Marketing (R&M) in 13 countries and in Exploration and Production

(E&P) OMV is active in 18 countries on five continents.

In Pakistan, OMV has been active as an operator and partner since 1990.

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The company was incepted as part of a Joint Venture, consisting of OMV Pakistan

as the Operator, Hardy Oil & Gas (now ENI group), Pakistan Petroleum Limited

(PPL), and Oil & Gas Development Company Limited (OGDCL).

In the years to date OMV (Pakistan) has established itself as the largest international

gas producer in Pakistan with an operated volume of more than 110,000 barrels of

oil equivalent per day from Kadanwari-Miano and Sawan fields. This represents

about 16% of the total gas produced in Pakistan.

The first significant achievement was the discovery of the Miano gas reservoir in the

Thar Desert of Sindh province. It came about by the end of 1993; just three years

after OMV came to Pakistan.

The second major breakthrough came five years later i.e. in 1998, from the field

named Sawan, again in the same area of Sindh. Sawan was and still is one of the

largest discoveries of gas reserves in Pakistan. In a record nineteen months from the

ground-breaking ceremony in January 2002 of the Sawan Gas Plant, OMV was able

to sell its raw gas by July 2003.

Parallel to the Sawan development OMV also took over the operator-ship of the

Kadanwari Gas Processing Plant on 1stJanuary 2003 from Lasmo, currently ENI.

OMV remained quite aggressive on new developments and Kadanwari plant gas

processing capacity was enhanced to 232 MMscfd while Sawan plant capacity has

been enhanced to 400 MMscfd. To further meet raw gas requirements development

drilling was continued successfully for both fields.

OMV is, also actively expanding its exploration operations. In 2005, the exploration

group has acquired extensive seismic data, including a mega-3D seismic survey

covering more than 1000 sq.Km area in and around our Gambat and Latif blocks.

Besides these activities carried out in OMV Pakistans core area, OMV is pursuing

new projects in other parts of Pakistan.

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As a Multinational company, OMV is very conscious of its adherence to its outlined

policies, standards and most importantly, the local laws. Our Health, Safety and

Environmental standards are parallel to the highest international level and second to

none in the local perspective. OMV has strong commitment to reduce emissions to

the environment. To achieve the same an Emission Reduction project has been

initiated for Kadanwari Plant. For Sawan plant, preliminary study is being initiated.

4.2. Supply and demand

Oil & gas, one of the vibrant sectors, achieved very high level of growth in a few

years. Strategically located at the foot of Central Asia, Pakistan offers great

opportunity for them and has an estimated resource potential of 200 trillion cubic

feet of natural gas and over40 million barrels of oil. Pakistan's potential as a big

business opportunity is highlighted by the fact that over 25 oil companies, of which

21 are multinational, are presently exploiting reserves in the country.

The Government of Pakistan has issued over 100 licences for exploration of around

28,000 square kilometres. However, to date Pakistan has only discovered 15% of its

total oil reserves and in turn has become major importer of oil and petroleum

products.

The latest Pakistan Oil & Gas Report from BMI forecasts that the country will

account for 1.51% of Asia Pacific regional oil demand by 2014, while providing

0.77% of its supply. Regional oil use of 21.42mn barrels per day (b/d) in 2001 is set

to reach a forecast 30.21mn b/d by 2014. Regional oil production was around

8.35mn b/d in 2001 and is forecast to average slightly to 8.89mn b/d by 2014. Oil

imports are growing rapidly, because demand growth is outstripping the pace of

supply expansion. In 2001 the region was importing an average of 13.07mn b/d. Thisis forecast to reach 21.32mn b/d by 2014. The principal importers will be China,

Japan, India and South Korea. By 2014 the only net exporter will be Malaysia. In

terms of natural gas, production should reach 522bcm in 2014, which implies net

imports rising from around 81bcm to 104bcm. This is thanks to many Asian gas

producers being major exporters. Pakistans share of gas consumption in 2010 is

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7.66%, while its share of production is put at 9.16%. By 2014, its share of gas

consumption is forecast to be 6.95%, with the country accounting for 8.05% of

supply.

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Chapter No 5: Business Strategies and Implementation

5.1. Corporate Vision

To be a leading, regional Pakistani E & P Company, recognized for its people,

partnerships and performance

5.2. Corporate 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

5.3. Corporate core values

Merit

Integrity

Team Work

Safety

Dedication

Innovation

5.4. Corporate Goals

5.4.1. Financial

Build strategic reserves for future growth/expansion

Growth and superior returns to all stakeholders

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

Make investment decisions by ranking projects on the basis of best economic

indicators

Maximize profits by investing surplus funds in profitable avenues

Reduce cost and time overruns to improve performance results.

5.4.2. Customer

Continuously improve quality of service and responsiveness to maintain a

satisfied customer base

Improve reliability and efficiency of supply to the customer

Be a responsible corporate citizen

5.4.3. Learning and Growth

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.

Emphasize organizational learning and research through effective use of

knowledge management systems.

Fill the competency gap within the organization by attracting and retaining

best professionals.

Attain full autonomy in financial and decision making matters.

5.4.4. Internal processing goals

Evolve consensus through consultative process inter-linking activities of all

departments

Excel in exploration, development and commercialization

Be transparent in all business transactions

Synergize through effective business practices and teamwork

Have well-defined SOPs with specific ownerships and accountabilities

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Improve internal business decision making and strategic planning through

state-of-the-art MIS

Improve internal controls

Periodic business process reengineering.

5.5. Business strategy

As the leading exploration and Production Company in Pakistan, OGDCLs primary

objective is to enhance its reserves and production profile and ultimately maximize

value for shareholders. In order to achieve this goal, the Company seeks to execute

the following strategies.

Figure: Business and Functional Strategies

Accelerate Production Growth: by continuing to accelerate production growth

through utilizing cutting edge technologies, allowing the Company to utilize its

significant reserves base and capitalize on the strong economic growth and

accelerating energy demand in Pakistan.

Exploit Exploration Opportunities: by building the Companys future reserves

portfolio through its large onshore exploration acreage. During the fiscal year 2008-

09 target of drilling is 52 wells.

Maintain Low Cost Operations: OGDCLs operating environment, namely the

geographic concentration of its reserves base within Pakistan, will be a major factor

in allowing it to control its low cost structure. Within Pakistan, the Companys

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leading position also enables it to access economies of scale across its significant

reserves base and operations.

Pursue Selective International Expansion: while domestic expansion remains

OGDCLs core focus, the Company intends to grow and diversify its portfolio

through selective international expansion in the medium to long-term.

5.6. Functional Strategies

5.6.1. Marketing Strategy

OGDCL use market development strategy in order to capture the larger share of its

existing market for current products through market saturation and penetration.Keeping in view the competition it also some times goes for product development

where new products are developed for the existing market. The distribution

strategy of OGDCL is focused to specific distributors which are on there panels for

different schemes. Basic objective of OGDCL is development and profit making.

5.6.2. Human Resource Strategy

Currently OGDCL has low skilled employees who receive low pay, perform

repetitive jobs and follow a hierarchal structure for promotion. Work team are

lacking however the diversity in terms of geographic and age is present which is also

need of its operations. Currently the contingent workforce trend is increasing in

OGDCL. Young and fresh professionals are being hired in order to help organization

revamp its strategic path effectively. It has its own training and development

institution under the label of Oil and Gas Training Institute (OGTI), located in

Islamabad. The employees in OGDCL were not very much computer literate but as

information systems were planned to be installed, therefore the training of the

employees became necessary. OGDCL has its separate HR division which include

different department for compliance of HR strategies in organization.

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5.6.3.Information Technology FunctionWith the passage of time the Management Information System (MIS) became an

integral part of the organizations therefore OGDCL also has to incorporate an

appropriate information system to improve its efficiency. All OGDCL offices have

been centrally connected to the head office data center located in Islamabad. The

early warning system of the dynamic MIS provides number of reports to the

authorized users of head office.

5.6.4.Research and Development StrategyOGDCL has a research and planning division under which operates research and

planning department. Besides that Exploration study and Research department of

OGDCL also operates under task force Exploration and Production division thatfacilitates the new technological advancement in Oil and Gas sector to be practically

incorporated in field. On the other hand it undertakes research on subjects that

facilitates/promotes business and economic planning. This department also keeps

track of developments in global as well as domestic public policy relevant to

OGDCLs business environment including the practices and role of competitors and

the necessary dissemination of this information within OGDCL and the

external/agencies.

5.6.5. Financial StrategyOil and Gas Company limited (OGDCL) is a specialized exploration and production of oil

and gas areas of the country. At the first the OGDCL was fully funded by the

Government of Pakistan. Later on 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 (A green shoe option can provide additional price stability to a

security issue because the underwriter has the ability to increase supply and smooth

out price fluctuations if demand surges) up to 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 Pakistans capital

markets. Now, the OGDCL being Public Company follow same trend of generating

funds through issuing of shares in the public. So OGDCL not only generate enough

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internal funds to meet its debt obligations but also invested enough resources in

exploration and development to increase the country's reserves and production.

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Chapter No 6: Financial analysis

6.1. Credit Rating

OGDCL has shown sustainable growth in business volume over the years. The

strong financial profile of the company can be established from the fact that despite

significant capital expenditure requirement in the E&P sector, there has been no

gearing on books. JCR-VIS Credit Rating Company Limited (JCR-VIS) has

reaffirmed the entity ratings of Oil and Gas Development Company Limited

(OGDCL) at AAA/A-1+ (Triple A/A One Plus). Outlook on the medium to long-

term rating is Stable.

6.2. Business Risks and Challenges

Being an exploration and production company, OGDCL is exposed to operational

and non operational risks associated with E&P business which may unfavourably

affect its operations and financial performance. The Management and the Board of

Directors are well aware of their responsibilities in this regard and ensue that an

appropriate system exists in the Company for the identification and management of

the business risks. Internal Audit function also exists in the Company serving as an

effective appraisal of internal controls which are meant to have methods and

measures in place to safe guard the assets, monitoring compliance with the best

practices of Corporate Governance, check the accuracy and reliability of its

accounting data, promote operational efficiency, and encourage adherence to

prescribed managerial policies.

Audit Committee of the Board in accordance with its terms of reference also

ascertain that the internal control system including financial & operational controls

and accounting system are adequate, effective and comply with applicable laws and

regulations and professional best practices.

The Management of the Company also understands its role and responsibilities as

leading national E&P Company with largest oil and gas reserves, strong production

base and largest exploration acreage spread over all four provinces and off-shore.

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Management is committed to cope with the given challenges within its ambit of

controls with its strong core of trained and experienced professionals, sound

equipment base and sound financial position.

Key operational and non-operational risks which can influence the operations of the

Company are as follows:

6.2.1. Crude Oil Price

Crude oil pricing in Pakistan is based on a basket of Arabian crude adjusted for yield

differential and freight adjustment. Change in international oil prices is largely

uncontrollable and OGDCL is vulnerable to increase/decrease in such prices.

Decline in prices of crude oil have a negative impact on the Companys earning

performance. However, the gas sales which amount around 50% of Companys

revenue are less prone to this risk. In addition, gas prices of certain fields are capped

at fixed crude oil / HSFO prices and are affected only in case the international crude

oil price falls below the capped price.

6.2.2. Exchange Rate Risk

Rs/US$ parity decline has a positive impact on OGDCLs earnings as crude revenue

is tied to US$ based pricing mechanism based on international crude prices with

suitable yield differential and number of gas fields have wellhead pricing in US$

terms. Rs/US$ parity decline has a negative impact on the Companys earnings since

most of the material including drilling material, plant & equipment used in oil and

gas industry are imported to meet operational requirements.

6.2.3. Exploration and Drilling Risks

The different sedimentary basins in Pakistan represent very complex tectonics anddeformation styles. The in-depth knowledge of petroleum systems present in these

basins is imperative. The selection of potential exploration blocks, acquisition of

geological and geophysical data, delineation of drillable prospects and their drilling

are all important aspects in hydrocarbon exploration. To maintain a good success

ratio is also a vital element which can only be achieved with efficient professional

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teams and systematic working. As easy-to-drill structures are vanishing, the drilling

operations are also facing many challenges such as deep wells, lateral wells and

drilling in complex geological settings.

Exploration risks include selection of incorrect exploration acreage, inaccuracies in

acquisition, processing, interpretation of seismic data and selection of exploratory

well site. The Company is also exposed to variety of hazards during the drilling

process including well blow out, fishing, fire and other safety hazards. There is

always a risk of success / failure in drilling exploratory wells. Risk of un-successful

drilling has an adverse affect on Companys earnings and growth. Though this risk is

reduced in case of development fields, expertise in reservoir engineering is in place

to manage pertinent risks. The Management is well aware of these risks and is taking

into consideration these facts while planning and executing the exploration and

drilling targets. The Company is also utilizing experienced professionals and latest

technologies in selection of acreage, acquisition and processing of seismic data etc.

6.2.4. Legislation

OGDCLs revenues are subject to change in Petroleum Policies, which are usually

promulgated after every five years. These generally offer incentives to local &

foreign E&P companies to increase exploration efforts. Petroleum Policy in effect at

the time of a particular discovery determines the underlying revenues from such

field. Changes in legislation, taxation, regulations, royalty and pricing mechanism

may affect the Companys operational and financial performance.

6.2.5. Environmental Risks

OGDCL is vulnerable to environmental changes including earth quakes, heavy rains,

floods etc. that may materially impact production at various fields resulting into

adverse impact on company revenues and profitability. These risks are addressed by

the Management while making the investment decisions, planning and executing

Companys exploration and development plans. As the Company is committed to

adhere to the best Health, Safety and Environment (HSE) practices, the compliance

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to changes in environmental regulations relating to HSE could result into higher cost

to the Company.

6.3. ProfitabilityOver the years, the OGDCLs main source of funding has been funds generated by

itself through its production of oil and gas products. If we put glance over the

profitability of the OGDCL from its financial statements then we will come to know

that the Company possesses strong profitability position. It follows the trend of

increasing profitability since last financial years as in FY 2008 the profitability was

Rs 44.34, in FY 2009 it was Rs 55.54 and FY 2010 it is Rs 59.18. So seems there is

increase in the profitability position of the company rather then decrease.

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Chapter No: 7 Industry analysis

7.1. Pakistan Oil and Gas Industry

Pakistans produces about 60,000 barrels of oil per day which only meets

approximately one sixth of the countrys current oil requirement. The balance

amount is imported at a staggering cost of US$2.5 Billion. In view of the

increasing demand and the current decline in production this cost is going to

increase substantially over the next couple of years.

The demand for natural gas is exceeding supply due to increased usage in the

domestic, industrial and power generation sectors. Apart from this, Pakistan does

not have the necessary infrastructure to cope with the increasing volumes of

imported oil and requires substantial investment to support this infrastructure. The

Privatisation of the units in the oil and gas sector will not only increase the

operational efficiency of these units but also contribute towards new injection of

investment.

Pakistan oil and gas industry is going through a process of transition as it is

experiencing a new wave of privatization. The Government of Pakistan has

announced its intention of privatizing 37% 0f its 75% stake in Qadirpur gas field and

also transferring management responsibility to private companies. Aware of rich oil

and gas reserves, oil and gas industry of Pakistan is putting in steady efferts to make

best utilization of resources and build a strong production base.

Petroleum policy of oil and gas industry in Pakistan is designed with a focus on

promoting private sector investment in oil and gas sector. Instance of gas and

condensate discovery in oil and gas development limited company (OGDCL) in

Exploratory Pakhro WELL No. 01 is a major achievement of this sector. Austrias

OMV is credited with discovery of Taijal 1 exploratory well. OMV has also pointed

out medium term growth potential in Pakistans reserves.

Reports of oil and gas industry of Pakistan revels this Countrys current average

daily oil and production is about 3800 net barrels and natural gas of 73 net million31

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cubic feet. Despite such a huge potential, petroleum ministry of Pakistan reported

high trade deficit due to major gap between import and export value. Pakistan

government aims at formulating policies to reduce import dependence and promote

self reliance by triggering exploitation.

7.2. Policy

The Petroleum Policy of 1994 assisted in the development of the upstream sector.

The Policy, however, could not arouse sufficient interest to attract interest in the

downstream sectors, off shore areas and the Baluchistan Basin.

The 1997 Petroleum Policy is based on a review of the 1994 Policy and offers

major incentives in the upstream and downstream petroleum sector, including a

package based on production sharing arrangements for offshore areas. The Policy

focuses on mobilization of greater resources and promotion of private sector

investment in the oil and gas sector.

Efforts are being made to exploit the existing energy resources to build a strong

indigenous exploration and production base. These efforts are directed at achieving

cost effectiveness, reduction in import dependence, promotion of self-reliance

through accelerated exploitation of energy resources and minimum environmental

degradation.

In addition, a number of far-reaching measures have been taken which include

attracting private foreign investment, creating a qualitatively improved

infrastructure in oil and gas industry, development of an efficient and transparent

management, deregulation of downstream petroleum marketing sector and

rationalization of prices and LPG allocation.

A new package for offshore exploration has been prepared for attracting exploration

investment in off-shore areas which has so far remained relatively limited. A

separate Holding Company, Gas Regulatory Authority and Petroleum Regulatory

Board are planned to be established for privatization. The privatization of SNGPL

and SSGCL is under process. The import of LPG has been liberalized to promote

investment in import of LPG, storage and infrastructure on the basis of commercial

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opportunities and risk. This would facilitate those areas of the country, which are not

yet connected with pipeline network.

7.2. SWOT Analysis

Strengths:

OGDCl is the largest Oil and Gas Exploration and Production Company of

the Pakistan.

It possesses dynamic and strong financial position due to waste experience in

the field.

It possesses large number of fields of oil and gas along with quality process

and procedures.

It has long experienced and technical staff involving number of geologist.

Weaknesses:

In OGDCL Lack of marketing expertise

It possesses government influence in the functions such as hiring or firing of

management.

There is slow promotion of employees which decreases performance

In the OGDCL there is lack of check and balance

Opportunities:

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OGDCL can generate huge amount of funds being Blue Chip Company and

having huge investment potential by attracting number of national and

international potential investors.

It can increase its sales and production by increasing and explorating number

of oil and gas fields in the potential regions of the Pakistan.

Threats:

OGDCL is vulnerable to environmental changes including earth quakes,

heavy rains, floods etc. that may materially impact production at various

fields resulting into adverse impact on company revenues and profitability.

Petroleum Policy in effect at the time of a particular discovery determines the

underlying revenues from such field. Changes in legislation, taxation,

regulations, royalty and pricing mechanism may affect the Companys

operational and financial performance.

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Chapter No: 8 Future out look, Recommendation and Conclusion

8.1. Operational future outlooks

OGDCL has a strong vision and passion to contribute to the E & P sector to help

enhance energy security of Pakistan. With a formidable presence in the length and

breadth of the country, OGDCL must look beyond geographical boundaries for E &

P opportunity. It should also plan to actively pursue overseas joint ventures with

companies in Algeria, China, Egypt, Libya, Mauritania, Mali, Mozambique, Oman,

Turkey and Yemen. With technical prowess in on-shore exploration and production

it must change focus to a more challenging area i.e. offshore exploration.

OGDCL needs to enhance its reserves and to focus on, and strengthen core business

(E & P) functions by incorporating international best practices and innovative

thinking in Company culture.

The Company must plan to optimize its concessions portfolio to support aggressive

exploration activities, which in turn will ensure continuous reserves additions.

OGDCL must also look at seamless development of new discoveries in shortest

possible time which will add substantially to the production base to the Company.

Efforts should be continuing towards formulation of joint ventures with leading E &

P companies both within the country and abroad.

Review and improvement of internal policies and processes should be also on the

agenda in addition to further enhancing corporate goodwill through focused CSR

activities for the benefit of the communities that OGDCL interacts with.

8.2. Future financial out look

Following the good governance policy of the government, the Board of Directors

and the management has been entrusted the full autonomy to achieve corporate

objectives of the company. Keeping in mind the given objectives, OGDCL is also

trying hard to recover its circular debt of billions of rupees so that these can be

invested in further exploration and production purpose. The main source of funds

available to OGDCL is retain earning and through the investors investrnent.

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is stable and effectively managed. The strong financial position represents sound

management policies by the Companys management.

As OGDCL is explorating new fields in the different parts of the country, the same

would result in higher cash flows and returns. The financial forecasting for the next

five years is shown in the below chart.

Horizontal Analysis 2006-2007 2007-2008 2008-2009 2009-2010 Average

Current Assets 0.53 0.52 0.49 0.53 0.52

Non Current Assets 0.47 0.48 0.51 0.47 0.48

Current Liabilities 0.09 0.14 0.12 0.15 0.12

Non Current Liabilities 0.14 0.13 0.17 0.16 0.15

Share Equity 0.78 0.73 0.71 0.69 0.73

Total Assets 1.00 1.00 1.00 1.00 1.00

Sales 1.00 1.00 1.00 1.00 1.00

Gross Profit 0.70 0.70 0.70 0.71 0.70

Net Profit 0.46 0.40 0.42 0.42 0.42

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Statements Historic Financial Statements2006-2007 2007-2008 2008-2009 2009-201

Current Assets 68,518,758,000 78,254,089,000 86,834,540,000 120,433,80

Non Current Assets 60,819,414,000 72,314,298,000 91,157,856,000 108,433,85

Current Liabilities 11,122,665,000 21,231,354,000 21,287,498,000 34,840,84

Non Current Liabilities 17,598,855,000 19,965,608,000 30,533,500,000 36,634,32

Share Equity 100,616,652,000 109,371,425,000 126,171,396,000 157,392,48Total Assets 129,338,172,000 150,568,387,000 177,992,396,000 228,867,65

Growth in Assets 0.164145006 0.182136566 0.2858

Sales 100,261,191,000 125,445,674,000 130,829,579,000 142,511,86

Growth in Sales 0.251188748 0.04291822 0.08929

Gross Profit 69,798,429,000 87,828,201,000 91,477,530,000 100,622,93

Net Profit 45,629,964,000 49,613,593,000 55,539,641,000 59,177,12

No. of Shares 4,300,928,400 4,300,928,400 4,300,928,400 4,300,92

Average Assets Growth 21.07%Sales Growth 12.78%

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Table of Next five years forecast

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8.4. Operational future out look

8.4.1. Human Resource Planning

OGDCL with human strength of over 10,000 employees is involved in translating its

strength into tangible results. The workforce is spread all across the Country and

playing crucial role to achieve its targets. HR function is committed to implement a

corporate human resource strategy which supports the Companys Business Plan by

effectively and efficiently serving the needs and interests of the Companys line

departments in a transparent, fair and consistent manner through the development

and implementation of appropriate policies, procedures and programmes. The

ultimate objective is to have the right people in the right place, at the right time with

the right pay and the working environment to enhance creativity and productivity in

the workplace. As to meet the goals and objectives of OGDCL in next five years,

effective training and development programs are planed. These programmes

included courses on technical subjects, Health, Safety & Environment, Information

Technology and Petroleum Management. The objective of continuous training and

development of these professionals is achieved through Oil and Gas Training

Institute (OGTI). OGTI works closely with various departments of OGDCL and

other E & P companies to help meet their training requirements.

Induction of the young graduates for running the business operations of the company

is in an important phase of modernization. This will provide sustainable and more

vigilant human man power and is a milestone for achieving objectives of the

company. The establishment of an effective appraisal and employee evaluation

system is also a major milestone yet to be achieved in the next five years

8.4.2. Business Development and Marketing Strategy

In the next five years the OGDCL is planning to increase the number of oil and gas

fields in other parts of the country and also establishing value for the investors. As

result substantial growth in the oil and gas demand is estimated this would contribute

to a major portion in the GDP of the country.

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As the OGDCL is considered pioneer in the exploration and production of oil and

gas in the country, it has also planned to increase the use of technology in the

exploration and production of products.

8.4. Operational and management targets

OGDCL has to improve its recovery system in order to meet the future fund

requirements. As the major business operation of the OGDCL is exploration

and production so its smooth operations depend on timely recovery.

As OGDCL is also political influenced. To reduce the circular debts OGDCL

has to close the chapter of the political influence.

OGDCL should take steps in order to motivate the workers for using thelatest technology in order to increase the oil and gas production and

exploration. There should be a proper program for this purpose keeping the

less skilled workers.

The fields, regions and the head office must connect with each other through

effective and efficient computer system.

Working system at OGDCL is still manual more over the record and book

keeping is still in registers. Although it is shifting to centralized data base

system but this process must be catalyst.

8.5. Conclusion

OGDCL is blue chip Company being largest oil and gas Production and Exploration

Company of the country. To enhance the operations and capturing market it has

reformulated its strategic path and redefined its mission and vision. Following the

Financial and HR functional strategy it can over come its problems. It also need a

cultural and structural change which cant be bring about in one day but is possible

gradually and slowly. It has very attractive opportunities as its name is very well

established in field being the blue chip. It can increase its market share as there is

unmet demand of oil and gas present but this can be only possible if its strategies are

successfully implemented.

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