In Focus: Oil and Gas Development Company; Fair value: Rs155

Investment strategy: “Buy” (17062008)
We estimate fair value of Rs155 for OGDC, while scrip is currently trading at discount of 24 percent from our estimated fair value and we maintain
our "Buy" stance at current levels.
Going forward, we are expecting that company would post substantial growth of 9 percent in bottom line earnings during FY08 to Rs49.9bn (EPS: Rs11.6) as compared to Rs45.6bn (EPS: Rs10.6) in corresponding period last year.
The expected substantial growth in bottom line earning of the company during FY08 is mainly due to enormous increase in international oil prices and increase in oil and gas production during the period.
International Oil Prices - During 11M08 average international oil prices (Arab Light) were increased by 51.5 percent to US$89.2/bbl against US$588/bbl in corresponding period last year. However, during current year Arab light had marked historic high level of US$126.6/bbl.
This massive upsurge in oil prices would be the key driver for bottom line earnings of the company during FY08.
Oil and Gas Production - During 10M08 company oil and gas production had increased by 7.5 percent and 5.6 percent respectively.
This substantial growth was mainly backed by increase in oil production from Kunnar, Bobi and Tando Alam fields, in addition start of oil production from Mela-1, Chanda-2, Pasakhi-1 and Chak-66 during the period. Further, Gas production of the company was primarily due to improved production from Dakhni, Uch, Bobi and Qudirpur fields and additional gas production starts from Mela field during the period.