Introducation

About the Company

 Established in 1961.

 National oil and gas

company of Pakistan.

 Listed on all three stock

exchanges as well as
London Stock Exchange.
RISKS RELATING TO
BUSINESS
 Risk # 1
 Prices for crude oil, gas and petroleum products could decline
substantially and extended decline would have adverse effect
on the business – financial conditions and operations.
 Oil Prices
 Prices are benchmarked internationally and volatility in
international oil prices affect the businesses.
 Prices have fluctuated because of global and regional supply
and demand, uncertainty, prices and availability of
alternative fuels, global economic conditions, access to
pipelines, natural disasters etc.
 Risk # 1
 Gas Prices
 OGDCL’s gas prices are based on international Middle
East crude oil prices subject to a floor of US$10 per barrel
and a ceiling od US$36 per barrel.
 Thus, gas prices are subject to limited exposure to
fluctuation in international gas prices.
 But a significant decrease in international prices could have
an adverse affect.
Mitigation for Risk # 1

 Reduce the time taken for negotiations between the

company and the government of Pakistan to discuss the
petroleum policies. This will speed up the payment
procedure and prevent prices rising unexpectedly during
that time.
 To reduce the impact of fluctuations, OGDCL should
engage in hedging transactions and derivatives trading.
 Risk # 2
 Crude oil and gas reserves data are only estimates and the
actual deposits may differ from these.
 The estimates made by the company and the consultants
is a subjective process and cannot be measured in the
exact manner as they are based upon:
 Historical production
 Assumptions on future oil and gas prices
 Assumptions of future operating costs
 Interpretation of geological and geophysical data
 Risk # 2
 The following may differ from the actual reserves:
 Quantities and qualities that are ultimately recovered.
 Actual Production and operating costs incurred.
 Prevailing crude oil and natural gas prices for OGDCL.
 Production performances of the reservoirs in which
company holds interests.
 Mitigation for Risk # 2
 Try and improve some efficiency in petroleum
engineering to help reduce the gap between the actual
and estimated results.

 Do substantial upward and downward revisions to the

company’s estimates. But do them as needed as
sometimes downward revisions can adversely affect the
company’s situation.
 Risk # 3
 Failure to implement key elements of company’s strategy

 OGDCL’s drilling rate is the highest in the industry in Pakistan.

 Finding and development costs from a third party
benchmarking show the lowest rate compared to peer
companies.
 Business Strategies of OGDCL:
 To have sustained production growth coupled with an industry
leading cost position.
 Expansion of offshore business activities
 Expand into selective international activities.
 Mitigation for Risk # 3
 When offshoring and entering into international joint
ventures, depending on partners might be needed for
technical expertise. The company needs to ensure that
trust is built amongst both the parties to successfully
execute business plans.

 OGDCL should have ability to secure access to rigs at

cost effective price to meet drilling targets.
 Risk # 4
 Possibility of Terrorist attack like past
 Three of its fields are located in Balochistan, accounts for
approximately 31% of its total gas production.

 Conflict between government and local tribes.

 Mitigation of Risk # 4
 Choosing locations in areas with less law and order
issues

 Trying to create good relations with local tribes and their

spokespersons to mitigate the risk of becoming target in
conflict between GoP and local tribes

 Adopting proper insurance policies to mitigate the risk.

 Risk # 5
 Government can Influence the company and its interests may
conflict with ordinary share holders.
 The Government of Pakistan will beneficially owns 80%
of OGDCL’s paid-up share capital.
 Government of Pakistan has the ability to continue to
control the appointment of its Board of Directors and
management, as well as other policy decisions relating to
its operations.
 Mitigation of Risk # 5
 GoP will have two directors to represent them and six
out of eight Directors will be chosen having expertise in
Petroleum and related field

 Their appointment will be in accordance with the criteria

set forth in the Code of Corporate Governance in
Pakistan