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–Lower prices and rising costs squeeze margins in 9MFY26
Aftab Maken
ISLAMABAD: The Oil and Gas Development Company (OGDC) reported an 11% decline in profitability for the nine months ended March 31, 2026, as production curtailments, falling realized prices, and rising costs weighed heavily on earnings.
The company posted a consolidated profit after tax of Rs115.26bn, down from Rs129.61bn in the same period last year, reflecting a drop of Rs14.35bn. Earnings per share also declined to Rs26.80 from Rs30.13, signaling weakening returns for investors despite continued high dividend payouts.
Revenue pressures were evident as net sales fell to Rs300.13bn from Rs310.91bn a year earlier. Gross profit dropped sharply to Rs166.33bn from Rs187.33bn, driven by escalating operating expenses and sustained royalty payments. Operating costs rose to Rs96.74bn, up more than Rs11bn year-on-year, highlighting inflationary pressures and operational inefficiencies within the energy sector.
The decline in profitability was further exacerbated by a significant contraction in finance and other income, which fell to Rs38.50bn during the nine-month period from Rs64.69bn previously. This reduction removed a key support to the bottom line, intensifying the impact of declining core earnings.
Exploration and prospecting expenditure also increased to Rs17.90bn from Rs14.67bn, while administrative expenses continued to climb. These rising costs came at a time when the company faced structural challenges in maintaining production levels.
Average daily production data reflected operational constraints. Oil output showed only marginal growth to 32,022 barrels per day, while gas production declined to 648 million cubic feet per day from 676 mmcfd. Liquefied petroleum gas output remained limited at 653 tonnes per day. Officials attributed the decline primarily to enforced production curtailments, which reduced daily output by approximately 3,482 barrels of oil and 141 mmcfd of gas.
Industry sources linked these curtailments to systemic issues, including lower offtake by the power sector, surplus gas supply in certain fields, and broader circular debt challenges. According to Pakistan Petroleum Exploration and Production Companies Association, unresolved payment delays and demand imbalances continue to disrupt upstream operations across the sector.
Lower realized prices for crude oil and LPG also impacted earnings, offsetting gains from relatively improved gas pricing and exchange rate movements. Analysts noted that volatile global energy markets, combined with domestic pricing constraints, have compressed margins for exploration and production companies.
Despite declining earnings, Oil and Gas Development Company Limited maintained aggressive dividend distributions, announcing a third interim payout of Rs3.25 per share and taking total nine-month dividends to Rs11 per share. Total cash distributions reached Rs54.84bn, raising concerns about sustainability amid weakening profitability and high capital expenditure requirements.
The company’s balance sheet continues to reflect heavy investment in development assets, alongside rising decommissioning liabilities of over Rs66bn and ongoing deferred tax obligations. Capital expenditure remained elevated at Rs81.20bn, further tightening liquidity despite improved operating cash flows.
Analysts said the results underscore deeper structural weaknesses rather than short-term operational issues. Persistent production curtailments, driven by policy and demand-side constraints, have led to underutilization of domestic energy resources, increasing reliance on imports and adding pressure on the national exchequer.
Sector experts also warned that continued high payouts in the face of declining profits could limit future investment in exploration activities, potentially affecting long-term reserves replacement.
The performance of Oil and Gas Development Company Limited reflects broader challenges facing Pakistan’s energy sector, where circular debt, pricing distortions, and weak demand from key consumers continue to hinder growth, even as the government pushes reforms under ongoing International Monetary Fund commitments aimed at improving energy sector sustainability.
