What’s next for the E&P sector?

With only the last quarter to go, nine-month performance of the oil and gas upstream sector should be sufficient to sit in judgment upon the sector’s overall performance for FY13.
Despite a bag of mixed performance by the leading exploration and production companies, two features appear to stand out during the nine months period ending March 2013.
First, even amidst bearish crude oil prices, sturdy oil production during 9MFY13 remained a contributing factor to the overall revenues of leading E&P companies. The robustness in oil flows during 9MFY13 was apparent particularly in Oil and Gas Development Company (OGDC) and Pakistan Petroleum Limited (PPL), while Pakistan Oilfields Limited stumbled during the third quarter of FY13.
Secondly, lower-than-expected gas production tarnished the sector’s charm. With natural gas becoming rare, a decline in gas production by the leading upstream oil and gas companies makes it more than just a tad uncomfortable.
Interestingly, this bird’s eye view of the sector has some positive extensions for the last quarter, as well as for the year to come. These can be rightly called the volumetric additions through the recent uptick in development activities and the resultant increase in exploration costs.
The most promising ones that have been advocated recurrently in some of the recent BR Research articles are the Kunnar Pasahki Deep-Tando Allah Yar, Sinjhoro, Uch-II, Nashpa, Mela, Makori Latif and Tal block additions.
With E&P sector’s profitability formula to circle around higher crude oil production and high rupee depreciation versus the dollar, the caveat for the upstream sector will continue to remain the combination of dwindling gas production flows and bearish crude oil prices.

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E&P performance 9MFY13

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                              OGDC        PPL        POL

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Growth YoY:

Sales                        19.0%       7.9%      -2.7%

Net profit                    9.3%       3.9%      -7.6%

Oil Production                6.7%      14.2%      -4.6%

Gas Production                3.8%      -9.8%     -16.1%

Net margin                   44.8%      43.4%      40.3%

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Leading E&P sector (OGDC, PPL, POL)

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                            9MFY13     9MFY12        YoY

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Sales - Rs (mn)           269,286    237,213       13.5%

Net Profit- Rs (mn)       117,825    110,844        6.3%

Oil production (000 bbl)    14,674     13,736       6.8%

Gas production (mmcf)      549,128    566,626      -3.1%

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Source: Company accounts