PPL gasping for gas

The continuous decline in Pakistan Petroleums (PPL) gas production is not pleasant sight. The countrys pioneer in natural gas sector has been facing dwindling gas flows since the beginning of FY13. With natural gas becoming rare, a decline in gas production by PPL that generally contributes around 24 percent to total gas production in the country is an omen for some serious future drilling activity.
The companys latest performance notice is livid with ageing gas fields and consequently, dissipating gas production. An extrapolation by BR Research of an estimate gas production of 924mmcfd during the latest quarter (3QFY13) by brokerage Optimus Capital Management shows that production of the hydrocarbon dropped by almost seven percent year on year during 9MFY13.
Decline in gas flow of the exploration and production company predominantly emerges from maturing fields like Sui, Miano and Sawan that roughly account for over 60 percent of PPLs total gas production. Also, gas sales from other large fields like Kandhot and Tal Block slipped during the ongoing year.
With restricted gas production containing the upside in gas revenues and oil prices remaining quite stable during 9MFY13, sheer gains in the firms top line came from robust oil flows. PPLs earnings remained considerably flat during the nine-month period, while they receded by eight percent, year on year, in third quarter of FY13.
The major source of concern for the oil and gas producer as of now is the falling gas production flows amid rising exploration expenses. In case things continue to proceed the way they are right now, the company might face a nine to ten percent year-on-year decline in gas flows in FY13.
On the bright side, PPL is likely to enter into an exciting drilling and development phase in the last quarter of FY13. Asir Zaffar of Optimus Capital Management names Tal Block, Makori, Nashpa and Latif as key triggers to production accretion during 4QFY13 and FY14.
Although it is just an initial phase and nothing can be said about the future production prospects, one thing thats clear from the firms recent acquisition of eleven exploration block is its enthusiasm to overcome the production plateau it is sitting on right now.

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Pakistan Petroleum Limited

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Rs (mn)                     9MFY13   9MFY12      YoY   3QFY13   3QFY12       YoY

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Net sales                   77,177   71,511     7.9%   26,504   26,255      0.9%

Field expenditure           21,397   18,347    16.6%    7,679    6,180     24.3%

Operating Profits           46,548   44,645     4.3%   15,640   16,943     -7.7%

Other operating expenses     2,617    3,426   -23.6%      855    1,282    -33.3%

PAT                         33,530   32,270     3.9%   11,213   12,156     -7.8%

EPS (Rs/share)               20.41    19.64     3.9%     6.82     7.40     -7.8%

Operating margin             60.3%    62.4%             59.0%    64.5%

Net margin                   43.4%    45.1%             42.3%    46.3%

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Source: Companys notice to KSE