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The first half of FY14 was largely driven by strong production flows for the exploration and production (E&P) companies, mainly through oil production. Pakistan Petroleum Limiteds (KSE: PPL) oil production also jumped up by around 30 percent year on year in 1H FY14. With the announcement of its 3Q FY14 financial result, it is certain that FY14 will likely be the year for higher oil production.
Overall, the E&P giants revenues during 9M FY14 increased by 15 percent year on year, particularly due to robust oil production from its non-operated blocks like Tal and Nashpa. According to a research note by Optimus Capital Management, this increase in oil flows from the two non-operated blocks corresponds to 37 percent growth year on year.
On the gas side, production remained lackluster, as gas production from the aging fields like Sui, Sawan and Manzalai continued to decline.
The growth in the bottom line from the revenue side was cut short by an increase in field expenditure. High exploration cost in shape of dry wells, predominantly during 3Q FY14, also knocked down the earnings.
PPLs earnings were further dented by a decline in other income. Though the earnings from PIB investments have remained sturdy, exchange losses shrank the other income.
If looked at quarter-on-quarter performance, rupee appreciation is one major factor that affected the earnings during 3Q FY14 versus 2Q FY14. Previously, stable oil prices and accelerated rupee deprecation had been supporting the firms earnings. E&P companies have dollar-denominated revenues, and improvement in rupees value recently was expected to negatively affect the E&P sectors profits.
However, the exploration activity of PPL remains upbeat. The firm recently discovered a gas field in Naushahro Firoz Block. Also, PPL has a drilling target of five wells for FY14 vis-à-vis only four exploratory wells in the previous three years. And with development activities in the famous Tal and Nashpa block on the rise, oil production flows also seem optimistic.


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Pakistan Petroleum Limited
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Rs (mn) 9MFY14 9MFY13 YoY 3QFY14 3QFY13 YoY
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Net sales 88,867 77,177 15% 30,391 26,504 15%
Field expenditure 23,327 21,246 10% 9,769 7,629 28%
Royalties 10,665 9,232 16% 3,634 3,185 14%
Other operating income 4,798 5,491 -13% 1,110 1,591 -30%
Other operating expenses 2,968 2,617 13% 900 855 5%
Profit after tax 38,088 33,551 14% 11,582 11,208 3%
EPS 19.32 17.00 14% 5.87 5.68 3%
Net margins 42.9% 43.5% 38.1% 42.3%
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Source: KSE Notice

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