PPL profits dwindle on lower wellhead prices

PPLs quarterly result announcement on Monday completed what could be termed as a dismal quarter for the listed energy exploration and production companies in Pakistan. The oil and gas producers bottom-line thinned by 36 percent as production woes coupled with lower realized prices on oil and gas trimmed its topline amid drying non-core earnings.
Although, the firms oil production remained flat at 4000 bbl/day, its gas production fell by 5 percent to 838 mmcfd owing to the decline of 2 and 3 percent from the firms high contributing fields Sui and Kandhkot respectively. PPLs combined gas and oil output fell by 5 percent to 154,000 boe during the quarter.
Gas revenues, which account for roughly 85 percent of the top line, took the heavy toll of reduced average gas wellhead prices that declined by 26 percent at roughly round $1.56/mcf. But the depreciating rupee against the dollar served well for the company, as it mitigated the impact of wellhead gas price reduction to 17 percent.
Oil revenues, on the other hand took a massive battering of 40 percent as average selling price of oil dropped by 52 percent, partially offset by 12 percent rupee depreciation which reduced the impact to 39 percent. With other income more than halved during the period, the firms bottom line took another blow as lower interest rate year-on-year and exchange losses eroded the return on cash and other financial assets. Although, the balance sheet numbers haven been released as yet, it is safe to assume that average cash balance reduced considerably during the quarter looking at the meager contribution of other income..
Going forward, oil prices during 2009 would be more relevant to this years financial performance as PPLs earnings are dictated by wellhead gas prices with a six months lag. The recently announced reduction in wellhead gas prices pose a challenge to PPLs revenue in the near term, therefore resurgence in volumetric sales becomes more significant from here on.
The company is confident of increasing contribution by 250 mmcfd from Manzalai, which could absorb much of the impact of sharp decline in wellhead prices. Moreover, since oil prices are expected to improve or at least remain stable - the downside risk looks minimal in the medium term. And although, rupee slide has somewhat slowed but there are no indications of the currency strengthening against the USD in the near term - a win-win situation for the firm.

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PPL P&L

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RS (MN)                  1QFY10   1QFY09   % CHG

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Sales                    12,188   15,805    -23%

Royalty                   1,456    1,927    -24%

Operating expenses        3,299    2,385     38%

Gross profits             7,432   11,494    -35%

Gross margins               61%      73%    -16%

Other income                570    1,226    -54%

Other operating expense     550      851    -35%

PAT                       4,975    7,766    -36%

EPS (Rs)                   5.00     7.80    -36%

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