POL reaping fruits from Manzalai

Nine month profits of Pakistan Oil Fields announced yesterday were better than expected. Yet, it failed to spur confidence amongst investors as the share price followed the overall mood of the market.
Presumably, the companys stock price has also incorporated much of the improved financial performance of the firm beforehand as it did in the last quarter.
POL said both its third quarter and nine month earnings rose notably year-on-year. But the matter of real significance is the firms ever improving performance on a sequential basis. The 20 percent quarter-on-quarter rise in profitability completed a hat-trick of successive improvements in bottom-line profits.
Earnings growth primarily stems from the commissioning of Manzalai Central Processing Facility in November that has now started yielding its full impact as oil and gas production from the field increased by 80 percent and 78 percent, respectively, during the nine months ending March.
Apart from Manzalai, other major fields continued to post disappointing production numbers; Manzalais phenomenal performance was neutralized a great deal by the decline in Pariwali and Makori fields.
This restricted POLs quarterly growth in oil production to just 1 percent. Gas production, however, remained strong - growing 34 percent on a quarterly basis.
The 7 percent depreciation in rupee against the greenback also played its part in augmenting POLs realized oil prices which rose by 10 percent over the period. The increase in gas wellhead prices, however, do not seem to have had a significant impact on the firms top line as more than two-third fields in the portfolio including Manzalai are capped.
The firms lacklustre engagement in seismic activities brought down its exploration cost twofold, providing a healthy support to its bottom line. Moreover, after expensing out the exploration cost of Makori West in 1HFY10, the firm did not declare any dry well during the period unlike the year ago period, which also helped it keep a check on the exploration costs.
All seems promising for POL in the near future, as its production woes seem to have found an answer in Manzalai. Other major blocks in Pindori and Makori fields have also started showing signs of recovery, which bodes well for the firm in a time when oil prices are on a slow but steady rise.
Bleak security situation has kept E&P companies at bay as reflected by the dull well spudding activity during the 9MFY10 period.
POL, however, has emerged victorious in such trying times as its production has increased in a time when industrys output has declined. Furthermore, the firm has four exploratory wells currently in the drilling process - all in areas of strong prospects, which could act as a catalyst to POLs production in the time to come.

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POL P&L

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Rs (mn)           9MFY10   9MFY09   % chg     3QFY10    3QFY09    % chg

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Sales             12,801   11,327     13%      5,210     2,674      95%

Cost of sales      5,062    4,197     21%      2,024     1,369      48%

Gross profit       7,739    7,130      9%      3,185     1,305     144%

Gross margins        60%       63%    -4%         61%      49%      25%

Other income       1,083    1,720    -37%        237       310     -24%

Exploration costs    870    2,005    -57%        291       257      13%

PAT                5,597    4,687     19%      2,278       822     177%

EPS (Rs)           23.66    19.82               9.63      3.47

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Source: KSE announcement