Pakistan Petroleum Limited (PSX: PPL) is a key supplier of natural gas in the country. The company is engaged in conducting exploration, prospecting, development and production of oil and natural gas resources. The company's current exploration and production portfolio is spread across Pakistan with international presence in Iraq and Yemen. PPL also holds mineral rights in Balochistan through Bolan Mining Enterprise (BME), a 50:50 joint operations between PPL and Government of Balochistan.

PPL – Pattern of Shareholding (as at June 30, 2019)
Categories of ShareholdersPercentage held
Ordinary Shares
Associated companies, undertakings and related parties
  PPL Employees Empowerment Trust7.35%
  PPL Employees Retirement Benefit Funds0.06%
NIT and ICP0.09%
Banks, Development Financial Institutions, Non-Banking Financial Institutions1.35%
Insurance Companies1.75%
Modarabas and Mutual Funds3.67%
Shareholders holding 10% or more Government of Pakistan67.51%
General Public
  Resident4.23%
  Non-Resident0.01%
Others
Non-Resident Entities8.84%
Public Sector Companies and Corporations3.62%
Joint Stock Companies0.46%
Employee Trust / Foundations etc.1.06%
Total100.00%
Convertible Preference Shares
Individuals96.20%
Joint Stock Companies3.43%
Nazir of High Court0.37%
Total100.00%
Source: Company Accounts

Its history dates back to the establishment of a public limited company in 1950, with major shareholding by Burmah Oil Company (BOC) of the United Kingdom for exploration, prospecting, development and production of oil and natural gas resources. In 1997, BOC disinvested from the E&P sector worldwide and sold its equity in PPL to the Government of Pakistan. Later, the GoP reduced its holding through an IPO in 2004, which was further decreased with the initiation of the Benazir Employees Stock Option Scheme (BESOS) in 2009. Further divestment of another 5 percent shares in a secondary public offering occurred in 2014.





PPL has three fully-owned subsidiaries: PPL Europe E&P Limited (PPLE) which was previously called MND E&P Limited, PPL Asia E&P B.V. (PPLA) and Pakistan Petroleum Provident Fund Trust Company (Private) Limited (PPPFTC). The Group, except PPPFTC, is engaged in conducting exploration, prospecting, development and production of oil and natural gas resources.



At present, PPL's shareholding is divided between the government, which owns about 68 percent, PPL Employees Empowerment Trust that has a little over 7 percent and private investors, who hold nearly 25 percent. A breakup of categories of shareholders with respective share in both the ordinary shares and convertible preference shares is shown in the illustration.

Past performance

The oil and gas exploration and production has seen growth in profits over the years. PPL's margins have also been improving as it is a major oil and gas company working aggressively towards hydrocarbons drilling. However, over the years, decline in gas production has been faced by gas producing companies. Back in FY13, though the firm continued to see growth in profits, the gas production dwindled due to depleting gas reserves in the country; PPL's decline in gas production came from the firm's pioneering fields like Sui, Miano, Kandhot and Sawan as they continued to mature. The production however, was compensated by higher crude oil production and better gas prices.



In FY14, higher crude oil prices and crude oil production and discoveries lifted PPL's earnings. Earnings took a hit in FY15 however, due to lower oil prices, which continued in FY16 along with contraction in gas production volumes.



Recovery in oil prices in FY17 was welcomed by the E&P sector, where PPL announced a whopping increase in its earnings largely led by revenue growth, which was around 46 percent year-on-year, while the earnings grew more than twice on a year-on-year basis. Also in FY17, the firm received gas price adjustment of Rs31.12 billion for 25 months starting June 2015 to June 2017, which boosted the top-line along with improvement in natural gas output from its key fields, Sui and Kandhot. Its overall production exceeded the firm's long time average of 1 bcfd, registering a growth of around 8 percent year-on-year.  Lower finance costs also helped the earnings of FY17. Exploration costs also remained on the lower side in FY17 in spite of the firm's aggressive drilling activity. During FY17, PPL drilled 28 development wells, out of which 15 were drilled in areas operated exclusively by the company, while 13 wells were drilled in areas operated by the company's partners.

FY18 was another promising year for the upstream sector because of the upward trend in oil prices. Higher oil prices continued to complement PPL's financial performance in FY18. The company reaped benefits of investing in exploration and drilling during low oil price years as it earned the second highest profit in its history in FY18. During the year, PPL drilled 11 exploration wells in operated areas including 3 wells in frontier areas, whereas 7 exploration wells were drilled in partner-operated areas. The firm also made a discovery PPL-operated area. The company also drilled 15 development wells, which include 8 in operated areas and 7 development wells in partner-operated areas. The annual report highlights that the firm was able to arrest the decline in maturing fields through a year-on-year production increase from Gambat South, Adhi, Tal and Kirthar fields.

On the production side, PPL's gas and oil production marginally declined by 1.9 percent and 2.6 percent, respectively in FY18, whereas LPG production increased by 17.3 percent on a year-on-year basis. Despite a decline in volumes, higher oil prices and massive rupee depreciation resulted in 8 percent year-on-year increase in revenues for PPL for FY18.

Earnings for the company for the year increased by 28 percent, year-on-year, and the main reasons for higher profitability were increase in sales revenue and other income and decline in other charges and levies. This was partially offset by increase in operating expenditures.  The increase in other income came from exchange gain, receipt of signature bonus from UEPL against farm out of Kotri North block, and receipt of late payment surcharge from Asia Resources Oil Limited. On the other hand, the decline other charges were due to recording of impairment loss on investment in wholly owned subsidiary, PPL Asia E&P B.V (PPLA) in FY17.

In FY18, PPL continued to face the pressure from the circular debt. As per the Annual Report 2017-18, receivables increased from Rs99 billion as at June 30, 2017 to Rs143 billion as at June 30, 2018, which is making the liquidity, position of the company an immediate concern.

PPL in FY19

In FY19, significant currency depreciation lifted PPL's earnings. The company announced a 35 percent year-on-year increase in unconsolidated bottom-line for FY19. PKR lost more than 30 percent of its value since the start of the fiscal year and while currency depreciation has a potentially adverse impact on costs, it has a positive effect on the company's revenues as these are mostly linked with USD. PPL's top-line witnessed a growth of 30 percent year-on-year. Amid flattish growth in volumetric sales of oil and gas and some recovery in oil prices, the growth in revenues had largely to do with currency devaluation during the year.

In FY19, PPL's production has declined again marginally by around 1.7 percent year-on-year, whereas Condensate/NGL/Oil & LPG production increased by approximately 1.3 and 22 percent year-on-year, respectively. According to the annual report, the primary reason for decrease in gas production is the natural decline from mature fields; however this has been partially offset by increase in production from Gambat South and proactive production management. Increase in oil production from Adhi contributed to the overall growth in oil production, while the increase in LPG is attributed to the recently commissioned Nashpa LPG plant by PPL.

During the year, PPL made 6 discoveries in operated areas while 5 discoveries were made in partner operated areas. The company spudded 7 exploration wells in operated areas and 5 wells in partner operated areas. 3 operated wells were spud in frontier areas as the company is now looking into high risk high reward wells as well.

The other boost by currency devaluation came at the other income that grew by 77 percent in FY19. Growth in other income was also due reversal of impairment loss on investment in PPL Europe E&P Limited. However, on the expense side, despite lower exploration and prospecting activity PPL's exploration expenditure increased by over two times due to the incorporation of offshore Kekra-1 dry well cost. At the same time finance cost also grew by 76 percent, adding to the factors dragging the earnings of the E&P giant.

Outlook

Recently PPL announced that it is increasing its authorised share capital by Rs10 billion, which is 1 billion ordinary shares and can be seen in the company announcing a 20 percent bonus share for ordinary shareholders and 10 percent bonus shares for convertible preference shareholders besides the Rs2 per share cash dividend along with the FY19 financial performance.

The company's liquidity continued to deteriorate due to the circular debt. The trade debts of the company reached to a historically high level of Rs227 billion versus Rs143 billion as on June 30, 2018 – translating into 1.1 times of gross revenue.

However, the company continues to play an aggressive role in the country's hydrocarbon drilling. It is participating in the upcoming exploration bid rounds and is planning to expand its international portfolio. As per the annual report, the company has become the country's first public sector E&P to drill a well internationally with the spud-in of Madain X-1 in Iraq in 2019.