It might be too early to predict any slowdown in the petroleum exploration and production (E&P) sector performance in FY20. But Pakistan Oilfields Limited (PSX: POL), which is usually the first in the sector to announce quarterly and annual performances and sets the stage, has reported seen a rather weaker 1QFY20 performance.
Looking back, FY19 was good year for the E&P sector in terms of crude oil prices and significant currency depreciation. Crude oil prices have remained on the cooler side in 1QFY20, and domestic currency seems to be in equilibrium at the moment. This implies that these two growth factors have been sluggish in the POL financial performance in the quarter under review.
| Pakistan Oilfields Limited | ||||
| Rs(mn) | 1QFY20 | 1QFY19 | YoY | |
| Net Sales | 10,251 | 10,570 | -3% | |
| Operating cost | 2,251 | 2,779 | -19% | |
| Excise duty and development surcharge | 74 | 78 | -5% | |
| Royalty | 1,118 | 1,084 | 3% | |
| Amortization of development and decommissioning costs | 513 | 774 | -34% | |
| Gross Profit | 6,295 | 5,856 | 8% | |
| Exploration and prospecting expenditure | 379 | 731 | -48% | |
| Admin expense | 55 | 57 | -5% | |
| Finance cost | 139 | 402 | -65% | |
| Other charges | 401 | 372 | 8% | |
| Other income | 467 | 841 | -44% | |
| Profit before Tax | 5,790 | 5,134 | 13% | |
| Taxation | 1,785 | 1,267 | 41% | |
| Profit after Tax | 4,005 | 3,867 | 4% | |
| EPS (Rs/share) | 14.12 | 13.62 | 4% | |
| Gross margins | 61.41% | 55.40% | ||
| Net margins | 39.07% | 36.58% | ||
| Source: PSX | ||||
The company’s net revenues witnessed a decline of three percent year-on-year; so it was at the top where the weakness in earnings started to accumulate. The estimated decline in the oil and gas productions by the E&P firm is around 5.5 percent year-on-year for both hydrocarbons in 1QFY20. This output reduction is likely to have stemmed from the annual turnaround at the Makori Gas Processing facility, in which POL has a share of 21 percent.
In the end, POL’s earnings for the quarter grew by only 4 percent year-on-year despite a decline in exploration and prospecting costs. Growth in ‘other income’ was also missing from the quarter’s numbers. However, lower seismic activity points to lower productivity of the sector in general, which should pick up for a rebound in volumetric sales.
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