Pakistan Petroleum Limited

Shrugging off the fears that arose after the devastating floods, Pakistan Petroleum Limited (PPL) said on Tuesday that its profits improved by a healthy 57 percent in the first quarter of FY11. The share price, however, did not move in the same direction despite the fact that earnings were slightly higher than the consensus estimates.
The bottom line trigger came from the top line, which augmented by 49 percent on the back of improved volumes and higher prices. Overall increase in hydrocarbon production is said to have stood at nearly 11 percent, with a significant increase of over 60 percent in oil production and nearly 10 percent in gas production.
Enhanced production is primarily a result of the commencement of the Manzalai-CPF post November, which triggered massive improvements in production volumes from the Tal Block, where gas and oil production swelled by 4 and 3 times, respectively. PPLs efforts in exploring new fields also bore fruits in the shape of new start-ups from Napsha and Adam fields.
But the real push to the topline came from the oil and gas wellhead prices, which soared by 9 percent and 35 percent, respectively. The increase in the gas wellhead prices holds more significance as gas revenues constitute the major chunk of the pie. The ever depreciating rupee against the greenback also helped the cause, as the net realised prices remained on the higher side.
The falling rupee, however, did not save the company on the field expenditure front which increased significantly despite no seismic 3-D activity and declaration of dry wells during the quarter. However, 880 km of 2-D survey during the period coupled with the impact of rupee depreciation kept the field expenditure on the higher side.
The cash managers at the company deserve a pat on their backs for maintaining such a healthy cash cycle despite being in the vicious circular debt cycle. PPLs cash balance had improved significantly by the end of FY10, which coupled by better returns, helped the company achieve other higher income.
Exploration activities should pick up in the current quarter after a relatively lacklustre first quarter as a couple of development and exploration wells are nearing the completion stage.
There is also good news on the wellhead prices front, which may further increase to provide a boost to the bottom line. The likely announcement of Tight Gas Policy in the current quarter is also a key moment to keep an eye on as it could trigger potential upside in the companys stock.

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PPL P&L

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Rs (mn)              1QFY11    1QFY10    % chg

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Sales                18,219    12,188      49%

Field expenditure     4,405     3,299      34%

Gross profits        11,650     7,432      57%

Gross margins            64%       61%      5%

Other income            951       570      67%

PAT                   7,790     4,975      57%

EPS (Rs)               6.52      4.16

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Source: KSE notice

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