The upstream sector all set for another robust year

FY12 might have left many sectors gasping for gas, and many might have tumbled like so many dominoes, but it turned out to be staggeringly felicitous for the oil and gas exploration and production sector of the country. Claims about rapidly depleting reserves amidst the severe energy-cum-debt crisis might have left a sour feeling but only for the downstream sector.
Unlike the mixed performance in the downstream marked generally with wafer thin profits, the earnings of the E&P sector with respect to FY11, witnessed healthy growth during FY12.
The overall revenue growth of the three largest and listed players in the industry, representing a colossal share of the market, surged by 25 percent to a gigantic Rs323 billion during FY12. Profitability statistics show that bottom line of the sector comprising the three; PPL, OGDC and POL, grew by more than 40 percent YoY.
Amongst the main growth driver, higher international crude prices with average growth of 18 to 20 percent depending on the grades did wonders to the financial performance of the companies. This was especially cherished by the oil and gas upstream sector because the production flows of gas were rather dull during the year.
The earnings of the E&P sector received a two-way boost: one from the generally higher realised oil prices, and the other from the cost reduction. A significant decline in the exploration expenditure was the highlight for FY12 on account of a control on the declaration of dry or abandoned wells. To top it up, the alternative sources of income adorned the performance of the Big-3 in FY12.
In terms of individual performances, Oil and Gas Development Company (OGDC), the biggest player in the sector, led with highest net margins, followed by the second and third largest E&P companies, Pakistan Petroleum Limited and Pakistan Oilfields Limited of Attock Group, respectively,
Moving into FY13 has been pleasant for the sector primarily because of the announcement of the new petroleum policy that offers not only better prices for offshore drilling and exploration but also on shore prospects.
And now with the first three months of FY13 almost ending, the prospects of the E&P space have become brighter. Riding on excessive cash balance and healthy dividend announcements, the upstream sector is all set for ambitious growth plans for the current fiscal year.
Going forward, growth in FY12 has set the stage for the sector. PPL aims for an aggressive growth strategy of acquiring MND Pakistan and developing the block acquired in Iraq. POL has a great potential production accretion, particularly from Bela - I and Makori East - I.
ENI Pakistan, the unlisted international oil and gas company in Pakistan has also recently made one of the biggest onshore discoveries of its time in Sindh which is expected to produce around 300 and 400 mmcfd of natural gas.
The OGDC scrip which is already under spotlight for the possibility of an increase in the Qadirpur gas price to $3.2 per mmbtu will also benefit from its 20 percent working interest in the new discovery by ENI Pakistan. Moreover, it has also put forward sanguine hopes for its latest discovery in KPK.