Upstream sector 1HFY13

Though production glitches smeared the optimistic gas production forecasts made after a fine FY12, the exploration and production sector is no dark horse in FY13, with six months behind it, and six more to go.
The performance of the listed upstream sector consisting of OGDC, PPL and POL, during the first half of the current fiscal year has been modest, especially amid stagnant crude oil prices of around $106 per barrel and deteriorating domestic economic environment.
The overall revenue growth of the three largest and listed players in the industry, representing a colossal share of the market, surged by 18 percent year-on-year to Rs175 billion during 1HFY13.
This predominantly comes from the enhanced oil production during the six month period from fields like Nashpa, Kunnar, Tando Alam, and Tal block, as gas flows have hit a snag particularly from fields like Sui, Qadirpur and Kanhdot.
On individual basis, the oil and gas production at the biggest E&P company grew by 9.3 percent and 5.5 percent YoY respectively. Production statistics for Pakistan Petroleum Limited (PPL) are more contrasting; oil flows galloped by a whopping 19-20 percent YoY while the gas production slumped by almost nine percent YoY during the period under review.
Similarly POL continued facing production hiccups from its own operated fields like Pindori, Domiyal and Meyal with a fall in both of its oil and gas flows.
On a cumulative basis, analysts at Topline Securities conclude that gas production has faltered by two percent YoY in 1HFY13. Where the gas flows did not do much during the aforementioned period, some volumetric decline was offset by increase in gas well head prices.
The simple formula for the E&P sectors profitability in 1HFY13 has been the combination of higher oil production and eight percent year-on-year rupee depreciation versus the dollar. Profitability statistics show that bottom line of the sector comprising the big three grew by a reasonable 14 percent YoY.
Where non-operating and other sources of income bloated the profits of the sector in 1HFY13, some pressure on the bottom line came from higher exploration and prospecting charges of POL and OGDC in shape of higher seismic activity and write-off of dry wells.
While the local currency shed value, some cushion was afforded to this sector. Moving on, with the international crude oil prices expected to remain on the bullish side the prospects for the E&P are perked up.
The prospects for production flows are sanguine and will likely lift the top line of the companies in the upstream sector by the end of FY13. ECC has approved an increase in the cap on Qadirpur gas price from $2.5618 per mmbtu to $3.0116 per mmbtu which is good news particularly for OGDC and PPL.

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E&P Performance over 1HFY13

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                                        OGDC        PPL      POL

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Sales growth YoY                          25%        12%     -5%

PAT growth YoY                            18%        11%     -8%

Gross margins                             71%        61%     58%

Net margins                               44%        44%     41%

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Listed E&P sector (OGDC, PPL, POL)

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                                      1HFY13     1HFY12      YoY

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Net Sales                            175,043    148,459      18%

Profit for the period                 77,206     67,855      14%

Overall net margin                       44%         46%

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