Its a healthy sign that earnings of the exploration and production sector are being driven by production flows and not just rupee depreciation and subsequent increase in prices. Like others, Pakistan Oilfields Limited (POL), the third largest E&P firm in the country, has been witnessing increased production flows. The tilt has been towards oil production, and why shouldn it be? Favourable oil price and production prospects amid dwindling gas flows are enough reasons for E&P companies to focus more on oil flows.
9M FY14 performance of POL also banks on the same; strong production coupled with better realised prices due to rupee depreciation was the chief reason for the increment in the revenues of the oil and gas firm. Top line jumped by 23 percent year on ear in 9M FY14. Most of the oil production during the period under review came from the commencement of Makori Gas Processing Facility and the Tal block with overall oil production reportedly increasing between 25-27 percent, year on year. Gas production has also inched up by around 9-10 percent year on year.
However, the inhibiting factor to the firms profitability has been the phenomenal increase in the amortisation cost. Around 2.5 times increase in amortisation expense diluted the gains from the top line.
The recent underperformance of POL stock against the broader index, even after the commencement of Makori GPF in March-2014 has been primarily due to the recent currency appreciation. Remember that, all E&P companies have dollar denominated revenues, and any improvement in rupee value negatively impacts market sentiments for the same.
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Pakistan Oilfields Limited
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Rs (mn) 9MFY14 9MFY13 chg 3QFY14 3QFY13 chg
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Net sales 26,248 21,424 23% 8,410 7,680 10%
Operating costs 5,573 5,476 2% 1,760 2,008 -12%
Amortization 3,269 1,352 142% 1,199 448 168%
Gross profit 14,646 12,353 19% 4,587 4,405 4%
Exploration cost 1,424 1,134 26% 580 415 40%
PAT 10,103 8,624 17% 3,198 2,961 8%
EPS (Rs) 42.71 36.46 17% 13.52 12.52 8%
Gross margin 55.8% 57.7% 54.5% 57.4%
Net margin 38.5% 40.3% 38.0% 38.6%
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Source: KSE Announcement
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