Pakistan Petroleum Limited (PPL) is in pretty good shape. The company announced its full year FY11 financial results yesterday, which were much in line with consensus estimates of an increase of 35 percent in profitability and an interim dividend announcement of Rs2/share - yet the share price floated near the lower circuit breaker. Despite a dip in production flows of nine percent and 14 percent from major contributing fields such as Kandhkot and Sui, PPLs overall production flows improved slightly during the period. The gas production is believed to have increased by two percent year-on-year during FY11, whereas on the oil front, the production flows improved tremendously by 40 percent year-on-year. The increased production is mainly a result of the start up of the Manzalai CPF post-November, which triggered significant improvement in production flows from the Tal Block. Moreover, the start-up of Nashpa and Adam exploratory wells supplemented the firms production growth during the period. The field expenditures surpassed consensus estimates by a fair margin; cost overrun in few active fields could be a plausible reason. Higher volumes also played their part in augmenting the field expenditures, but the increased focus on seismic activities, also seems to have had an impact. Moreover, the declaration of a dry well and the consequent expensing of the cost at Jeherruck also played its part in swelling the exploration cost. Other income continued to provide strong support to the bottom-line as the company increased short-term investments in treasury bills and term deposits. The company also cites the higher interest rate scenario as a key reason for improved performance on this account. PPL seems to enjoy a healthy cash flow and the inter-corporate circular debt issue does not seem to hamper its liquidity a great deal. So the finance costs have not gone out of hand despite the receivables having mounted of late. With the drilling activities having started in Napsha and Makori, the oil and gas flow is likely to be strong going forward once the new fields commence production. PPL hardly seems to have put a foot wrong, so it should only be a matter of time before the share price offers sizeable gains, once it gets out of the ongoing bloodbath at the KSE.
================================================= Pakistan Petroleum Limited ================================================= (Rs mn) FY11 FY10 chg ================================================= Sales 78,252 59,962 31% Field expenditure 21,364 18,273 17% Gross profit 47,655 34,612 38% Gross margin (%) 61% 58% - Other operating income 4,451 2,579 73% Other expenses 3,592 2,568 40% Finance cost 205 155 33% PAT 31,446 23,321 35% EPS (Rs) 26.31 19.52 =================================================
Source: KSE notice
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