Impact of COVID-19 and the lockdown, as well as the oil prices situation have been considered key reasons for slowing earnings growth for the oil and gas exploration and production sector. Pakistan Oilfields Limited (PSX: POL) announced its financial performance for FY20 recently with almost flat earnings growth. The first nine-months of FY20, the company posted a growth of over 24 percent year-on-year, showing that the fourth quarter (4QFY20) was a drag on the bottomline. However, the company announced a final dividend of Rs 30 per share in addition to Rs20 interim dividend already paid.
Overall, POL’s revenues came down by 13 percent, year-on-year, where the 4QFY20 saw a 48 percent decline in sales revenue. The decline in revenue was due to falling volumetric sales as well as oil prices. During FY20, oil and gas production for POL plummeted by 13 and 9 percent year-on-year, respectively, while the average oil prices tumbled by 25-26 percent year-on-year. The impact was larger in 4Q where production stood down by around 28 percent year-on-year for both oil and gas, and crude oil prices were down by over 60 percent.
On the expense side, exploration and prospecting expenditure for POL remained lower in FY20 due to the absence of any dry well during the year. However, 4Q exploration cost saw a significant jump due to higher seismic activity in TAL Block as per a research note by Arif Habib Limited. With lower interest rates during, other income and finance costs also decline for POL.
What is in store going forward? The earnings growth depends largely on international oil prices to pick up as production volumes have been diminishing in the E&P sector for quite some time.
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