The biggest challenge for the exploration and production sector in 2020 has been very weak oil prices – down almost 25 percent in FY20 year-on-year. In addition, falling oil and gas production volumes amid depleting resources have been a key concern for the domestic E&P sector. And hence market expectations for PPL’s performance in FY20 had been tainted by weak market dynamics.
Against the backdrop, there is some good news and not-so-good news for Pakistan Petroleum Limited (PSX: PPL) than what had been anticipated. PPL’s financial performance has been affected by the factors mentioned above; but the decline in earnings has been lower than what the market (brokerage houses) were expecting. The E&P companies unconsolidated revenues were seen falling by around 4 percent year-on-year due to the fall in global oil prices during the year, around 11 percent decline in oil and gas production both in FY20; and dip in Sui wellhead price.
The decline in topline and higher finance charges along with significantly lower other income due to lower exchange gain aided the decline in PPL’s bottomline. PPL’s earnings for FY20 fell by over 18 percent year-on-year despite the 40 percent year-on-year decline exploration and prospecting expenses due to absence of any dry well announcement during the year. A key factor for the company’s performance in FY20 was a weaker 4QFY20 where revenues were seen falling by 30 percent year-on-year, and earnings by 33 percent year-on-year.
However, the good news is that the worst might be over for PPL as not only the country is out of lockdown but also that the E&P giant has announced a major gas discovery worth over 1 trillion cubic feet in Kalat Block in Balochistan – a frontier area struck by security challenges and infrastructure bottlenecks – which could be a gamechanger in the country’s dwindling reserves and foreign investment in the sector.