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The exploration and production sectors performance in FY20 was scarred by a weak 4QFY20 where the impact of COVID-19 and the ensuing lockdown and restrictions curtailed demand for oil and gas in the country- as a result of which the exploration and drilling activity remained soft and production numbers muted. Also, the crude oil price contraction played a key role in reduced revenues for the E&P players. Expectations for 1QFY21 have been mixed; while the revival of activity was anticipated to bring growth to earrings sequentially for the sector, the year-on-year was still expected to be lower.

Pakistan Oilfields Limited (PSX: POL) recently announced its financial performance into 1QFY21, following what the market was expecting. Compared to 1QFY20, the E&P company’s profitability remained lower due to oil prices as well as weaker economic activity amid the ongoing global pandemic, whereas the quarter-on-quarter performance showed noticeable growth in revenues and earnings.

POL reported a nine percent decline in its topline due to weaker production volumes (two percent year-on-year decline each for oil and gas) and around 24 percent plunge in average realized oil prices. But on quarterly basis, POL’s revenues were up by 54 percent due to rebounding oil prices as well as an increase in production of oil and gas.

On the expense side, higher operational cost during 1QFY21 resulted in lower gross profits year-on-year. Exploration cost, however, saw a significant decline during the quarter year-on-year (80 percent) as well as quarter-on-quarter (70 percent) which supported the bottomline. The decline in exploration and prospecting expenditure came from absence of dry wells as well as slow exploration and drilling activity during the period under review. Decline in other income due to absence of exchange gains was offset by decline in finance cost.

Despite the decline in exploration expenses, the 1QFY21 earning were lower by 9 percent year-on-year particularly due to weaknesses from the top. However, the sequential growth in earnings of around 49 percent shows that the coming quarters might bring growth to the earnings.