PPL - comfortable in FY21

Pakistan Petroleum Limited (PSX: PPL) is leading the consortium of four public sector exploration and production companies that has recently secured a significant offshore exploration contract from the leading UAE company ADNOC. This offshore contract will let the Pakistani E&P companies explore oil and gas at the Abu Dhabi concession. The consortium expects a double-digit internal rate of return from the investment along with a share in oil and gas production and significant foreign exchange inflow.

PPL has been an aggressive E&P sector player but the declining reserves and small discoveries in general in the upstream oil and gas sector in the country have been stagnating as well as slowing down oil and gas production. During FY21, PPL’s natural gas production is estimated to have declined by around 4 percent year-on-year; however, the research note by AHL Research shows that PPL’s crude oil production is likely to have increased by 3 percent year-on-year in FY21. The declining gas production coupled with a fall in the Sui wellhead price were the main factors for dragging the E&P giant’s revenues in FY21. Revenues from contracts with customers were seen falling by 5.8 percent year-on-year, despite the support from higher crude oil sales volumes and a similar percentage increase in overall oil prices.

However, PPL’s bottomline was seen growing by over 4 percent year-on-year in FY21 despite lower topline and lower other income primarily due to declining key costs; the decline in exploration and prospecting expenditure stood at 31 percent year-on-year, which was due to the lesser number of dry and abandoned wells (3) and associated costs during the year versus seven in FY20. Also, other charges declined by over 9 percent year on year. The decline in other charges was due to a decline in income from loans and bank deposits.

4QFY21 was noticeably better for PPL where the topline climbed up by 15 percent year-on-year due to an increase in oil and gas production as well as a huge surge in oil price by over 150 percent year-on-year. Earnings for 4QFY21 were also up by 20 percent year-on-year.