While the local E&P companies might be seen to boast increased drilling and exploration activity, they have been falling short in oil and gas production in the country. The falling production of oil and gas by the exploration and production companies have come as a result of falling reserves, small discoveries and weak incentives for foreign investment in the country. However, unlike previous years where the decline the sales volumes as well as revenues was also seen due to falling hydrocarbon production, the E&P companies have been enjoying higher revenue growth in FY22. This has also continued in 1QFY23 and has been primarily due to higher prices of international crude oil in particular and also higher commodity prices in general.
In 1QFY23, the country’s E&P companies listed on the stock exchange registered a cumulative revenue growth of over 54 percent year-on-year where the lead was taken by Pakistan Petroleum Limited (PPL) followed by Mari Petroleum Company Limited (MARI), Oil and Gas Development Company Limited (OGDC) and Pakistan Oilfields Limited (POL). This was despite the fact that almost all the E&P companies incurred a decline in production volumes especially that of crude oil in 1QFY23. Companies like PPL and MARI were able to post growth in natural gas production during 1QFY23 on a year-on-year basis. Overall the oil and gas production dropped by 10 percent and 2 percent year-on-year respectively.
The sector also reported highest earnings in the history for 1QFY23, which was due to higher topline as well as other factors such as the depreciating currency and weakening exchange rate. On average exchange rate during 1QFY23 stood at Rs223 versus Rs194 per USD in 4QFY22 and Rs164 in 1QFY22.
During the quarter, the companies also incurred relatively lower expense with regards to exploration and prospecting which lifted the bottomline of the sector in 1QFY23. Exploration expenses in 4QFY22 were colossal whereas the 1QFY23 exploration and prospecting expenditure stood lower by 65 percent on a quarter-on-quarter basis. Growth in profits remained elevated – in excess of 55 percent year-on-year in 1QFY23 for the four listed companies; however, much of it came from higher rupee depreciation, and little from the core business operations.