FY18 will surely be a better year for Pakistan Petroleum Limited (PSX: PPL) as the E&P giant continued its profitability growth in the latest quarter as well. PPL has played off well during these times of uncertainty for the E&P companies despite the rising oil prices as the domestic sector awaits the decision regarding the amendment in the supplemental agreement and the implementation of windfall levy following revision in PP2012 being contested by all those that are part of the Tal block (JV partners). Unlike POL, PPL did not book the reversal of TAL block repricing. In case it does book a reversal, it will incur a one-time hit to the earnings.
PPL in 3QFY18 posted revenue growth of 29 percent, year-on-year, while its bottom-line was up by 54 percent, year-on-year.
These gains added to the already favourable position of the E&P company in 1HFY18, taking 9MFY18 revenue growth to 44 percent, and earning accretion to a hefty 74 percent, year-on-year.
The robust financial performance in 9MFY18 has been a mix of revenue growth and cost reduction. While PPL saw a quarter-on-quarter improvement in its oil and gas volumes in 3QFY18 due to an increase in oil flows from Tal, Adhi and the commercialization of Nashpa development projects, and higher gas flows from Kandhot, higher oil prices also played a significant role in lifting the top-line. International crude oil prices were up by around 22 percent in 9MFY18. Not only that; the higher price on Sui field along with depreciation of Rupee lifted 9MFY18 revenues. A further boost to PPL’s bottom-line came from lower exploration costs in 9MFY18 that remained flat during the nine-month period.
Though the explorations costs were up in 3QFY18 by around 49 percent year-on-year, they were still lower by 35 percent, on a quarter-on-quarter basis (i.e. versus 2QFY18). A significant boost to the other income led by exchange gains also supported the earnings for PPL. All these resulted in gross margins improving by 650 basis points and net margins trotting up by 630 basis points in 9MFY18.
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