E&P sector in recent times

Oil prices continue to rally on strict compliance to OPEC and non-OPEC production cuts; and now the recent hike in oil prices have come about from expectations of possible sanctions on Iran and the declining output due to the economic crisis in Venezuela along with tensions in the Middle East such that the prices have crossed $70 per barrel mark.

Amid higher oil prices, the E&P sector has enjoyed higher revenues and the local oil and gas companies have been no different. In their latest financial performance for the 9MFY18, the listed E&P sector that includes OGDCL, PPL, POL and MARI has seen revenues rally by 26 percent, year-on-year on a cumulative basis, which has been largely due to higher crude oil price.

Of these, Mari Petroleum Company Limited and Pakistan Petroleum Limited have witnessed significant growth in their net revenues, followed by Oil and Gas Development Company and Pakistan Oilfields Limited. PPL and Mari both also witnessed growth in oil and gas volumes, which can be seen in high double digit growth in their revenues. However, the production side for OGDCL has not been very robust during the period under review; oil production declined by 5.6 percent year-on-year, while the gas production went down by around 3 percent, year-on-year in 9MFY18. On the other hand, where POL did see volumetric growth in both oil and gas, the recently announced revenues for POL were lower as the results were based on old gas price for Tal Block with the decision in this regard still pending. Recall that POL in an attempt to be prudent reversed enhanced revenue from Tal Block field conversion prior to the windfall levy issue unlike other E&Ps that didn’t.

Overall, the exploration and prospecting expenditure during the nine-month period remained flat on a cumulative basis due to the absence of any major well write off or dry well declaration. However, POL’s exploration and prospecting expenditure more than doubled due to higher drilling and seismic surveys conducted on Balkassar lease and DG Khan concession.

Overall, the listed sector’s profit growth stood at 35 percent, year-on-year, which was largely led by higher profits for PPL and MARI that trickled down from the top. E&P stocks have rallied in recent times, beating the benchmark; and apart from the rising international crude oil prices, the rupee depreciation has played a key role here. However, what could undermine the oil price rally in the coming months is the constant increase in US oil production, which has continued at robust pace and could actually make up for the cut in production for by the other players.