Pakistan Petroleum Limited

Pakistan Petroleum Limited (KSE:PPL) is a key player in the energy sector since early fifties in the country. The firm's main objective is exploration and production of oil and gas. Together with its subsidiaries, Pakistan Petroleum Limited has a portfolio of 47 exploration assets of which the company operates 27, including one contract in Iraq, while 20 blocks, comprising three offshore leases in Pakistan and two onshore concessions in Yemen, are operated by joint venture partners
The current capital structure of the company consists of 67.51 percent shareholdings of GOP, 7.35 percent of PPL employee empowerment trust, and 25.14 percent of private investors, after the privatisation procedure that resulted 2.5 percent of government holding divestment. The exploration and production firm has been in this business for several years, contributing to about one fourth of total gas supplies, besides producing crude oil, condensate and LPG.
PPL operates the largest gas field at Sui along with five others at Khandot, Chachar, Hala, Adhi, and Mazarani. It holds working interest in 12 partner operated fields including Sawan, Qadirpur, Nashpa and Latif. At present, PPL's share in the country's total natural gas production stands at around 21 percent. On an average, PPL produces one bcfd of gas, which is sold to the company's main clients like WAPDA, Sui Southern Gas Company, and Sui Northern Gas Pipeline.
Financial performance FY14 During the year FY14, 11 new exploration blocks were granted to PPL the firm has also acquired 100 percent shareholding of MND E&P Limited, a company incorporated in England and Wales. Its name has been changed to PPL Europe E&P Limited. The company has also established a wholly-owned subsidiary, PPL Asia E&P B.V. with corporate seat in Amsterdam. Its financial performance in FY14 remained in limelight. The firm's revenues in FY14 increased due to the combined effect of net increase in oil sales volumes, decrease in gas sales volumes and depreciation of rupee versus dollar. Its top line strengthened by 17 percent year on year. Exploration and field expenditure remained on the higher side as it declared two dry wells during the fiscal year. However, further support to earnings came from improving gross margins.
Operational performance 9MFY15 During the first nine months of FY15, PPL made four discoveries: three in Gambat South Block and one in Hala Block. Its 2D and 3D seismic acquisitions included 1223 Line kilometers and 1413 square kilometers, respectively, in 9MFY15, which represents increase of 436 percent and 101 percent, respectively, over the corresponding period. The firm's drilling activity comprised of, six exploratory wells and four development wells being spudded in PPL operated blocks in 9MFY15, as compared to four exploratory wells and three development wells spudded in 9MFY14.
Volumes for PPL remained cheerful primarily of oil. Where natural gas sales volumes dropped by 6.4 percent, year-on-year in 9MFY15, crude oil volumes saw a jump of around 24 percent year-on-year in the same period. LPG sales volumes also saw a 191 percent year-on-year rise in 9MFY15 due to beginning of production from Tal field. Gush in oil sales volumes came from increase in oil flows from the Tal, Nashpa and Adhi fields, and start of oil production from Ghauri discovery. Gas volumes decreased in Sui, Kandhkot, Qadirpur and Tal fields, which were partially offset by higher volumes from the Nashpa, Latif, Hala and Adhi fields.
Financial performance 9MFY15 With apparent reason of low oil prices, the oil and gas exploration and production companies saw a clip in 9MFY15 earnings. Pakistan Petroleum Limited is yet another oil and gas company that has seen a fall in its profitability during the first nine months of FY15.
Though oil production has been optimistic, witnessing a rise of 24 percent year-on-year, the firm's revenues dropped by nine percent year-on-year in 9MFY15 on account of more than 25 percent decline in Arab Light crude oil prices versus 9MFY14. This drop was more significant as prices fell by more than 50 percent year-on-year in the third quarter of FY15. Apart from the declining oil prices scenario, the top line was also a victim of low natural gas production as well as low well-head gas prices in the nine-month period. Gas production for PPL was low by eight percent in 9MFY15 versus similar period last year.
Going down the profit and loss statement, it can be seen that PPL's bottom line shrunk by 33 percent year-on-year in 9MFY15. And besides the top line squeeze, and an increase in other income, the earnings for the period were also clipped by higher field expenditure, and higher operating expenses. Higher other income was a result of exchange gains in 3QFY15 versus exchange losses in 3QFY14, while the operating expenses are a result of impairment cost of PPL's subsidiary - PPL Europe E&P - recorded in the second quarter.
Outlook While the company has very optimistic oil production prospects, its short term growth will be hampered by the continuous decline in oil prices. Lately, PPL share price has also been underperforming mainly due to expected biannual downward gas price revision of around 26 percent in July 2015, which is expected to keep the stock price restricted in the coming quarter as well. Earnings for the coming last quarter of FY15 will likely witness an up tick due to back to back discoveries, and primarily the recovery in oil prices.

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Pakistan Petroleum Limited

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                                FY13   FY14  9MFY15

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Profitability

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Operating margin                 58%    61%     37%

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Net margin                       41%    43%     53%

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Liquidity

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Current ratio                  2.29   3.81     2.37

Cash to current liabilities    0.94   0.99     0.21

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Efficiency

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Total asset turnover           0.53   0.53     0.32

Fixed asset turnover           1.61   1.56     0.86

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Market

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EPS (Rs/share)                25.53  26.08    11.23

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