PPL in 1QFY19

Being responsible for 22 percent of the country’s gas production, Pakistan Petroleum Limited (PSX: PPL) has been aggressive in its exploration and prospecting activities. During the last financial year (FY18), the company drilled 18 exploration wells altogether that included 11 in operated areas including 3 wells in frontier areas, and 7 in partner-operated areas. It also drilled 8 development wells in operated areas and 7 development wells in partner-operated areas, and made one discovery. However, overall production witnessed a decline of 1.8 percent year-on-year due to natural decline in mature fields.

PPL was able to improve gas production by around 6 percent year-on-year in 1QFY19, which along with higher crude oil prices and depreciation of the domestic currency led to 19 percent year-on-year growth in revenues for the first quarter of FY19. Crude oil production witnessed a drop of about 4 percent year-on-year. The company announced its financial performance for 1QFY19 this week with 12 percent growth in after tax profits.

Apart from higher top-line, the increase in the bottom-line also came from higher other income, which was a result of exchange gains due to significant loss in the value of the rupee. However, the earnings growth remained constricted due to the costs incurred on the declaration of two dry wells. On the other hand, exploration expenses were missing in 1QFY18 due to recovery of past costs in 1QFY18.

While being aggressive in exploration and drilling, PPL has reshuffled its operations. Lately, it has decided to relinquish its exploratory block in Yemen due to security issues, while continuing to focus on frontier and offshore areas. Nonetheless, it plans to continue going forward with its robust exploration activity.

The company has planned 12 exploratory wells in the current fiscal year (FY19), and plans to increase its exploration portfolio by participating in the upcoming exploration bidding process. As per the company’s annual accounts, PPL is also a partner in an offshore lock where a well is planned in 2019. PPL scrip is currently trading at Rs188.5 with TP (target price) for June 2019 in the range of Rs211-214 per share and an average P/E multiple of 7.1x for FY19.