PPL remains robust

Higher crude oil prices and Rupee depreciation have been the key drivers for earnings accretion in the oil and gas E&P sector. Pakistan Petroleum Limited (PSX: PPL) announced its financial performance for 9MFY19 last week with increase in earnings of around 36 percent, year-on-year.

The E&P Company’s revenues for 9MFY19 saw a growth of 30 percent year-on-year, which came from higher international crude oil prices by 18 percent year-on-year along with currency depreciation of about 23 percent. On the other hand, volumetric growth dropped slightly during the period. Crude oil sales volume decline by one percent, while gas volumes slipped by two percent year-on- year in 9MFY19. This trend in net revenues has been seen all across the listed E&P companies.

PPL witnessed improvement in margins and beside the growth in top-line, it came from reversal of impairment loss on investment in PPLE and higher exchange gains. On the other hand, higher operating costs, royalties and higher exploration and prospecting expenditure offset the growth rate in earnings

76 percent year-on-year growth in exploration and prospecting expenditure in 9MFY19 came not only from high cost of dry wells charged in the current period, but also due to the recovery of past cost from United Energy Limited against farm out of the company’s 50 percent working interest in Kotri North Block along with transfer of operatorship, Overall, PPL’s net profit after tax stood 36 percent year-on-year higher in 9MFY19.

PPL has been an aggressive E&P player; during the 9-month period, it made the highest number of discoveries: 6 in PPL-operated blocks and 2 in partner-operated blocks. In addition to that, one discovery was made in PPL Europe (formerly known as MND Exploration & Production) as well in a partner-operated block in Balochistan. Five wells were spudded during the period that included 4 exploratory and 1 development well. One issue that the company highlights in its quarterly accounts is the continued stress on its liquidity due to muted recovery in receivables. These increased by a staggering 45 percent and stood at 207 billion on March 31, 2019 versus Dec 31, 2018.