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It might be too early to predict any slowdown in the petroleum exploration and production (E&P) sector performance in FY20. But Pakistan Oilfields Limited (PSX: POL), which is usually the first in the sector to announce quarterly and annual performances and sets the stage, has reported seen a rather weaker 1QFY20 performance.

Looking back, FY19 was good year for the E&P sector in terms of crude oil prices and significant currency depreciation. Crude oil prices have remained on the cooler side in 1QFY20, and domestic currency seems to be in equilibrium at the moment. This implies that these two growth factors have been sluggish in the POL financial performance in the quarter under review.

Pakistan Oilfields Limited
Rs(mn) 1QFY20 1QFY19 YoY
Net Sales 10,251 10,570 -3%
Operating cost 2,251 2,779 -19%
Excise duty and development surcharge 74 78 -5%
Royalty 1,118 1,084 3%
Amortization of development and decommissioning costs 513 774 -34%
Gross Profit 6,295 5,856 8%
Exploration and prospecting expenditure 379 731 -48%
Admin expense 55 57 -5%
Finance cost 139 402 -65%
Other charges 401 372 8%
Other income 467 841 -44%
Profit before Tax 5,790 5,134 13%
Taxation 1,785 1,267 41%
Profit after Tax 4,005 3,867 4%
EPS (Rs/share) 14.12 13.62 4%
Gross margins 61.41% 55.40%
Net margins 39.07% 36.58%
Source: PSX

The company’s net revenues witnessed a decline of three percent year-on-year; so it was at the top where the weakness in earnings started to accumulate. The estimated decline in the oil and gas productions by the E&P firm is around 5.5 percent year-on-year for both hydrocarbons in 1QFY20. This output reduction is likely to have stemmed from the annual turnaround at the Makori Gas Processing facility, in which POL has a share of 21 percent.

In the end, POL’s earnings for the quarter grew by only 4 percent year-on-year despite a decline in exploration and prospecting costs. Growth in ‘other income’ was also missing from the quarter’s numbers. However, lower seismic activity points to lower productivity of the sector in general, which should pick up for a rebound in volumetric sales.