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The domestic E&P sector has been stagnating – production volumes of crude oil and gas had been flat for a while and the recent six months they posted a decline. Against the backdrop of no major crude oil or natural gas discoveries, dwindling volumetric growth, depleting reserves and falling investment in the sector, Mari Petroleum Company Limited’s (PSXL MPCL) earnings performance in 1HFY20 has been up. The E&P firm’s earnings for 1HFY20 increased by over 33 percent year-on-year, and by 23 percent year-on-year in 2QFY20

The growth in the bottmline came from revenue growth of 19 percent year-on-year in 1HFY20, which was largely due to increased sale prices – volumetric growth remained negative, which goes onto validate the downturn in production in the overall sector. Average crude oil production for MPCL stood at 1672 barrels of oil per day in 1HFY20, which was 5 percent lower on a year-on-year basis. Natural gas production averaged at 678 million cubic feet per day, a decline of 7.5 percent year-on-year.

Rs(mn) 1HFY20 1HFY19 YoY 2QFY20 2QFY19 YoY
Net Sales 34,551 28,987 19.2% 16,702 14,646 14.0%
Royalty 4,354 3,685 18.2% 2,098 1,857 13.0%
Operating Expenditure 6,412 5,657 13.4% 3,158 2,889 9.3%
Exploration and Prospecting Expenditure 3,512 2,481 41.5% 1,469 924 58.9%
Other  operating income 161 206 -21.6% -128 86
Other charges 1,517 1,199 26.5% 708 612 15.6%
Operating Profit 18,916 16,170 17.0% 9,142 8,449 8.2%
Finance income 2,562 651 293.5% 1,379 475 190.3%
Finance Cost 492 386 27.4% 243 190 28.0%
PAT 14,748 11,058 33.4% 7,285 5,916 23.1%
EPS(Rs/share) 110.55 82.89 33.4% 54.61 44.35 23.1%
Operating margin 54.75% 55.79% 54.73% 57.69%
Net margin 42.68% 38.15% 43.62% 40.39%
Source: PSX

Other than the topline, growth in earnings also came from significant increase in finance income, which was due to better fund management and higher interest income. The bottomline growth was however offset by 42 percent year-on-year increase in exploration and prospecting expenditure.

Back in FY20, the g government had added Mari Petroleum company Limited to the list of 8 entities that it will privatize in FY20. Recall that the E&P company’s offloading of government shares has been delayed since 2016 due to difference of opinion. However, after Privatization Commission had arrived at MARI’s fair market value, which was over 20 percent higher than its current market price at that time, no progress has been witnessed since then, however, what will eventually decide the company direction is its exploration and drilling activity with satisfactory results in the ongoing year.