MARI – higher price benefit
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.
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