Pakistan Petroleum Limited’s (PSX: PPL) announced its fianncial performance for 9MFY20 with earnings slipping by 13 percent year-on-year. The E&P giant’s topline posted a modest growth of around 6 percent year-on-year as oil prices receded along and production flows remained weak. The decline in volumes was largely due to natural decline from maturing fields and lower offtake. Some support to the bottomline came from 54 percent year-on-year decline in exploration and prospecting expenditure in the 3QFY20 that remained high in 1HFY20; and exchange gains due to currency devaluation in 3QFY20. However, gross margins and net margins remained under pressure.
Against a better 1HFY20, the second half of the fiscal year is becoming worrisome due to the global healthy emergency from the coronavirus pandemic, and its economic impact. While the E&P firms have been operating during the lockdown, contraction in demand is occuring – the effects of which could be felt as far as by the upstream oil and gas companies.
A bigger concern however, for the E&P sector right now comes from the plunging oil prices - US oil benchmark crashed below $0 due to storage concerns, and Brent dropped to a two-decade low to $15.98 per barrel. With little optimism over oil prices going back to the previous levels in the coming few months, earnings of the oil and gas E&P sector is likely to take another dip – closing FY20 at much lower levels than expected only few weeks ago.