Half yearly result announcement by Pakistan Petroleum Limited (PPL) begins the E&P result season on a disappointing note. The companys bottom line thinned by 29 percent year-on-year as production woes coupled with lower realized prices on oil and gas trimmed its topline, which was further dampened by lower other income booked during the period.
The earnings of Rs9.79/share were 7 percent lower than consensus estimates - and naturally disappointed the investors. The dividend announcement of Rs4/share was very much in line with expectations, but could not do much to revive investors confidence or for that matter its share price at the bourse, which plummeted by 3 percent, shortly after the result announcement.
The output of major gas fields of the company shows a major decline of 6 percent and 1.5 percent in Sui and Kandkhot fields respectively. The dip in revenues is also explained by the fact that wellhead gas prices respond to changes in international oil prices with a lag.
However, for the optimists, the quarter-on-quarter picture shows signs of improvements in both volumetric production as well as oil and gas prices. The firms oil and gas production witnessed a surge of 7 percent and 3 percent respectively on quarter on quarter basis.
PPL owes a lot of thanks to improvement in production form Tal block specially Manzalai field where the production of oil and gas surged by a massive 412 percent and 260 percent respectively - quarter-on-quarter basis.
Gas revenues that account for roughly 85 percent of the top line, took a heavy toll of reduced average gas wellhead prices which declined by about 12 percent, year-on-year, during 1HFY10. But the rupee depreciation of 8 percent against dollar served well for the company, as it weathered the impact of wellhead gas price reduction to some extent.
A major reason behind reduced gross profit margins was a surprise increase in field expenditures for the period. Besides the rupee depreciation, significant costs incurred on plug and abandonment operations relating to Sui well caused the massive increase in field costs. Moreover, the company declared one dry well during the period which is expected to have caused the field expenditure rise by as much as it did.
The bottom line took another blow as PPLs other income dipped considerably during the period as lower deposit rate and investments took the better off cash and other financial assets.
Although, the balance sheet numbers are yet to be known - it is safe to assume that the average cash balance must have considerably reduced during the quarter - looking at the other income contribution.
The contribution of circular debt to the decline in other incomes cannot be undermined as E&P companies have reportedly struggled to maintain sizeable cash balances.
Going forward, oil prices during 2009 would be more relevant to FY10 financial performance as PPLs earnings are dictated by wellhead gas prices with a lag of six months. Wellhead gas prices are expected to be increased by 18-20 percent effective from January 2010, which bodes well for PPL in the latter half of FY10.
With the commencement of Hala well in January 2010, full impact of Manzalai expansion and likely increased flows form Napsha and Mela, volumes are all set to rise by 10-12 percent in the remaining half of FY10.
Moreover, oil prices are expected to improve or be stable - without much downside risk in the medium term, which bodes well for the oil revenues for 2HFY09. Although, rupee slide has somewhat slowed but there are no indications of the currency strengthening against the USD in the near term - things look bright for PPL in the future.
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PPL P&L
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Rs (mn) 2QFY10 2QFY09 % chg 1HFY10 1HFY09 % chg
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Sales 13,099 13,799 -5% 25,287 29,605 -15%
Royalty 1,502 1,684 -11% 2,958 3,611 -18%
Field expenditures 4,417 3,391 30% 7,716 5,776 34%
Gross profits 7,180 8,725 -18% 14,612 20,219 -28%
Gross margins 55% 63% -13% 58% 68% -15%
Other income 670 1,050 -36% 1,239 2,276 -46%
Other operating expenses 542 699 -22% 1,092 1,550 -30%
PAT 4,779 6,009 -20% 9,754 13,775 -29%
EPS (Rs) 4.80 6.03 -20% 9.79 13.83 -29%
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Source: KSE announcement