Pakistan Petroleum Limited (PPL) announced its financial results for FY10 on Friday. No surprises were offered as earnings were only marginally off from expectations in the analysts community. Profits after tax declined by nearly 16 percent over last year, pulling down earnings per share to Rs 23.42 from Rs 27.82 in FY09.
It was largely in line with expectations as analysts had anticipated a fall in revenues owing primarily to a downward revision in gas wellhead prices for the first half of the year.
Wellhead prices of Sui and Kandhkot, which contribute roughly 70% of PPLs gas production, fell by 16% year on year to Rs129.8 per mmbtu, according to analysts reports.
Since gas revenues are the primary driver for the companys sales revenue, a decline in wellhead prices is bound to affect the companys revenue.
But, new production flows from Manzalai, Hala, Latif and Gambat have commenced, and these look promising as better revenue yields for FY11 are expected at the back of gas production from these areas.
However, the real culprits hurting the bottom line of the company were increased field expenditures and reduced other operating income rather than gas revenues.
Field expenditures increased by nearly 39% over the previous year being pushed up at the back of sunk exploration costs recorded for the Shark-1 well which had been declared dry in the third quarter. It wolfed up Rs1 billion from the companys accounts, but will be a one-time cost only.
Riding the wave of higher field expenditures with the dry Shark-1 well were the expenses incurred for the emergency response plan to control the fire outbreak at Sui, costing the company nearly Rs1.4 billion.
Other operating income, on the other hand, ducked down primarily due to the persistent circular debt issue, which constrained the companys bank deposits and cash balances. It declined by a hefty 37 percent over the last year.
Yet the decline in profits did not hinder dividend payout; an additional cash dividend of 50 percent at Rs5 was given out to shareholders. An interim dividend of Rs4 per share on ordinary shares and Rs3 per share on preference shares had already been paid out in the 2QFY10, bringing the cumulative payout to Rs9 per share.
The icing on the cake, however, were the bonus shares issued to shareholders at 20 percent.
Investors responded positively to the announcement as PPL prices shot up by 3 percent at KSE on Friday.
Overall, with oil price expectations flitting near an improvement or stability at worse, wellhead prices will probably not experience a sizeable dent in the current year.
With improved gas productions and devoid of the unexpected field expenditures incurred this year, PPL steps into FY11 in high spirits.
====================================================
PPL Profit & Loss
====================================================
Rs (mn) FY10 FY09 Change
====================================================
Sales 59,962 61,580 -3%
Field expenditures (18,273) (13,161) 39%
Royalties (7,076) (7,463) -5%
Gross profit 34,612 40,956 -15%
Gross margin (%) 58 67 -13%
Other operating income 2,579 4,081 -37%
Finance costs (155) (94) 65%
Other operating expenses (2,568) (3,103) -17%
PAT 23,321 27,703 -16%
EPS (Rs) 23.42 27.82
----------------------------------------------------
Source: KSE announcement
====================================================