The heavy weight oil and gas sector posted a handsome return of 45 percent (inclusive of dividend) during the outgoing year of 2010, analysts said. Thanks to the rising foreign interest and volume led earnings growth, the sector outperformed KSE 100 index by 19 percent during the year 2010.
National Refinery Limited (NRL) with 63 percent return remained the top performing stock while Attock Refinery Limited (ATRL) stood as the worst performer in oil and gas sector, Farhan Mahmood, senior analysst at Topline Securities said The E&P sector, which consists of two states owned, and two private sector companies, outperformed KSE 100 index by 25 percent with 51 percent return in 2010. "This is despite the fact that circular debt situation remained the major risk factor for E&P sector", he said.
OGDC with 25 percent weight in KSE 100 index posted 57 percent return alone (inclusive of dividend). This is primarily due record foreign flows in Pakistan market in 2010 and OGDC with highest float and compelling valuation regionally attracted foreign interest. "We believe every third share which foreigners owned in 2010 was OGDC", Farhan said.
Amongst E&P companies, only Mari Gas posted negative return in 2010. On the other hand, OMCs (three listed companies in KSE 100 index) and refinery sector (four companies) underperformed KSE 100 index by 21 percent and 3 percent with posting return of 5 percent and 23 percent respectively in 2010.
This is primarily due to higher turnover tax that posed concerns on future earnings of both OMCs and refineries which government withdrew later at the end of the year. Moreover, frequent changes in oil pricing mechanism was another major issue which restricted investor to take position in those scrips, he noted.
The National Refinery Limited (NRL) being least effected from circular debt (due to its huge cash) and lower risk to change regulated oil pricing (due to its stable lube business) posted highest return of 63 percent in oil and gas sector. On the other hand, while Pakistan Refinery and Attock Refinery both remain the worst performers due to negative fuel margins, he said. Out of 12 listed oil and gas firms, only Shell Gas LPG is not included in KSE 100 index and hence it is excluded from sector return calculation.