Waning foreign direct investment along with the drying up of local reserves and hence weaker production stats for domestic E&P companies have been affecting the upstream oil and gas sector for a while. So, a price swing for crude oil is a breather for the upstream oil and gas sector. FY22 has started off well in that sense as the large spike in crude oil price as compared to the previous year has offered a jump in the sector’s earnings.

But there has also been another factor that has pushed earnings of the sector; oil and gas production that had remained under duress in FY21 due to lack of demand amid COVID-19 pandemic has seen some revival to previous levels. Oil and Gas Development Company Limited (PSX: OGDCL) in 1QFY22 is seen to have benefited from the two important Ps for the upstream sector: price and production. OGDCL’s revenues for the first quarter of FY22 grew by 27 percent year-on-year, while the bottomline growth stood at 44 percent year-on-year.

Topline growth was driven by a whopping 60 percent year-on-year rise in average realized crude oil prices along with a 5 percent rise in average realized natural gas price. Production of crude oil was up by 3.1 percent year-on-year too. However, gas production was down by 7 percent year on year. Along with the increase in crude oil and LPG production volumes, average realized prices for natural gas up by 8 percent year-on-year were the driving factors for revenue growth.

Growth in OGDCL’s bottomline was also lent by lower operating and exploration expenses. Prospection and exploration expenditure was down by 23 percent year-on-year as one well was declared abandoned and dry in 1QFY22 versus three in 1QFY21. OGDCL spud three wells including two exploratory wells and one development well. In comparison, the companies pumped 4 wells in 1QFY21. It also made three discoveries.

Oil prices continue to rally with little forecast for a nosedive soon, which means that the coming quarters will continue to ride the bulls in the oil market. Added currency depreciation will further boost earnings for the E&P sector.