E&P Sector: Earnings dip, recovery builds

Pakistan’s listed E&P sector delivered a mixed 9MFY26 performance, with stronger quarterly momentum in 3QFY26 partly offset by weaker cumulative earnings for 9MFY26 versus last year. Sector net sales in 9MFY26 stood at Rs660 billion, down 3 percent year-on-year, while profit after tax declined 7 percent year-on-year to Rs246 billion.

The drop in profitability was mainly driven by lower other income, which fell 40 percent year-on-year and accounted for around 9 percent of the topline. Other than that, higher operating, and administrative expenses, up 11 percent year-on-year also held profits back.

However, the sector benefited from a 22 percent year-on- year decline in exploration costs to Rs36 billion, a 15 percent fall in finance costs, and a 28 percent decline in taxation, which helped cushion the earnings pressure. In 3QFY26 specifically, sector earnings improved 24 percent quarter-on-quarter supported by higher oil prices, lower effective tax rate, and reduced dry-well impact.

Company-wise, Oil and Gas Development Company remained the largest earnings contributor, although net earnings were down 11 percent year-on-year. Its net sales declined 3 percent year-on-year while exploration cost increased 22 percent. The decline in OGDC earnings was largely linked to a sharp 40 percent fall in other income and higher cost pressures, despite 3QFY26 net sales rising on improved oil and gas output.

Operationally, OGDC showed encouraging signs, with production growth across fields during the quarter. OGDC’s oil production also crossed 40,000 bpd, its highest level in more than six and a half years, suggesting improving operational momentum despite receivable and curtailment challenges.

Pakistan Petroleum Limited’s 9MFY26 performance was weaker, with net sales down 6 percent year-on-year and PAT falling by 16 percent. Exploration costs dropped sharply by 64 percent year-on-year due to the absence of dry wells, but this was not enough to offset lower sales, higher operating costs, and a 49 percent decline in other income. Operationally, PPL recorded a sequential increase in total production in 3QFY26, but sales remained flat due to lower realized oil price and higher windfall levy.

Mari Energies (previously Mari Petroleum) performance was strong with 9MFY26 earnings rising 7 percent year-on-year and net sales increasing 5 percent year-on-year. Its 3QFY26 performance was especially strong, with earnings rising by 33 percent, supported by higher net sales and an unusually low effective tax rate.

Operationally, MARI benefited from a 13 and 4 percent year-on-year increase in oil and gas production, respectively. Decline of around7 percent in exploration cost for MARI in 9MFY26 also supported the bottomline, though it rose materially in 3QFY26 due to a dry well.

POL delivered the best cumulative earnings growth among the four, with 9MFY26 PAT up 16 percent year-on-year despite net sales declining 4 percent. Its profitability was helped by a 53 percent decline in exploration costs and lower taxation. Operationally, some gas production growth volumes were offset by weakness in key fields.

Overall, the sector is entering the final quarter on a stronger footing as production curtailment eases and domestic oil and gas output recovers. New field additions and revised gas allocations are expected to support future volume growth.

The outlook remains positive, backed by higher oil price assumptions and improving hydrocarbon production. Domestic output has already started to recover, with oil and gas production moving above recent averages as curtailed volumes normalize.

The sector should benefit from stronger production, better utilization of existing assets, and potential upside from new discoveries and long-term resource projects. However, key risks remain, including circular debt, rising receivables, security challenges, infrastructure constraints, oil price volatility, and tax-related uncertainty.