Pakistan Petroleum Limited is the last listed E&P Company that announced its financial performance for 1HFY19 last week and the drivers for earnings growth are the same for the firm as the rest of the sector

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Growth from 1QFY19 picked up pace, and the company’s revenues for 1HFY19 grew by 29 percent year-on-year. The revenues jumped up by over 40 percent, year-on-year in 2QFY19. 1HFY19 sales growth was driven by around 31 percent higher crude oil prices and significant currency depreciation. Other than that, higher Sui well-head gas price as well as slight increase in gas production volumes also lifted the revenues for PPL.

Gross margins for PPL remained almost the same during the period as operating costs and royalties rose in tandem with revenues. Key constituents of operating cost increase here include the costs related to depreciation amortisation and well interventions. On the other hand, net margins grew as net income increased by over 50 percent, year-on-year. Currency depreciation has double benefit for the E&P firms; apart from increase in revenues, the growth in other income is largely attributable to higher exchange gains. Also the company highlights that the bottom-line was further lifted due to the reversal of impairment loss on an investment due to currency depreciation and discovery of hydrocarbons in Ziarat Block.

The company would have touted earnings increase of over 50 percent year-on-year, had the exploration and prospecting expenditure increased moderately. 87 percent year-on-year growth in exploration and prospecting expenditure in 1HFY19 pulled down the earnings. The rise in exploration and prospecting expenditure was because of high cost of dry wells charged in the current period as well as due to the recovery of past cost from United Energy Limited against farm out of the company’s 50 percent working interest in Kotri North Block along with transfer of operatorship, as highlighted by the company. Overall, PPL’s net profit after tax stood 41 percent year-on-year higher in 1HFY19 and over 80 percent in 2QFY19.