FY19 has turned out a better year for the oil and gas exploration and production companies not only because of higher crude oil prices during the year, but also massive domestic currency depreciation against the greenback. With the result season in swing now, both these factors are to play a huge role in the kind of profits these companies achieve in FY19.

Where three out of four listed E&P companies are yet to announce their financial performances, Pakistan Oilfields Limited (PSX: POL) has posted 48 percent increase in net profits, primarily led by a 14 percent year-on-year increase in international crude oil prices, and the PKR/USD slide.

This is where the caveat lies. Almost all credit to oil prices and currency depreciation for the increase in earnings of the E&P companies means that the exploration and drilling activities remained tepid for POL. This can be verified by not only the lower exploration and prospecting activity as seen from lower exploration expense, but also lower production volumes as a result as well. While OGDCL, PPL and MARI are yet to announce their financial performance for FY19, more or less similar volumetric growth and operational activity is likely. Average daily volumes for gas and crude oil by OGDCL were down by one percent, year-on-year in 9MFY19. For PPL, production volumes for oil and gas were down by one and two percent year-on-year respectively.

Stagnation in exploratory wells and discoveries and lower seismic data acquisition is also likely to persist beyond FY19. On the other hand, the external volatile factors like crude oil prices with bearish sentiments add to the unpredictability of sanguine profitability forecasts for the E&P players. This is evident from how the E&P sector is has performed against relative to the benchmark index that is also showing weakness over the last year.