Thursday, 10 October 2013

Pakistan Petroleum Sector: Flat production, Sales To Grow

Pakistan Petroleum Sector: Flat production, Sales To Grow
Based on provisional production statistics released by Pakistan Petroleum Information Service (PPIS), the country’s total oil and gas production during 1Q (Jul-Sep) of FY14 stood at 796kboepd (thousand barrels of oil equivalent per day), down 1.3% when compared to the same period last year. Oil production stood at 79.7kbopd (thousand barrels of oil per day) depicting a growth of around 14.5%YoY. On the contrary, gas production dropped by 2.8% to 4.0bcfd (billion cubic feet per day) from 4.1bcfd in 1QFY13.
We believe revenue-impact of oil production growth should more than offset the decline in gas production as net realized prices of oil are approximately 6.5 times than that of gas. Not much gain will be driven from Arab Light prices (reference crude for oil & gas pricing) which averaged US$108.1/bbl in 1QFY14 vs. US$107.9/bbl in 1QFY13. However, during last 3 months, Pak-rupee devalued 8.7% against US Dollar versus average exchange rate in 1QFY13 which will help revenues and profits. Thus, we expect net sales of E&P companies to raise 10-12% in 1QFY14 which as a result will generate better profits.

Pakistan Oilfield Limited (POL): Production up 12%
Pakistan Petroleum Sector: Flat production, Sales To Grow
Oil & gas production of Pakistan Oilfields Limited (POL) rose to 20.2kboepd in 1QFY14 as against 18.0kboepd in the same period last year up 12.1%. The Company’s Oil Production grew by 32.2%YoY to 5.6kbopd during the period while Gas Production stood at 82mmcfd (up 5.9%). The growth in production is mainly attributed to oil production from Tal Block which averaged 15.6kbopd in 1QFY14, up 93% versus 1QFY13 (8.1kbopd) and 47% versus FY13 (avg. 10.6kbopd). Thus, we expect POL’s 1QFY14 EPS to range between Rs14-15 compared to Rs10.85 in 1QFY13.

Oil & Gas Development Company (OGDC): 4% Decline In Production
Oil & Gas Development Company OGDC’s combined oil and gas production in the said period stood at 250.4kboepd as against 259.7kboepd in 1QFY13 (down 3.6%YoY). Oil Production posted an increase of 2.8% as it stood at 40.2kbopd versus 39.1kbopd in the same period last year. This Rise In Production was mainly due to higher oil production from Tal Block, Nashpa and Sinjhoro. The company’s gas production fell to 1,179mmcfd; a decline of 4.7%YoY mainly led by lower production from Uch and Qadirpur. We estimate an EPS of Rs6.0-6.2 in 1QFY14 slightly up against 1QFY13’s EPS of Rs5.97.

Pakistan Petroleum Limited (PPL): Production Down 4.2%
Total Oil & Gas Production of Pakistan Petroleum Limited (PPL) when compared to 1QFY13 declined to 160.7kboepd (down 4.2%). Company’s Oil Production in 1QFY14 registered a growth of 27.6%, rising to 11.4kbopd from a low base of 8.9kbopd in the corresponding period last year. On the contrary, gas production witnessed a decline of 5.9%YoY to 838mmcfd in 1QFY14. Although Company’s Oil Production grew substantially during the period (primarily driven by Tal Block and Nashpa), the impact was offset by a natural decline of 48mmcfd gas from Sui (down 9.7%YoY). 1QFY14 EPS is estimated at Rs5.0-5.2 versus Rs5.73 in 1QFY13.

‘Overweight’ Maintained
Pakistan Petroleum Sector: Flat production, Sales To Grow
We believe the rise in Overall Oil Production so far supports our view that profitability of E&P companies will be driven by oil volumes and oil sales. Moreover, we expect that the connection of Makori GPF and Makori East-3 will further improve oil production levels from Dec 2013. Please refer to our sector report titled ‘Pakistan Oil & Gas: More Oil, More Profit’ dated October 2, 2013 for further details. At current levels, E&P sector is trading at FY14E PE of 7.5x and offers a dividend yield of 6.6%. We maintain our ‘Overweight’ stance on the sector with ‘Buy’ recommendation on POL and OGDC, and ‘Hold’ on PPL.

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