Profit of the oil exploration and production sector- the country’s largest listed sub-sector with market capitalization of $17 billion- rose in 9MFY14. Pakistan’s listed oil and gas explorers saw their earnings improve by 18 per cent versus 9MFY14 as revenues grew 14 per cent while higher non-core income further enhanced the bottom-line. However, from the previous quarter ending Dec 2013, sector earnings have declined primarily due to appreciation of Pak Rupee.
Three listed firms 9-month profits at Rs139 billion Our E&P universe comprises of POL, PPL and OGDC. This sector’s topline grew from Rs268 billion to Rs305 billion in 9MFY14 led by 11 per cent oil production growth and 8.5 per cent average PKR devaluation against US$. As a result, we estimate average net realized prices of oil and gas were around 9 per cent higher. Moreover, exploration costs of the sector were down 21 per cent at Rs11.7 billion (OGDC Rs6.7 billion, POL Rs1.4 billion, PPL Rs3.5 billion). During the period under review, sector’s profitability was seen at Rs139 billion (US$1.3 billion) versus Rs118 billion (US$1.2 billion) in corresponding period last year.
“All three of sample companies recorded higher other income in 9MFY14 due to which cumulative pretax profits rose to Rs200 billion, up 15 per cent,” observed Vahaj Ahmed, an analyst with Topline Securities in a report.
“We believe this was mainly driven from interest income received by OGDC and PPL (on PIBs worth Rs55.7 billion and Rs21.8 billion, respectively) as a result of circular debt settlement by the newly-elected government. As for POL, 32 per cent hike in other income was primarily driven by strong dividends from its associate companies.” Moreover, the sector recorded an effective tax rate of 30 per cent in 9MFY14 versus 32 per cent in corresponding period last year which further provided boosted the sector’s profitability. According to statistics, OGDC recorded the highest earnings growth of 20 per cent against sector average of 18 per cent, witnessed from 13 per cent growth in the company’s topline.
OGDC recorded 25 per cent lower exploration costs during the period which saw operating margins rise to 66.5 per cent. Moreover, 32 per cent growth in other income attributed to the 15 per cent growth in pretax profits, while net earnings enhanced further as the company recorded 2.7pps drop in effective tax rate down from 32.8 per cent in 9MFY14.