Earnings Report /
Pakistan

Pakistan Oilfields: 1QFY22 review – Better than expected on lower opex

  • POL’s 1QFY22 result exceeds expectations and is up 38% qoq

  • Key deviations from our estimate are moderately lower Opex and Finance costs

  • We highlight POL’s FY22f DY of 17% and thus reiterate it as one of our top picks

Intermarket Securities
22 October 2021

Pakistan Oilfields Ltd (POL PA) has posted an unconsolidated net profit of PKR5.3bn (EPS PKR18.52) for 1QFY22, up 38% qoq and 45% yoy, which is higher than our EPS estimate of PKR17.13. Key deviations from our estimates are lower Opex and Finance cost, but these are partly offset by higher-than-expected exploration and amortization expenses.  

Key highlights for 1QFY22:    

  • Net Sales have clocked in at PKR11.0bn, up 22% qoq (20% yoy), where both oil and gas production were higher by a mere 2% qoq to c.6,850bpd and c.540mmcfd, respectively. Hence, revenues are majorly lifted by the 9% higher crude oil prices and c.7% PKR depreciation qoq (along with higher well-head gas prices).

  • Opex of c.PKR2.0bn are up 11% qoq - lower than our estimate of PKR2.2bn - at an estimated US$4.10/boe (without amortization), nearly same as in the previous quarter. Amortization expenses, on the other hand, have come in higher at PKR774mn vs. an average of c.PKR550mn during FY21.

  • Exploration expenses of PKR450mn, up 44% qoq, suggest healthy activity on the exploration front. This is attributed to the 3D seismic surveys conducted in the Taung block (operated by Mari Petroleum).

  • Other income has doubled qoq to PKR2.7bn, thanks to big exchange gains. But, finance costs are down 39% qoq (should have increased in tandem with Other income due to exchange losses related to future decommissioning costs). We await more clarity on the latter.

  • Effective tax rate has normalized to 29% compared with average 38% in the previous three quarters (earlier booked deferred tax adjustments related to certain development expenses).

We consider the result to be broadly in line with expectations, except for certain operating expenses. POL presents a good investment opportunity with expected forward dividend yield of c.17% even if we assume average oil prices of US$70/bbl, while its peers are likely to face worse circular debt amid high oil prices, in our view. We have a Buy stance on POL with a June 2022 TP of PKR502/sh.