Earnings Report /

Pakistan Petroleum: 3QFY20 results review: Much lower exploration expenses normalize earnings

  • PPL has posted 3QFY20 EPS PKR5.20, up 3% yoy & 40% qoq. 9M EPS down 12% yoy

  • PPL normalized exploration expenses during the quarter but the result lacked major exchange gains

  • We are Neutral on the stock due to sharply lower oil prices

Intermarket Securities
23 April 2020

Pakistan Petroleum Ltd (PPL) has posted 3QFY20 NPAT of PKR14.1bn (EPS PKR5.20), up 3% yoy and 40% qoq. This takes 9MFY20 earnings to PKR38.6bn (EPS PKR14.18), down 12% yoy. Earnings have normalized qoq as PPL had booked large exploration expenses in the previous quarter.

Key Highlights for 3QFY20:

Net Sales fell 6% qoq to PKR40.9bn, with flat production of 677mmcfd of gas and 14,900bpd of oil. This reflects the effect of 16% lower oil prices and slightly lower well-head gas prices. The most affected oil fields due to the lockdown – Nashpa and Tal block – contribute relatively less to PPL’s revenues. 

Exploration expenses are down 76% qoq to PKR2.5bn as we suspect that PPL booked dry well expenses related to only one well in Bela West (drilled since November 2018). There was an unsuccessful development well in Nashpa as well.

Other income of PKR1.7bn is surprising (seemingly lack of or very little exchange gains) given significant PKR depreciation during the quarter. Flattish finance cost indicate the same. However, other charges of positive PKR0.14bn has some reversal (vs app run rate of PKR1.5-2.0bn per quarter). We await release of accounts to shed more light on this. 

Effective tax rate of 33% is slightly higher than the usual rate of 25% in earlier quarters.

The result is based on average crude oil price of US$54.0/bbl where Arab Light is presently at US$19/bbl; hence its earnings are set for a sharp downgrade. We are Neutral on the stock with a TP of PKR126/sh (based on US$40.0/bbl).