Earnings Report /

Pakistan Oilfields: 3QFY20 results review: Significant jump in earnings on large exchange gains

  • POL has posted 3QFY20 EPS of PKR18.95, up 64% yoy and 18% qoq. 9M EPS up 25% yoy

  • The significant jump in profits due completely to 8% PKR depreciation during 3Q

  • The result was based on oil price of US$54/bbl, hence up for sharp reduction in coming quarters

Intermarket Securities
23 April 2020

Pakistan Oilfields Ltd (POL) has posted 3QFY20 NPAT of PKR5.4bn (EPS PKR18.95), up 64% yoy and 18% qoq. This takes 9MFY20 earnings to PKR13.9bn (EPS PKR49.13), up 25% yoy. The significant jump in profits is attributed almost completely to the 8% PKR depreciation during 3Q, defying the effect of 16% qoq lower oil prices and flat production.

Key Highlights for 3QFY20:

Net Sales fell 6% qoq to PKR10.7bn, where there was marginal decline in oil production (-1% qoq) to 6,600bpd (down 8% yoy) and flattish gas output (both qoq and yoy) at 87mmcfd. Note that this was nearly unaffected by the sharp decline in Tal block production in the last week of March (due to the closure of some refineries amid Covid-19 lockdown). Compared to last year, lower oil production is largely due to Makori East (Tal), down 16% yoy; ME is about a quarter of POL’s oil production. 

Exploration expenses were down 13% qoq to PKR0.3bn due to the lack of dry well expenses. They are down 67% yoy as POL booked a dry well expense last year related to Hisal block (operated by PPL). 

Other income of PKR2.5bn is extraordinary. This includes about PKR2.0bn of exchange gains from the 8% PKR/USD depreciation during the quarter; which is partly offset by a nonrecurring increase in finance cost by about PKR1.0bn (related to decommissioning costs). 

Amortization expenses fell 11% qoq and 36% yoy due to lower production from Tal block fields.

POL’s earnings look impressive but they are due to large exchange gains. They are based on average oil prices of about US$54/bbl; while crude oil prices have more than halved in 4Q so far. Secondly, production will also depict sharp decline in the next quarter. Therefore, 3Q do not represent the deep degradation of earnings that will likely follow in future quarters. With a TP of PKR338/sh, we have a Neutral stance on POL.