Equity Analysis /

Pakistan Oilfields: FY 19 results: Above expectations on higher exchange gains

    Intermarket Securities
    29 July 2019

    Pakistan Oilfields Ltd (POL) has posted 4QFY19 unconsolidated NPAT of PKR5.7bn (EPS PKR20.07) which is up 62% yoy and 73% qoq. This takes FY19 earnings to PKR16.8bn (EPS PKR59.44), up 48% yoy. POL also announced final dividend of PKR30.0 (full year PKR50/sh). Both 4Q earnings and final payouts are above expectations.

    Major deviation from our estimate came from (i) lower Opex, and (ii) higher exchange gains.

    Key highlights for Q4 FY 19:

    • Net Sales are up 4% yoy (also up 4% qoq) to PKR11.0bn, where PKR devaluation and higher oil prices (to a lesser extent) are majorly attributed. There was hardly any production growth during the quarter where moderate improvement in Tal block was overcome by lower output from Jhandial. Oil and Gas production for 4Q are estimated at 7,200bpd and 90mmcfd respectively.
    • Opex came in much lower than expected at PKR2.0bn; this implies below US$2.0/boe against an average of over US$3.5/boe. This happened in 4QFY18 result as well where POL reversed some drilling expenses in its own fields. We await clarity on this from management.
    • Exchange gains came in much larger than expected at about PKR3.0bn due to 7% PKR depreciation during 4Q. We expected PKR1.4bn and most of it to be offset by higher decommissioning costs. 
    • Effective tax rate in 4Q came in at 29%, as expected.  
    • Note we had not incorporated any IFRS-9 provision, and the result came in better than expected.

    We have a Buy stance on POL with a TP of PKR455/sh (FY20f DY. POL’s high sensitivity lent it strong earnings growth. Hereon, clarity on development plans for Jhandial will be key.

    Risks: (i) Production issues persist in Jhandial which leads to downgrade of its reserves, (ii) decline in oil prices and PKR appreciation, and (iii) steep decline in Tal’s output.