Equity Analysis /

Pakistan Oil & Gas – PPIS Reserves Update

    Saad Ali
    Saad Ali

    Head of Research

    Intermarket Securities
    10 October 2019

    Upgrades for key assets of POL and PPL

    As per the latest PPIS data (June 2019), Pakistan’s overall crude oil and natural gas reserves stand at 568.5mn barrels (up 115% since Dec 2018) and 21.4tcf (flat since Dec 2018), respectively. The doubling of oil reserves are due to additions of discoveries (2014-17) of a non-listed E&P, Petroleum Exploration Ltd (PEL); without it, oil reserves are up 9% since Dec 2018.

    Overall, there are little changes in hydrocarbon reserves of major fields in Pakistan, with the notable exception of Adhi, Gambat South and Tal block. Therefore, this is a more positive event for Pakistan Petroleum (PPL, Buy, TP PKR165/sh) and Pakistan Oilfields (POL, Neutral, TP PKR415/sh) than for Oil & Gas Development Co. (OGDC, Buy, TP PKR180/sh).

    Tal block: Positive revisions extends its overall reserves life

    • Tal’s oil reserves have been upgraded by 7% since Dec 2018 to 30.3mn barrels. It produced about 22,000bpd of oil in FY19.
    • On a granular level, however, oil reserves of its largest field – Makori East – are lowered by 19% to 10.3mnbbl (paltry reserves life of 3 years). The field has been under depletion phase recently, despite addition of new wells. MOL, the operator of Tal, has planned ME-7 for FY20, which may stall the decline in production. It is presently producing 10,000bpd (flat yoy).
    • On the other hand, oil reserves of more recent finds – Mardankhel – have been upgraded by 63% to 9mnbbl (7 years reserves life). Mardankhel is presently producing 4,600bpd, and MOL has planned a third well in the field for FY20.
    • Trend in gas reserves is more encouraging. Overall gas reserves (across nine fields) have been upgraded by 9% to 730bcf, which is broad based and led by Mardankhel, Manzalai and Makori East.
    • All in all, changes in Tal’s hydrocarbon reserves bode well for all three E&Ps, but POL benefits profoundly, because Tal contributes over 60% of its revenues.

    PPL: Meaningful revisions in Adhi and Gambat South

    • Key assets of PPL, in particular Adhi and Gambat South, have also seen handsome upgrades in reserves.
    • Most notable change in its oil reserves is in Adhi, where addition of Adhi South (discovered in 2018) nearly doubles it to cumulative 26mnbbl. PPL has been drilling aggressively in Adhi (2-3 wells annually) over the past five years, which has led to significant growth in production. Prior to this upgrade, its reserves suggested the field may soon deplete sharply (the outlook has improved significantly with the upgrade, in our view).
    • Another major upgrade for PPL is in Gambat South. Gas reserves of this block are up 47% due to additions of recent discoveries – Badeel and Hadaf (discovered in 2018). The block is now the third largest by reserves for PPL after Sui and Kandhkot.
    • No major changes for Sui and Kandhkot. In Sui, PPL has been drilling aggressively (3-4 wells a year) – only to plateau its production close to 400mmcfd.  

    OGDC’s key assets are mostly stable; no change in Jhandial

    • No major change for key assets operated by OGDC where 4-5% decline since Dec 2018 suggests changes due to production only, in our view.
    • This is because most of OGDC’s recent development activity has been focused on enhancing LPG production – from Nashpa-Mela project and KPD-TAY Phase-II.
    • Reserves of POL’s major find Jhandial remain stable at 23.5mn bbl of oil and 287.5bcf of gas. POL has planned a second well (appraisal) in the field for FY20.