Equity Analysis /

PAKISTAN OIL & GAS: Recent discoveries and better pricing trigger our change to a positive stance

    Vahaj Ahmed
    Vahaj Ahmed

    Head of Industrials Equity Research

    Tellimer Research
    27 November 2017
    Published byTellimer Research
    We upgrade Pakistan Oilfelds and Oil & Gas Development Company to BUY. Maintain HOLD on Pakistan Petroleum. There have been positive changes in Pakistan’s upstream oil and gas industry. We expect additions from the recent discoveries to increase indigenous production from 645 thousand barrels of oil equivalent per day (kboed) in FY17 to 667kboed in FY18f (4% higher yoy). Benchmark Arab Light crude prices have increased more than 50% to US$61/barrel (bbl), which bodes well for oil sales, while the Ministry of Petroleum and Natural Resources (MPNR) in Pakistan has finally approved more lucrative prices on gas sales. As a result, net sales of our Pakistan Oil & Gas universe companies may grow +2 to +49% yoy in FY18f and +10% to +22% yoy in FY19f. Pakistan Oilfields (POL PA, BUY, TP PKR649, ETR 15%) benefits the most from the aforementioned changes, although we believe there is better share price upside elsewhere. We find Oil & Gas Development Company (OGDC PA, BUY, TP PKR201, ETR 31%) the most attractive at current levels. We maintain our HOLD recommendation on Pakistan Petroleum (PPL PA, HOLD, TP PKR212, ETR 12%)