Earnings Report /
Pakistan

Pakistan Oilfields: Q2 FY 20 results: Sequential growth from jump in sales

    Intermarket Securities
    21 January 2020

    Pakistan Oilfields Ltd (POL) posted Q2 FY 20 NPAT of PKR4.6bn (EPS PKR16.07), up 13% yoy and 14% qoq. This takes H1 FY 20 earnings to PKR8.6bn (EPS PKR30.19), up 9% yoy. 

    The Q2 result is slightly better than our estimate of PKR15.44/sh. Key deviation from our estimate came from higher-than-expected net sales, owing to potentially higher-than-expected realised crude oil prices. POL also announced an interim dividend of PKR20.0/sh. 

    Key highlights:

    • Net Sales rose 12% qoq to PKR11.5bn, where average crude oil prices were up 3% qoq to US$65/bbl and there was marginal growth in overall production. Oil and gas production during the quarter clocked in at 6,680bpd and 86mmcfd, respectively. Production at Jhandial remained stable at 400bpd oil while Makori Deep ramped up output to over 2,000bpd after bringing Makori Deep-2 well online (offsetting decline in Makori East). 
    • As expected, exploration expenses continued to rise over the previous quarter. They were up 10% qoq (quadrupled yoy) as both POL and MOL have been increasing geological surveys in own-operated fields and Tal block, respectively. However, they are slightly lower than our estimate.
    • Other income is up 71% qoq due to lack of exchange losses, which were booked in 1Q. Finance costs (related to decommissioning costs) also normalised amid stable exchange rate. Both have returned to normal levels, in our view. 
    • Amortisation expenses are up 43% qoq potentially due to the ramp up of production in Tal block relative to their reserves size (note that Makori East’s reserves where recently downgraded during 2Q; ME is the largest oil producing field for POL). 

    The result is broadly in line with our expectations, and have removed several one-offs from previous quarters. Hence, future quarterly profits should be similar, in our view. 

    We are Neutral on POL, as the stock is trading at an implied oil price of nearly US$62/bbl, which is close to the present level of Brent crude oil price (which has downside risks), in our view. Key triggers will be positive results from multiple wells being presently drilled by POL or MOL – which are key in sustaining high forward FCF yields (13-14%) of the company.