Equity Analysis /
Pakistan

Pakistan Oilfields: Results preview – Strong jump expected in 4Q profits on higher prices

    Saad Ali
    Saad Ali

    Head of Research

    Intermarket Securities
    29 July 2019

    Pakistan Oilfield Ltd (POL) is expected to post 4QFY19 NPAT of PKR5.15bn (EPS PKR18.15), which will be up 47% yoy and 57% qoq. This will take FY19 earnings to PKR16.3bn (PKR57.52/sh), up 43% yoy. We expect the result to be accompanied with a final dividend of PKR25/sh, taking full-year payout to PKR45/sh. The handsome expected jump in FY19 results is largely driven by PKR depreciation (flattish production).

    Key highlights for 4QFY19 estimates:

    • Net Sales is expected to rise 14% yoy/qoq due in large to PKR (average) depreciation of 27%/6% yoy/qoq. Production of both oil and gas were largely flattish yoy/qoq at about 7,200bpd and 90mmcfd respectively, with decline in Jhandial offset by marginal improvement in Tal block (Makori East and Maramzai). LPG output is expected 172tpd (up 5% yoy).
    • Expected exchange gains of PKR1.4bn will be mostly offset by jump in finance costs (decommissioning costs). No dividends from associated companies (APL, NRL and Attock Gen).
    • A key difference in this result will be lack of dry-well expense, booked in the previous quarter (about PKR2.5/sh after tax impact).
    • Expected lifting cost of US$3.9/boe (ex-depreciation and amortization) for 4Q is slightly lower than the average rate of US$4.5/boe prior to Jhandial’s discovery and resultant lower contribution from Tal block to overall output.

    We have a Buy rating on POL (TP PKR455/sh, upside 17%) due to the 11% stock price correction in the past 3mths. A FY20f dividend yield of 13% is the main attraction in the stock. POL remains the most sensitive E&P to oil prices and PKR devaluation; further slips will bode well. We await clarity on Jhandial’s prospects (timeline for a possible second well still uncertain, according to PPIS data) as exploratory drilling at Tal has stalled. Amid any production issues at Jhandial, concerns over POL’s low reserves life (without it) will return, in our view. Note our estimate does not factor any IFRS-9 provision.