Equity Analysis /
Pakistan

Pakistan Oilfields: Pindori-10 well is successful and has encouraging flows

  • POL announced a successful development well Pindori-10 with initial flows of 832bpd of oil & 2.76mmcfd of gas.

  • Est. EPS impact of PKR1.5 for POL and PKR0.14 for OGDC – assumed oil price of US$55/bbl and gas price of US$3.24/mmbtu.

  • We now have a Buy stance on both POL and OGDC.

Intermarket Securities
5 March 2020

Pakistan Oilfields Ltd (POL) has announced a successful development well Pindori-10 (in the Pindori block, located in Rawalpindi), with initial flows of about 832bpd of oil (maximum flow of 1,103bpd) and 2.76mmcfd of gas (max 2.96mmcfd). POL is the operator of the block with 35% stake, while OGDC has a 50% stake. The well was spud on 28 January 2019, and drilled to a depth of 4,100 meters.

The well is presently being tested and will soon be completed. It is likely to be added to production in slightly over a month’s time, in our view (based on the time it took to add Jhandial well to production and that Pindori block already has a plant to connect the well with).

Based on the average flow, we estimate an annualized EPS impact of PKR1.50 for POL and PKR0.14 for OGDC assuming oil price of US$55/bbl and well-head gas price of US$3.24/mmbtu. 

Note that Pindori was discovered in 1991 and this well will not fetch 2012 Petroleum Policy price. The initial flow compares well with Pindori’s present production levels – 160bpd of oil, 0.5mmcfd gas and 3.5tpd of LPG.

Pindori used to be the largest oil asset of POL, with a peak production of over 9,000bpd in FY06. It ran into severe production issues with water incursions by FY07, which reduced its production to one-third of its output before the water incursions. Thereafter, while depletion at Pindori accelerated, it was overtaken by Tal block as the largest asset of POL in the following years. In FY15, Pindori’s oil reserves were significantly downgraded from 18mn barrels (mmbbl) to less than 1mmbbl.

POL has been trying to revive Pindori’s production ever since. Its previous well, Pindori-9 was drilled in FY13, which was successful but had modest flows (initially 81bpd and 0.26mmcfd). Pindori-7 and Pindori-8 wells drilled prior to that, in FY09-10, were plugged and abandoned. It remains to be seen whether the present well will raise the management’s optimism about future prospects of the Pindori block and lead to more drilling (a catalyst for the stock). 

Note that actual production is often different (lower) from the initial flow guidance. Since Pindori’s gas is wet (i.e can be processed into LPG), it can increment production.

POL is presently trading at an implied oil price of US$45-50/bbl (Brent is presently at US$51/bbl). Our June 2020 TP for POL is PKR466/sh, which now implies a Buy stance (based on oil price assumption of US$65/bbl). The coronavirus outbreak is a serious threat to global oil prices. Hence, a worsening of the crisis will be negative for POL. Our top pick in the E&P space is OGDC with a June 2020 TP of PKR187/sh (which has low sensitivity to oil prices).