Pakistan Oilfields Limited

The Attock Oil Company Limited (AOC) subsidiary Pakistan Oilfields Limited (PSX: POL) is involved in the exploration, drilling, and production of crude oil and gas within the nation. It produces LPG, natural gas, and crude oil, which it sells under the POLGAS brand and through its subsidiary CAPGAS (Private) Limited. In addition, POL manufactures sulfur and solvent oil. Its extensive pipeline network is used to deliver crude oil to the refinery of the Attock Group and its subsidiary, Attock Refinery Limited (ATRL).

The group, Attock Oil Corporation (AOC), holds more than half of the shares in the corporation. Attock Oil Company. is an oil conglomerate with vertical integration. The image displays a shareholding breakdown by category.

POL’s historical financial performance

Based on the company’s historical record, POL’s earnings and revenues increased by 34 percent and 10 percent, respectively, in FY17 compared to the preceding two years. But during the course of the year, the company’s output decreased.

In FY18, the company’s revenues increased by more than 19%. Additionally, POL’s earnings increased by 17.6% on an annual basis. Better crude oil prices and the greatest crude oil production in the previous ten years contributed to the increase in revenues. The collection of seismic data increased operational activity, and dry and abandoned wells all contributed to the exploration costs remaining on the higher side. Currency depreciation resulted in exchange profits that boosted the company’s bottom line.

FY19 saw continued increases in oil prices. A significant devaluation of the home currency also helped to support the earnings. POL’s topline increased by 25 percent year over year, mostly due to a 14 percent rise in the price of crude oil internationally. But volumetric sales were still modest, particularly for crude oil, and gas volumes hardly increased. In addition to rising oil prices, POL’s FY19 profitability increased by 48 percent year over year due to lower exploration and prospecting expenses and stronger currency depreciation. The lack of a dry well and the poorer seismic acquisition were the primary causes of the decreased prospecting and exploration.

The global pandemic and the drop in oil prices marred FY20, and these events were the main causes of the slower increase in the sector’s earnings for oil and gas exploration and production. POL’s revenues decreased by 13 percent year over year, with a 48 percent reduction in sales revenue during the country’s pandemic-affected 4QFY20. Oil prices and declining volumetric sales were the main causes of the revenue decrease. POL’s oil and gas output fell by 13 and 9 percent year over year during FY20, respectively, while average oil prices fell by 25 to 26 percent year over year. The fact that there were no dry wells in FY20 meant that exploration and prospecting costs were reduced. With lower interest rates during the year, other income and finance costs also decline for POL. POL’s earnings in FY20 were hence flat.

The production of hydrocarbons remained low in FY21, and global crude oil prices remained low. The sector’s profitability in FY21, including POL, was impacted by these variables as well as exchange losses. POL’s revenues in FY21 were flat overall. Due mostly to currency loss, fewer income from bank deposits, and higher taxes as a result of lower exploration and development costs, the company’s earnings decreased by about 18 percent year over year. Throughout the year, there was a decrease in the output of gas and crude oil of 2.5 percent and 0.77 percent year over year, respectively.

Pakistan Oilfields Limited reported a staggering 94 percent year-over-year increase in earnings for FY22. Higher topline revenue was the source of the oil and gas company’s earnings rise. Due to rising crude oil prices and currency devaluation, POL’s revenues rose by 44 percent on an annual basis. In FY22, crude oil prices increased by more than 65 percent year over year, despite a roughly 10 percent decline in currency value. However, the topline growth was still being impacted by the unsatisfactory oil and gas production numbers. Regarding products, in FY22, flows of natural gas and crude oil decreased by 10 and 9 percent, respectively. Additionally, there was a significant increase in exploration and prospecting spending, which grew by 77 percent year over year in Y22 as a result of increasing seismic activity and hence increased geological cost. Finance costs posted a whopping increase of 20.4 times due to rising interest rates. However, the positive impact of higher currency depreciation was seen in seven times growth in other income due to exchange gains.

POL’s FY23 earnings increased considerably year over year by 41 percent. POL’s revenue increased by almost 17 percent in FY23 compared to the previous year, mostly as a result of the rupee depreciating against the US dollar. On the production front, however, the E&P company continues to witness a reduction in gas and oil production along with a 3 percent annual decline in oil prices. POL’s gross margins increased in FY23 because of a notable (65% YoY) decrease in the amortization of development and decommissioning expenditures. POL’s exploration and prospecting expenses increased by an astounding 7.7 times in FY23 due to two dry wells that the E&P firm had to pay for. In addition to the improvement in topline, POL’s FY23 bottomline gain was brought about by an increase in other income coming from exchange gains on foreign currency and higher income from cash and cash equivalents. During the year, other income increased by 131 percent year-on-year.

POL in 1HFY24 and beyond

The declining levels of both oil and gas output are a major source of concern for POL and other E&P businesses. The E&P production landscape has been characterized by minor finds and depleting reserves, which call for regulations and incentives from the government and industry to encourage both domestic and foreign investment.

POL reported first-half FY24 (1HFY24) earnings up 22 percent year over year; the main driver of this development was the depreciation of the local currency relative to the US dollar. In 1HFY24, the company’s topline increased by 13 percent year over year, mostly because of the weaker currency during that time. This is evident from the ongoing drop in oil and gas production, which decreased by roughly 6.3 percent annually. Again, the weaker currency was the main factor in POL’s 13 percent year-over-year revenue increase in the second quarter of FY24. Throughout the quarter, the company’s oil and gas output showed declines of 5 percent and 3 percent, respectively, while realized oil prices fell by one percent year over year.

Additionally, the company’s exploration costs decreased dramatically, which helped the bottom line. In 1HFY24, POL’s exploration expenses decreased by 79 percent year over year and by 57 percent year over year in the absence of a dry well in comparison to the previous year. Due to foreign currency exchange losses offset by exchange gains, the other revenue showed an 11 percent annual fall. However, during 2QFY24, the company’s other income increased by 37 percent year over year. Overall, POL’s bottomline growth stood at 22 percent for 1HFY24, and 32 percent year-on-year for 2QFY24.