Rarely does an E&P firm surprise its shareholders by as much as PPL did on Tuesday. The firm, which reported a 20 percent year-on-year drop in nine-month net profits, said it earned Rs16.8 per share - much higher then consensus estimates of Rs15.7 per share. That sent the companys stock price higher by two percent by the days close, in a market that ended flat.
The slide in PPLs revenue only tells half the truth if compared year-on-year, as it does not reflect the fast improving production levels of the firm.
PPLs sales mix, which is highly tilted towards gas revenues, is chiefly responsible for the dip in sales, as the realized gas prices went down by 14 percent year-on-year - even after incorporating the impact of rupees depreciation.
Realized prices for crude oil during the period, however, showed a massive jump of 26 percent on net basis. But only a 15-17 percent share in the revenue pie could not do much to arrest the overall decline in revenues, despite a slight increase in crude oil production, which picked up pace in the third quarter.
The firms gas fields have started yielding improved flow as evident from a nearly 10 percent hike in gas production from the previous quarter. The largest field Sui maintained its production levels along with output increases in Kandkhot and Manzalai, which mitigated the effects of Qadirpur production woes.
Meanwhile, with Qadirpurs pricing issue finally resolved, the field contributed 11 percent in PPLs revenue increase during the quarter ending March, as the firm is expected to have booked around Rs800 million in retrospective gains.
However, the one-off advantage from Qadirpur price revision was blown away by the massive surge in field expenditure, which PPL had to incur as it declared its Shark-1 well dry. The expensing out of Shark-1 is expected to have cost the firm around Rs1.5 billion. Moreover, the Sui fire incident in the preceding quarter also added Rs1.3 billion to the field expenditure.
PPL is relatively less exposed to the circular debt problem, but even the slightest of exposures weighed its other income down by virtue of reduced cash balances. Whether this problem impedes PPLs ability to pay dividends will only be known once the detailed accounts are made public.
Going forward, oil prices are expected to improve or remain stable without much downside risk in the medium term, which bodes well for FY11 wellhead prices. With ever improving oil and gas production and weak rupee, PPL has all the reasons to look for a brighter future.
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PPL P&L
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Rs (mn) 3QFY10 3QFY09 % chg 9MFY10 9MFY09 % chg
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Sales 17,455 15,732 11% 42,742 45,337 -6%
Royalty 2,065 1,897 9% 5,024 5,508 -9%
Field expenditures 5,003 3,015 66% 12,719 8,791 45%
Gross profit 10,387 10,820 -4% 24,999 31,039 -19%
Gross margin 60% 69% -13% 58% 68% -15%
Other income 667 1,068 -38% 1,907 3,344 -43%
Other operating expenses 759 819 -7% 1,851 2,370 -22%
PAT 6,984 7,195 -3% 16,738 20,970 -20%
EPS (Rs) 7.01 7.23 -3% 16.81 21.06 -20%
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Source: KSE notice
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