While the rising global crude oil prices may be a cause of concern for some, they do not worry the producers one bit; and Pakistan Oil Fields (POL) 9MFY11 results are a testimony to the notion. The E&P companys profits for the period surged by a massive 40 percent on year-on-year basis.
There weren many surprises with the announcement- as every account from top to bottom was in line with the markets consensus estimates. The simplest description of the nine month performance could be put in one sentence - hey produced more, they sold at higher prices, hence they earned more. Yet, a deeper look wouldn go amiss.
The topline growth of 40 percent reflects sizeable growth in both oil and gas production with the latter growing by a remarkable 51 percent year-on-year. The growth in oil production, though relatively subdued in comparison to gas, was still in double digits - laying a solid base for the other variable (i.e. the price) to strengthen it further.
The massive rise in gas production owes a lot to the Manzalai field that acted as the saviour. The commissioning of Manzalai CPF in November 2010 boosted the firms gas production. Moreover, Pindori field also contributed significantly - mitigating the production loss from the Pariwali field.
The 16 and 8 percent growth in oil and gas realised prices respectively, further strengthened the revenues. The growth in realised prices of oil in the third quarter was even stronger as the MENA unrest started stoking global oil prices - well reflected in the 25 percent rise in realised prices for 3QFY11.
The bottom line received further support owing to the integrated structure of the group - with POL reaping dividend incomes form Attock Petroleum and National Refinery, especially in the first half of the year.
Suspension of MOLs exploratory well, in which POL has 30 percent interest, proved to be the only glitch in an otherwise healthy income statement. It seems POL has taken the safe route of expensing out the well in 3QFY11, which is why the exploration cost more-than-doubled during the quarter.
Going forward, the E&P companies are bound to face a slide in production flows for a variety of reasons ranging from security concerns to depletion of fields. The periodical dip in production, on quarter-on-quarter basis, shows the trend is likely to continue for another 3-4 quarters.
Oil prices, will be a key factor and POL would not mind the Arab unrest to continue as long as it supports the oil prices. Increased contribution of gas revenues will give heart to the company, even if oil prices fall against all expectations, as gas wellhead prices are expected to remain on the higher side since they follow a six-month lag.
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POL P&L
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(Rs mn) 9MFY11 chg 3QFY11 chg
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Sales 18,151 42% 6,575 26%
Cost of sales 6,830 35% 2,364 17%
Gross profit 11,321 46% 4,212 32%
Gross margins % 62% 3% 64% 5%
Other income 1,405 30% 375 58%
Exploration costs 924 6% 623 114%
PAT 7,839 40% 2,638 16%
EPS (Rs) 33.14 11.15
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Source: KSE notice
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