FY17 is likely to turn out better than the previous couple of years for the oil and gas exploration and production companies due to rebound in crude oil prices. Pakistan Oilfields Limited (PSX: POL) is the first to announce its half yearly financial performance. After periods of decline, FY17 has seen improved hydrocarbon flows; the 1HFY17 revenues were up by five percent year-on-year, and 9 percent year-on-year for 2QFY17.
E&P companies have seen their topline recede in FY15 and FY16 on account of lower crude oil prices as well as low production. Domestic crude oil production was down 8.5 percent year-on-year, whereas domestic natural gas production remained almost flat. POL s production in FY16 was down by around three percent along with decline in crude oil prices. However, in 1HFY17, the firm is expected to have witnessed a 5 percent year-on-year growth in oil production, and 19 percent year-on-year increase in average crude oil price to $48 per barrel.
Apart from better volumetric and price growth, the firms bottomline benefited from lower amortization and operating costs. Even more support to the bottomline came from a significant drop in exploration and production costs, which came from the absence of any drywells and exploration activity during the period.
While the prospects of the E&P sector hinge on the revival of crude oil prices, it seems that the E&P companies will have improved earnings in FY17. Firm specific triggers for POL include primarily the anticipation of additional production from TAL block. POL also announced an interim cash dividend of Rs15 per share, which however was lower than what the market was expecting.
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