Profitability of the Exploration and Production (E&P) sector has increased by 11.8 percent to Rs 52.77 billion in the first nine months of the current fiscal year (2006-2007) as compared with Rs 47.19 billion during the corresponding period of last year.
The three listed E&P companies (PPL, OGDC and POL) recently announced their results for the nine months of FY07 and in terms of earnings growth, PPL stood first with 37 percent growth. POL and OGDC experienced earnings growth of 12 percent and 4 percent respectively.
Umer Bin Ayaz, an analyst at JS Research said in terms of contribution towards the sector's profitability, OGDCL occupies the major share of 66 percent. PPL and POL have the respective shares of 25 percent and 9 percent in the nine-month period of FY07 sector's earnings.
Jawad Haleem, a senior research analyst at Atlas Capital Market, said this increase in profitability was due to a 10.3 percent increase in sales revenue which was mainly a result of higher energy prices. At the same time, costs rose by 16.8 percent leading to operating profits to increase by 6.8 percent to Rs 72.88 billion and operating margins to squeeze by 2.1bps to 63.4 percent from 65.5 percent recorded during nine months in FY06.
Financial and other charges were up 131 percent and 8.3 percent respectively while other income grew by 15.7 percent. Support to the bottom-line also emanated from a 3.1bps on year-on-year decline in effective tax rates averaging 28.4 percent this year. Sector earnings during the third quarter alone witnessed a rather flat movement on a quarter-on-quarter basis standing at 17.46bps.
PPL: For 9MFY07 PPL announced net profit of Rs 13.1 billion (EPS Rs 19.1) compared to net profit of Rs 9.5 billion (EPS Rs 13.9) for the corresponding period last year. Revenue stood at Rs 28bn - higher by 26 percent versus that of the same period of FY06.
This rise in revenue is primarily due to 30 percent upward revision in gas wellhead prices of Sui and Kandhkot fields that account for around 81 percent of the total gas production of the company. Since more than 85 percent of the total revenue is derived from gas production, the higher crude oil prices during 9MFY07 provided little support to the earnings of the company.
OGDC: OGDC reported earnings of Rs 34.6 billion (EPS Rs 8.05) for 9MFY07 versus the profit of Rs 33.2 billion (EPS Rs 7.72) for the same period of FY06, thus registering a growth of 4 percent. This marginal increase in the bottom line is mainly result of 7 percent downward revision of gas wellhead price of Qadirpur field in 3QFY07, offsetting the impact of 6.5 percent increase in the oil production over the period.
This field accounts for more than 40 percent of the company's total gas production, which makes up 45 percent of its total revenues. 101 percent growth in exploration and prospecting expenditure, on the back of aggressive exploration activities, also contributed to restricting the bottom-line growth of the company.
POL: For 9MFY07, POL posted earnings of Rs 5 billion (EPS of Rs 25.5) against Rs 4.4 billion (EPS of Rs 22.3) in 9MFY06, depicting YoY growth of 15 percent. The growth in earnings is primarily attributed to 7 percent increase in oil prices on YoY basis. The lower exploration cost compared to 9MFY06, due to a reversal in 2QFY07 related to Manzalai field, also supported the growth in 9MFY07 earnings of the company.
"We expect the overall profitability of sector to maintain its growth performance in the last quarter of FY07", analysts said and added moving further forward, the sector is likely to show 17 percent growth in earnings in FY08, based on average Arab-light oil price assumption of US $54 per barrel.
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