The overall profitability of Exploration and Production (E&P) sector showed a handsome increase of 26 percent to Rs 82.7 billion in the nine months period of FY11 as compared to Rs 65.7 billion in the same period last year.
"Improved global economic outlook coupled with civil unrest in the Middle East and Africa (MENA) region has rendered into hike in international crude oil prices, which subsequently has reflected positively on the listed E&P sector's profitability during this period", Nauman Khan, an analysts at Topline Securities said.
Furthermore, ramp-up in the production from Tal and Naspha blocks have also played a key role, which compensated the decline in production of other major fields, he added. During the nine months of FY11, sector's top-line rose by a significant 21 percent on year-on-year basis to Rs 202.8 billion primarily on the back of favourable oil price movement. During this period, sector net realised oil prices increased by 12.7 percent to $66.8 per barrel, while net realised gas prices stood at $2.1 per mmcf, up 12.4 percent as compared to the same period last year.
In addition, enhanced production from Tal and Naspha blocks more than mitigated the decline in production from other fields. Overall, listed E&P sector's oil and gas production increase by 3.8 percent and 3.5 percent respectively. Furthermore restricted growth in sector's operating expenses along with higher other income also supported the bottom-line. Average operation cost per BOE (barrels of oil equivalent) rose by a mere 7 percent to $4.5 per barrel while other income grew by a significant 25.4 percent to Rs 7.7 billion, during the period under-review.
On account of low base-effect, MGCL (Mari Gas) led the way by depicting a bottom-line growth of 78.2 percent, but the star performers of the show were Pakistan Petroleum Limited (PPL) and Pakistan Oilfields Limited (POL).
The said companies' profitability grew by 45.5 percent and 40.1 percent, respectively. The former benefited from its working interest in the both the aforementioned blocks, while latter reaped the fruits of higher oil prices and production enhancement from Tal block.
With the only listed company depicting a decline in its oil production (down 3.8 percent), OGDC managed to improve its bottom-line by 15.4 percent primarily on the back of higher net realised oil and gas prices, he said.
Furthermore, continuous pilling up of circular debt has proved to be a strain on company's cash flows evident by 33 percent decline in its other income and net receivables (in lieu of circular debt) ballooning to Rs 93.2 billion as of 31 March 2011 against Rs 58.2 billion on 30 June 2010.
"Going forward, we expect firm oil prices coupled with enhanced production from Tal and Nashpa blocks to strengthen POL and PPL future earnings", he said adding "from Tal block we expect a cumulative oil and gas production enhancement of 9,500bpd and 25mmcfd respectively by the first quarter of FY12". "We anticipate an additional 5,000bpd from Naspha block, by the end of FY11", he said.
The major risk to pose to the sector, particularly for OGDC, remains the circular debt. "With no resolution in sight, we expect circular debt continue to be a drag on OGDC's cash flows", he said. However, the major price trigger for OGDC is the start of drilling activity in the promising Zin Block and production start-up from Sinjhoro block, he added.
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