Mari Gas Company Limited (MGCL) is one of Pakistan's E&P companies operating the country's second largest gas field, Mari filed in Ghotki, Sindh. The Company is primarily engaged in exploration, development and production of natural gas, crude oil, condensate and LPG.
In 1957 when Mari gas field was discovered, the Company operated as Esso Eastern Inc. In 1983, Fauji Foundation, OGDC and Government of Pakistan acquired Esso Eastern Inc later in 1984, Mari Gas Company Limited was formed which overtook the entire Mari gas field with headquarters in Islamabad.
The Company presently has seven exploration licenses and working interest in seven non-operated blocks with OGDCL, PPL and TDPL. It owns interests in the Harnai Ziarat and Hanna exploration blocks in Balochistan; Sukkur and Sajawal situated in Sindh; and Karak exploration block located in NWFP.
It also has 25 percent working interest as joint venture partner in overseas ventures with MOL in Oman. In addition, the Company also operates two development and production leases.
Highlights As an operator, Mari Gas Company Limited enjoys a success ratio of 1:1.44 compared to 1:3.3 of the rest of the E&P companies. The Company has had 9 discoveries and 13 exploratory drilled wells. MGCL produced a cumulative of 50,612 MMcf of natural gas. This is an increase of 7.7 percent over production during the corresponding period FY11. Though its production of crude oil, condensate and LPG fell considerably for during the first quarter FY12, it produced 21,078 MMcf of crude oil and condensate including the natural gas condensate, and 727 tonnes of LPG.
With 12.2 percent, MGCL occupies fourth rank in the total natural gas production for FY11, led by OGDCL, PPL and BHP. It continued to supply during the three months ended September 30, 2011, to all its clients: Engro Fertiliser, Fauji Fertiliser, Fatima Fertiliser, PEPCO, SSGC and Foundation Power Company Dharki Limited.
Profitability Ninety-seven percent of the Company's sales comprised of gas sales, the Company's largest source of revenue. Gross sales for 1QFY12 amounted to 8,710 MMcf, increasing by 11 percent compared to 7,844 MMcf for the same period FY11. This was primarily due to a rise in gas sales volume as well as a rise in average gas prices.
The oil and gas E&P sector is highly regulated and the wide gap between the gross and net sales is represented by 78 percent of government taxes and duties. The operating profit margin and net profit margin both were higher for MGCL for 1QFY12 compared to the same period FY11.
This profitability is seen across the E&P sector: Net profit margin for OGDCL for 1QFY12 stood at 49 percent while PPL registered a profit margin of 44 percent. For MGCL the operating margin increased from 39.2 percent to 44.8 percent. However, net profit margin increased sharply from 23.4 percent to 41.3 percent over the comparative periods owing a decline in the finance cost. Interest coverage ratio has improved for the quarter ended September 30, 2011, showing that the company is not highly leveraged.
Liquidity and Operations In order to finance drilling and development activity for Mari Deep and Zarghun gas field, the Company has arranged two-term finance loans. The long-term solvency scenario is also favourable for the Company as the debt to equity ratio is merely 15 percent. In comparison to total assets debt is only 16 percent for the period under consideration.
The short-term liquidity position of the Company is satisfactory as the current ratio is fairly above 1 for 1QFY12.Fixed Asset turnover and total asset turnover, for MGCL are relatively low, meaning thereby that it makes a high profit margin on its products.
Outlook Consumption of natural gas has been growing rapidly in all sectors of the economy driven by availability of gas and government controlled low gas prices compared to alternate fuels. The region consumed about 1,483 billion CFt of natural gas in 2011 which accounted for 44 percent of total energy consumption in the region.
However, with the given gas shortfall throughout the country, the E&P sector is faced with an array of challenges. The declining natural gas reserves and low gas prices have become a discouragement for domestic exploration and new gas pipelines. The resulting circular debt and gas shortfall has huge present and future implications for GDP growth and economic stability.
The performance of Mari Gas Company Limited in terms of profitability might be portraying a rosy picture but the E&P is under a lot of pressure with non-existent discoveries and poor law-and-order situation in gas field areas. Besides, exploration and drilling risks, depleting reserves, under performance of gas fields remain inevitable. Unless gas prices are made competitive with the E&P sector allowed to sell gas at market-based pricing, the gas crisis will continue to be a growing issue for the country.
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Mari Gas Company
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1QFY10 1QFY11 1QFY12
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Profitability
Operating Profit Margin 49% 39% 45%
Net Profit Margin 34% 23% 41%
ROE 4% 4% 9%
ROA 2% 2% 4%
solvency
Current ratio 1.18 1.23 1.14
D/E 0.10 0.16 0.15
D/A 0.18 0.18 0.16
Turnover
Total asset turnover 0.05 0.07 0.10
Fixed asset turnover 0.09 0.14 0.18
Market
Interst Cover 15.24 10.71 17.87
EPS(Rs) 5.89 5.06 10.78
P/E Ratio 41.29 21.45 10.20
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Source: company accounts
COURTESY: Economics and Finance Department, Institute of Business Administration, Karachi, prepared this analytical report for Business Recorder.
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