E&P companies take a hit

The oil and gas exploration and production sector has not been vibrant due to weaker oil and gas production amid falling reserves, and fewer as well as small discoveries in a low crude oil price environment. These features characterize FY21 so far, and the glimpse of the same can be seen in 9MFY21 financial results of Oil and Gas Development Company and Pakistan Oilfields Limited – two giants in the E&P sector.

Oil and Gas Development Company Limited (PSX: OGDCL) announced a 20 percent year-on-year decline in its earnings for 9MFY21 while the decline in Pakistan Oilfields Limited’s (PSX: POL) earnings has been even higher at 31 percent year-on-year.

Decline in production flows has been a key factor for falling revenues. OGDCL’s topline witnessed a decline of 7 percent in 9MFY21, which was partially restricted by better revenues in 3QFY21 that grew by over 5 percent year-on-year. POL’s revenues for 9MFY21 slipped by 13 percent year-on-year with 3QFY21 topline receding by 8 percent. While the 3QFY21 has been better in terms of oil prices that witnessed a recovery year-on-year, the production stats of the two companies have been weak. OGDCL’s oil and gas production was down by 1 and 9 percent year-on-year, while POL’s was down by around 5 and 7 percent year-on-year in 3QFY21.

OGDCL’s profitability got impacted further by higher fall in interest income on investment and bank deposits along with exchange loss despite the decline in exploration cost. Exploration cost fell due to reduction in cost of dry and abandoned wells. POL’s profitability was also affected by decrease in other income likely due to higher quantum of exchange losses.

However, where OGDCL fared well in a sequential comparison i.e., quarter on quarter for 3QFY21 due to improvement in production flows, POL’s profitability continued to slip in 3QFY21 versus 2QFY21 as oil and gas production continued to fall amid higher exploration costs. Also, where OGDCL announced a cash dividend of Rs1.8 per share in addition to the first and second interim cash dividend of Rs 3.60 per share already declared during FY21, POL did not announce any dividend for 3QFY21.