Mari Petroleum Company Limited

Mari Petroleum Company Limited (PSX: MARI) is the second largest producer of natural gas by operating the country’s largest gas reservoir at Mari Gas Field, Daharki, Sindh. MPCL is an integrated oil and gas exploration and production company and around 70 percent exploration success rate, which is much higher than industry averages of around 33 percent national and 14 percent international, as per the company’s annual accounts.

Mari’s key customers include fertilizer manufacturers, power generation companies, gas distribution companies; and refineries. In addition to Mari Gas Field, it holds development and production leases as well as operatorship of exploration blocks, and is also a non-operating joint venture partner with leading national and international E&P companies D&P leases and exploration blocks.

Shareholding Pattern for Mari

The government of Pakistan has over 18 percent shareholding in Mari Petroleum, with divestment plans on the cards since a long time that have recently been shelved now. Apart from that, Mari has two key shareholders: Fauji Foundation with 40 percent shareholding; and OGDCL with a share of 20 percent.

Previous performance

Mari Petroleum Company Limited has witnessed rising crude oil production and relatively stable gas production flows over the last 6-7 years when the entire industry has been facing a slump. Its revenues and earnings have been on an upward trajectory too. In FY16, the revenues for MARI grew by 12 percent year-on-year due to sale of additional gas under incentive price provided to Guddu Power Station along with overall increased hydrocarbon production. At the same time, the exploration and prospecting expenditure doubled on a year-on-year basis.

Good fortunes continued in FY17 as revenues continued to increase by 30 percent along with over 50 percent, year-on-year increase in earnings. Operating expenses continued to decline as it has been since FY12, while its production strategy has been to increase flows of oil and gas to take maximum benefit of the incentive offered in the 2012 Petroleum Policy on enhanced production of gas from the existing reservoirs, by at least 10 percent. In FY17, Mari Petroleum witnessed 18 billion cubic feet of incremental production.

FY18 was a good year for production; the company witnessed highest ever production rates. At the same time profits were also record high at that time. During the year, total production was up by 5 percent year-on-year in FY18 along with incremental production as planned. The company’s gross sales exceeded Rs100 billion for the first time in the history of the company. Its net profit jumped by 68 percent year-on-year where other income also lent support to the bottomline.

Crude oil prices were high in FY19, which along with currency depreciation raised the earnings of the E&P companies. MARI too announced a hefty increase in its earnings for FY19 – 58.2 percent year-on-year due to increase in net sales and finance income, and somewhat controlled operating expenditure. Growth of 17.5 percent year-on-year in gross sales came from better gas volumes sold as well as increase in wellhead/consumer gas price. And the increase in exchange gains further lifted the bottomline. Growth in profits however, was cut short by increase in royalty expenses and exploration and prospecting expenditure, which were higher due to higher drilling activity.

FY20 was a difficult year as depressed oil prices for the oil and gas and the pandemic impacted exploration and production companies. Mari Petroleum’s gross sales increased by around 8 percent, while the net revenue of the company was up by almost 21 percent, year-on-year. Growth in the company’s revenues was solely due to the increase of around 20 percent in gas wellhead prices and currency depreciation. Oil and gas production were down by 8 and 2 percent year-on-year respectively during the year. Its bottomline grew by over 24 percent year-on-year. Where revenue growth helped boost earnings for Mari Petroleum, higher exploration and production expenses during the year contained the growth. The company witnessed 2.5 times increase in exploration and prospecting expenses.

FY21 was better as compared to FY20, which also showed in the E&P sector’s performance. Mari Petroleum Company Limited announced a 4 percent increase in its earnings for FY21. Where the 1HFY21 posted growth in earnings, the company’s earnings slipped slightly in 3QFY21 due to drop in oil prices negatively impacting the gas wellhead prices. This was followed by another positive last quarter despite the drop in oil prices continuing.

Despite the weakness in prices, topline growth for Mari was supported by better hydrocarbon production flows in FY21. Mari’s overall oil production in FY21 stood up by 17 percent year-on-year, while natural gas production was up by 8 percent year-on-year during the year. The growth in E&P’s earnings was fueled by weaker exploration and production expenses.

However, drop in other income and rise in finance cost did the opposite.

MARI in 1HFY22 and beyond

The fate of the E&P sector’s earning largely rests with not only higher international crude oil prices and currency depreciation but also higher domestic oil and gas production. With reserves depleting and discoveries turning in smaller, the E&P sector is facing a challenge on the production front, which could be addressed with invigorating investor interest and technology transfer in the domestic upstream sector by reviewing and revising policies.

After a stable start to FY22 in the first quarter, the overall gross sales growth for 1HFY22 was 11.6 percent year-on-year. 1HFY22 net sales were higher by 8 percent year-on-year where overall oil production grew by 35 percent, while gas production was up by around 2-3 percent year-on-year. The topline also benefitted from higher oil prices during the period. However, Mari wellhead gas price was seen slipping. Improvement in Mari’s production volumes have been seen during FY21 that seems to have continued in FY22.

On the expenses side, the rise in royalty expense was offset by a decline in operating expenditure and exploration and prospecting expenditure. The decline in exploration cost came from lower cost of dry and abandoned wells during 1HFY22 versus corresponding period. Both rise in topline and lower exploration expenses benefit the bottomline of an E&P company. And in Mari’s case, this was more visible in the earnings growth, which was otherwise bogged down by significant share of loss from associates. Also, higher taxation left the bottomline for Mari flat in 1HFY22.