Pakistan Petroleum Limited

Pakistan Petroleum Limited (PSX: PPL) is a key supplier of natural gas in the country. The company is one of the largest and leading exploration and production companies engaged in conducting exploration, prospecting, development, and production of oil and natural gas resources. The company contributes over 20 percent of the country’s total natural gas supplies besides producing crude oil, Natural Gas Liquid, and Liquefied Petroleum Gas.

At present, PPL’s shareholding is divided between the government, which owns about 67.51 percent, and PPL Employees Empowerment Trust which has approximately 7.35 percent — being shares transferred to employees under BESOS — and private investors, who hold nearly 25 percent. A breakup of categories of shareholders with respective shares in both the ordinary shares and convertible preference shares is shown in the illustration.

PPL has acquired a 100 percent shareholding of MND E&P Limited, a company incorporated in England and Wales. The name of the subsidiary has been changed to PPL Europe E&P Limited. It has also established a wholly-owned subsidiary, PPL Asia E&P B.V. with a corporate seat in Amsterdam that focuses on the exploration and production of oil and gas in the region.

In August 2021, a PPL-led consortium was awarded Offshore Block 5 in Abu Dhabi’s second competitive exploration block bid round. The consortium also includes Oil and Gas Development Company Limited (ODGCL), Mari Petroleum Company Limited, and Government Holdings (Private) Limited (GHPL) with an equal shareholding of 25 percent.

As part of its diversification strategy, PPL has strengthened its mining operations through Bolan Mining Enterprises (BME), established in 1974 with an equal shareholding of 50 percent each between PPL and the Government of Balochistan (GoB). More recently, the company signed a non-binding framework agreement for the reconstitution of the Reko Diq project by the Government of Pakistan and Barrick Gold Corporation, PPL, OGDCL, GHPL as well as GoB in March 2022.

PPL historical performance

PPL has been one of the key performers in the domestic oil and gas exploration and production sector. However, over the years, the decline in gas production has resulted in stagnation in the E&P sector. Back in FY13, though the firm continued to see growth in profits, the gas production dwindled due to depleting gas reserves in the country; PPL’s decline in gas production came from its pioneering fields like Sui, Miano, Kandhot, and Sawan as they continued to mature. The production, however, was compensated by higher crude oil production and better gas prices.

In FY14, again the earnings were compensated by higher crude oil prices and crude oil production and discoveries. However, Earnings took a hit in FY15 due to lower oil prices, which continued in FY16 and remained an impediment for the sector along with a contraction in gas production volumes.

Recovery in oil prices in FY17 was a breather for the E&P sector, where PPL announced a whopping increase in its earnings largely led by revenue growth, which was around 46 percent year-on-year. Earnings grew more than twice on a year-on-year basis. Also in FY17, the firm received a gas price adjustment of Rs31.12 billion, which boosted the topline along with improvement in natural gas production from key fields. PPL’s overall production exceeded the firm’s long-time average of 1 bcfde, registering a growth of around 8 percent year-on-year. Lower finance costs also helped the earnings of FY17. Exploration costs also remained on the lower side in FY17 in spite of the firm’s aggressive drilling activity.

FY18 was another favorable year for the upstream sector because of the upward trend in oil prices. Higher oil prices continued to complement PPL’s financial performance as the company reaped the benefits of investing in exploration and drilling during low oil price years and earned the second-highest profit in its history during FY18.

In FY19, significant currency depreciation lifted PPL’s earnings. PPL’s topline witnessed a growth of 30 percent year-on-year, and the company announced a 35 percent year-on-year increase in the unconsolidated bottom line for FY19. Amid flattish growth in volumetric sales of oil and gas and some recovery in oil prices, the growth in revenues had largely to do with currency devaluation during the year. In FY19, PPL’sgas production declined again marginally by around 1.7 percent year-on-year, whereas Condensate/NGL/Oil & LPG production increased by approximately 1.3 and 22 percent year-on-year, respectively. The decline in gas volumes was due to the natural decline of mature fields.

The biggest challenge for the exploration and production sector in FY20 during the pandemic was the weak oil prices In addition, falling oil and gas production volumes amid depleting resources have been a key concern for the domestic E&P sector. PPL’s decline in earnings in FY20 was lower than what the market expected. The E&P company’s unconsolidated revenues were seen falling by around 4 percent year-on-year. PPL’s earnings for FY20 fell by over 18 percent year-on-year.

During FY21, PPL’s natural gas production declined by around 4 percent year-on-year; however, the crude oil and NGL production increased by around 3 percent year-on-year. The declining gas production coupled with a fall in the Sui wellhead price were the main factors for dragging the E&P giant’s revenues in FY21. However, PPL’s bottom line grew by over 4 percent year-on-year in FY21 despite lower topline and lower other income primarily due to declining exploration and prospecting expenditure.

PPL posted a decline in crude oil and natural gas production for FY22 as well. However, the company’s revenues grew by over 36 percent year-on-year due to a whopping increase in international oil prices as well as an increase in Sui gas wellhead prices. Along with higher prices, PPL’s revenues also benefited from significant currency depreciation. With no noticeable increase in operating costs. Despite more than twice the increase in exploration and prospecting expenses, the company’s profit before tax rose by 43 percent year-on-year. PPL incurred a loss from its associate, Pakistan International Oil Limited during the year. Though the company’s profit before tax depicted noticeable growth in earnings, PPL’s bottom line grew only by two percent year-on-year due to the imposition of super tax.

PPL in FY23 and beyond

The oil and gas exploration and production sector started FY23 on a jovial note with earnings growing despite the drop in oil and gas production flows. PPL’s earnings grew by 56.7 percent year-on-year for the first quarter of FY23. The growth in revenues came from 43 percent higher crude oil prices as well as higher Sui gas wellhead prices and over nine percent year-on-year growth in natural gas production during the quarter. On the other hand, crude oil, NGL, and condensate production fell by around three percent in 1QFY23 on a year-on-year basis. Additionally, PPL’s revenues also benefited from significant currency depreciation and the significant change in the exchange rate.

Growth in PPL’s earnings for 1QFY23 was driven by growth in topline and a decrease in exploration expenses, on account of no dry wells. However, earnings were partially offset by higher taxation, royalties and other levies, and other charges. The increase in taxation was due to the imposition of super tax while royalties and other levies increased in line with higher sales revenue during 1QFY23. As per the director’s report, the growth in other charges was due to higher provision for windfall levy on oil and condensate and WPPF charge in the quarter.