Pakistan Oilfields Limited

Pakistan Oilfields Limited (PSX: POL is a subsidiary of the Attock Oil Company Limited (AOC), and is engaged in the exploration, drilling and production of crude oil and gas in the country. It produces crude oil, natural gas, and LPG that it markets under its brand name POLGAS as well as its subsidiary, CAPGAS (Private) Limited. POL also produces solvent oil and sulphur and has a vast pipeline network for transporting the crude oil to the Attock Group’s refinery, and its associate company: Attock Refinery Limited (ATRL).

Shareholding pattern

More than half of the company’s shareholding rests with the Attock Oil Company (AOC), which is the group. Attock Oil Company is vertically integrated oil Conglomerate Company.A category-wise breakup of the shareholding is shown in the illustration. Besides Attock Refinery Limited, POL’s other associate companies include National Refinery (NRL), Attock Petroleum Limited (APL), Attock Cement Limited, Attock Gen. Limited, and Attock Information Technology Services.

Historical financial performance

A look at the company’s past six years show that POL’s revenues and earnings were up by 10 percent and 34 percent, year-on-year respectively in FY17 after declining in the two previous years. However, the company’s production flows dropped during the year. On the other hand, exploration costs remained under control.

The company registered an improvement in FY18 as POL made new discoveries and new exploratory successes. Revenues climbed by over 19 percent, and earnings grew by 17.6 percent, year-on-year. Growth in revenues came from better crude oil prices as well as the highest crude oil production in the last decade. Exploration costs remained on the higher side due to higher operational activity, seismic data acquisition, and also dry and abandoned wells. The firm’s bottomline also benefitted with exchange gains due to depreciating currency.

FY19 was another year for higher oil prices. And significant domestic currency devaluation also supported the earnings. POL’s topline grew by 25 percent, year-on-year, which came from around 14 percent year-on-year increase in international crude oil prices. However, volumetric sales remained tepid again especially that of crude oil with only slight increase in gas volumes.POL’s earnings for FY19 jumped by 48 percent, year-on-year; and apart from oil prices, lower exploration and prospecting costs and higher currency depreciation helped lift the company’s bottomline. The main factor behind lower exploration and prospecting was the absence of a dry well and also lower seismic acquisition.

FY20 was blemished by the global pandemic as well as the crash in oil prices which were the key factors for slower growth in earnings of the oil and gas exploration and production sector. POL’s revenues came down by 13 percent, year-on-year, where the 4QFY20 saw a 48 percent decline in sales revenue – a period when the pandemic struck the country. The decline in revenue was due to falling volumetric sales as well as oil prices. During FY20, oil and gas production for POL plummeted by 13 and 9 percent year-on-year, respectively, while the average oil prices tumbled by 25-26 percent year-on-year. Exploration and prospecting expenditure remained lower in FY20 due to the absence of any dry well during the year. With lower interest rates during the year, other income and finance costs also decline for POL. POL’s earnings in FY20 were hence flat.

FY21 continued to show slow hydrocarbon production as well as weak international crude oil prices. These factors along with exchange losses affected the sector’s profitability in FY21 including POL. Overall, POL’s revenues in FY21 were flattish, declining by one percent year-on-year. The company’s earnings were lower by around 18 percent year-on-year primarily due to exchange loss, lower income on bank deposits and higher taxation due to lesser exploration and development cost. During the year, production of crude oil and gas were lower by 0.77 percent and 2.5 percent year-on-year, respectively.

Pakistan Oilfields Limited posted a massive growth in earnings for FY22 of 94 percent year-on-year. The oil and gas company’s earnings growth came from higher topline. Revenues for POL increased by 44 percent year-on-year on account of higher crude oil prices and currency depreciation. Crude oil prices were up by over 65 percent year-on-year in FY22, while currency depreciated by around 10 percent. However weak production statistics for oil and gas continued to impact in the topline growth. On the product front, both crude oil and natural gas flows witnessed a decline of 11 and 10 percent year-on-year, respectively in FY22. There was also a hefty growth in exploration and prospecting expenditure - rising by 77 percent year-on-year in Y22 due to increased seismic activity and hence increased geological cost. Finance costs posted a whopping increase of 20.4 times due to rising interest rates. However, the positive impact of higher currency depreciation was seen in seven times growth in other income due to exchange gains.

POL in FY23 and beyond

The main concern for the E&P sector in the last few years has been the declining production of hydrocarbons amid depleting reserves and small discoveries. However, the oil and gas exploration and production sector benefitted from falling currency during FY23, which was also a key growth driver for earnings during the year. Pakistan Oilfields Limited also saw its FY23 earnings increase noticeably by 41 percent year-on-year.

POL’s revenue growth was around 17 percent, year-on-year in FY23 primarily due to PKR losing its value against the greenback. However, the E&P company on the production front continued to see dip in oil and gas production along with 3 percent year-on-year decline in oil prices. In 4QFY23, the net sales for POL were up by only one percent year-on-year amid PKR weakening. Oil prices in 4QFY23 were down by 34 percent year-on-year, and the decline in oil and gas production flows during the quarter was by 10 and 4 percent year-on-year, respectively.

POL witnessed a rise in gross margins in FY23 due to significant decline in amortization of development and decommissioning costs – (65% YoY). POL witnessed a colossal 7.7 times increase in exploration and prospecting expenditure in FY23 as there were two dry wells incurred by the E&P firm during the period.

Apart from the rise in topline, the growth in POL’s bottomline in FY23 was also due to increase in other income coming from exchange gains on foreign currency and higher income from cash and cash equivalents. During the year, other income increased by 131 percent year-on-year. On the other hand, other income in 4QFY23 was down by around 18 percent year-on-year due to lower exchange gains. POL also announced a cash dividend of Rs60 during the period, which took the overall dividend for FY23 to Rs80.

A key concern for POL and other E&P companies is the falling production levels of both oil and gas. Depleting reserves and small discoveries have been a highlight of the E&P production landscape, which must be addressed by the sector and the government with policies and incentives to spur foreign as well as local investment.