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 the 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.

As per FY22, the company’s shareholding is divided between the government, which owns about 67.51 percent, PPL Employees Empowerment Trust that 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 share in both the ordinary shares and convertible preference shares is shown in the illustration.

In FY21, Abu Dhabi Offshore Block-5 was awarded to PPL-led consortium comprising of PPL, OGDCL, MPCL and GHPL each with working interest of 25 percent. In FY22, PPL signed a non-binding Framework Agreement to participate in the Reko Diq project with 8.33 percent equity. It is one of the world’s largest undeveloped copper and gold mines. Other partners are Barrick Gold Corporation (operator), GoB, OGDCL and GHPL. It also won 4 blocks in Pakistan’s Bid Round 2022.

PPL financial performance FY17-FY21

PPL has been one of the key performers in the domestic oil and gas exploration and productions sector. However, over the years, oil and gas production has been witnessed across the sector due to depleting reserves, and small discoveries.

Recovery in oil prices in FY17 was a breather for the E&P sector, where PPL announced a whopping increase in its earnigns largely led by revenue growth, which was around 46 percent year-on-year. Earnigns grew more thantwice on ayear-on-year basis. Also in FY17, the firm received 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 oil and gas sector because of the upward trend in oil prices. Higher oil prices continued to complement PPL’s financial performance as the company reaped 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 unconsolidated bottmline 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 of has 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. Decline in gas volumes was due to natural decline from mature fields.

The biggest challenge for the exploration and production sector in FY20during the pandemic were 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 bottomline 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 the 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 whopping increase in international oil prices as well as increase in Sui gas wellhead prices. Along with higher prices, PPL’s revenues also benefited from significant currency depreciation. With no noticeable increase in the operating costs. Despite more than twice increase in exploration and prospecting expenses, the company’s profit before tax rose by 43 percent year-on-year. PPL incurred 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 bottomline grew only by two percent year-on-year due to the imposition of super tax.

Pakistan Petroleum Limited in FY23 and beyond

FY23 was a good year for the oil and gas exploration and production companies as the currency depreciation and price increase boosted profitability. PPL alsoreported massive growth in its earnings for FY23.

The growth came from the top as revenues of the E&P firm were seen growing by 42 percent year-on-year in FY23. The rise in revenues came not only from higher prices, but PPL was able to make progress with volumetric sales as well. Where the oil sales remained stable, the gas sales picked up by 2 percent year-on-year during the year. Other factors that contributed to revenue growth were the rise in gas wellhead prices of Sui and the depreciation of PKR against USD.

Despite the rise in royalty expenses and operating costs, PPL’s gross profit was seen rising by round 46 percent year-on-year with 1.8 percentage point rise in gross margins for FY23. Another key contribution to the bottomline of the PPL was the contraction in exploration and prospecting expenditure – a major cost factor for the oil and gas E&P companies. The decline in exploration and prospecting expenditure was due the lower cost of dry wells during the year.

Share of loss from associated also slid down while other income increased on the back of exchange gains witnessed during the year for PPL. Growth in PPL’s earning grew by 83 percent year-on-year in FY23. It is expected that there will be a revision in gas prices, which would help the company in solidifying profitability further but also improve liquidity that has been affected due to accumulation of circular debt.

The oil and gas giant posted its highest ever quarterly earnings in 1QFY24 with a year-on-year growth of 11 percent. The growth revenues and profits in first quarter of FY24 were primarily driven by higher prices as well as weaker domestic currency.

PPL’s topline grew by 6.7 percent year-on-year due to higher Sui wellhead gas prices that were up by 4 percent year-on-year. The accretion in topline was also supported by 23 percent depreciation of PKR against the US Dollar. On the production front, the oil and gas flows remained weak; both were down by around 5 percent year-on-year. However, sequentially, PPL witnessed a growth in hydrocarbon production. Oil production was up by 18 percent quarter-on-quarter, while gas production was up by three percent quarter-on-quarter. PKR also witnessed appreciation against the greenback on a quarter-on-quarter basis. This resulted in growth of 7 percent for PPL in revenues, on a quarter-on-quarter basis.

On the expenses side, the exploration and prospecting expenditure that accounted for three percent of the total revenue in 1QFY24 was up by 35 percent year-on-year. Other income was down by 23 percent year-on-year, which is attributable to lower exchange gain on foreign currency. However, on a sequential basis, PPL witnessed a growth in other income, which was up by 42 percent quarter-on-quarter.

Going forward, the remaining of FY24 looks sanguine for the oil and gas exploration and production sector especially for gas heavy companies like PPL due to the gas price increase, which will help the company’s revenues, exploration and drilling activities, cash flows and eventually dividends.