Pakistan Oilfields Limited

Pakistan Oilfields Limited (PSX: POL) is involved in the exploration, drilling, and production of crude oil and gas within the nation. It produces LPG, natural gas, and crude oil, which it sells under the POLGAS brand and through its subsidiary CAPGAS (Private) Limited. In addition, POL manufactures sulfur and solvent oil. Its extensive pipeline network is used to deliver crude oil to the refinery of the Attock Group and its subsidiary, Attock Refinery Limited (ATRL). The group, Attock Oil Corporation (AOC), holds more than half of the shares in the corporation.

POL’s recent financial performance

The global pandemic and the drop in oil prices marred FY20, and these events were the main causes of the slower increase in the sector’s earnings for oil and gas exploration and production. POL’s revenues decreased by 13 percent year over year, with a 48 percent reduction in sales revenue during the country’s pandemic-affected 4QFY20. Oil prices and declining volumetric sales were the main causes of the revenue decrease. POL’s oil and gas output fell by 13 and 9 percent year over year during FY20, respectively, while average oil prices fell by 25 to 26 percent year over year. The fact that there were no dry wells in FY20 meant that exploration and prospecting costs were reduced. With lower interest rates during the year, other income and finance costs also decline for POL. POL’s earnings in FY20 were hence flat.

The production of hydrocarbons remained low in FY21, and global crude oil prices remained low. The sector’s profitability in FY21, including POL, was impacted by these variables as well as exchange losses. POL’s revenues in FY21 were flat overall. Due mostly to currency loss, less income from bank deposits, and higher taxes due to lower exploration and development costs, the company’s earnings decreased about 18 percent yearly. Throughout the year, there was a decrease in the output of gas and crude oil of 2.5 percent and 0.77 percent year over year, respectively.

Pakistan Oilfields Limited reported a staggering 94 percent year-over-year increase in earnings for FY22. Higher topline revenue was the source of the oil and Gas Company’s earnings rise. Due to rising crude oil prices and currency devaluation, POL’s revenues rose by 44 percent annually. In FY22, crude oil prices increased by more than 65 percent year over year, despite a roughly 10 percent decline in currency value. However, the topline growth was still being impacted by the unsatisfactory oil and gas production figures. Regarding products, in FY22, flows of natural gas and crude oil decreased by 10 and 9 percent, respectively. Also, there was a significant increase in exploration and prospecting spending, which grew by 77 percent yearly in Y22 due to increasing 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’s FY23 earnings increased considerably year over year by 41 percent. POL’s revenue increased by almost 17 percent in FY23 compared to the previous year, mostly because of the rupee depreciating against the US dollar. On the production front, however, the E&P Company continues to witness a reduction in gas and oil production along with a 3 percent annual decline in oil prices. POL’s gross margins increased in FY23 because of a notable (65% YoY) decrease in the amortization of development and decommissioning expenditures. POL’s exploration and prospecting expenses increased by an astounding 7.7 times in FY23 due to two dry wells that the E&P firm had to pay for. In addition to the improvement in the topline, POL’s FY23 bottomline gain was brought about by an 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.

POL in 9MFY24 and beyond

During the nine months of FY24, the oil production by the exploration and production sector in the country witnessed an uptick of one percent year-on-year, whereas gas production depicted a 3 percent year-on-year decrease. These stats were fueled by oil production of three percent year-on-year growth in 3QFY24, and a decline of two percent year-on-year in gas production. For Pakistan Oilfields Limited oil and gas production declined by 5 and 2 percent year-on-year during 9MFY24, respectively.

On the financial performance side, the oil and gas E&P Companyfell by 2 percent year-on-year despite the 10 percent growth in revenues. The topline growth was largely fueled by the prices and weakening of PKR as the company’s production flows (oil and gas) were down during the period (as mentioned above).

On the expense side, POL’s exploration expenses also declined by 77 percent year-on-year during 9MFY24 due to absence of dry wells. Overall, 9MFY24 was a slow period in terms of drilling activity. The sector drilled 11 exploratory wells and 30 appraisal/development wells against a target of 21 exploratory wells and 35 appraisal/ development wells.

Despite higher revenue and lower exploration expenses, POL’s earnings were still down during the period, which was due to a significant decline in other income and higher taxation. The fall in other income was due to an exchange loss on foreign currency.

Depleting reserves and small discoveries have been affecting the E&P sector’s production flow. POL has been facing the same challenges, which affect profitability. However, according to a research note by Optimus Capital Management, addition in the company’s production profile could be expected as the company’s drilling a new well in Jhandial, and MOL is drilling in a new field in Tal block where POL has 21 percent stake.