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 corporation’s shares.
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 by 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 rise in oil and gas companies’ earnings. 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 top line, POL’s FY23 bottom-line 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 FY24 and beyond
The oil production of Pakistan witnessed an uptick of 1.4 percent year-on-year in FY24. Meanwhile, gas production depicted a 4.4 percent year-on-year decrease, for Pakistan Oilfields Limited, oil, and gas production fell during FY24 by 6 and 5 percent year-on-year respectively. However, POL reported a growth in profitability and dividends, despite a decline in oil and gas production. For FY24, POL’s revenue growth stood at 7 percent year-on-year, which was primarily driven by the depreciation of the Pakistani rupee, offsetting the impact of declining oil and gas production.
The company’s bottom line also showed a growth of around 7 percent year-on-year to Rs39 billion for FY24. And one of the factors behind earnings growth besides the topline rise was a sharp reduction in exploration costs. The company’s exploration expenses fell by a remarkable 76 percent year-on-year, mainly attributed to the absence of dry wells during the year, which had contributed heavily to the previous year’s expenses.
Operating expenses, however, saw a 9 percent year-on-year increase, driven by higher costs associated with the company’s ongoing operations. Despite the rise in operational expenses, POL witnessed a growth in gross margins.
The company’s other income for FY24 declined by 39 percent year-on-year primarily due to the absence of foreign exchange gains that had bolstered earnings in the previous year. However, in the fourth quarter of FY24, other income rose by 21 percent year-on-year reflecting higher returns on the company’s cash and investment balances.
FY25 started on a weaker note for the overall oil and gas E&P sector witnessing a decline in profitability during 1QFY25, largely due to lower hydrocarbon production, reduced oil prices, and rising exploration costs. POL also reported a steep decline in profitability for the first quarter of FY25, with net profit down 74 percent year-on-year. This significant drop marks the lowest quarterly earnings for POL since the COVID-19 period in 4QFY20.
POL’s net sales decreased by 7 percent year-on-year, driven by several factors: a 10 percent decline in average realized oil prices, a 6 percent reduction in crude output, and a 5 percent appreciation of the Pakistani Rupee. However, sequentially, the company saw a slight 3 percent improvement in net sales due to increased production. Oil and gas production rose on a sequential basis by 8 percent and 13 percent, respectively. The decline in gross profit was also influenced by a rise in operating expenses.
POL’s bottom line was significantly impacted by a sharp surge in exploration costs, up 11 times year-on-year in 1QFY25. This surge was primarily due to the high costs of a dry well located in a geologically complex and challenging area. An optimal increase in exploration expenses would have arrested the decline in the company’s earnings. Other income also declined by 23 percent year-on-year, influenced by reduced cash balances and lower yields on investments.
While POL faces production challenges, its robust financial performance, strategic investments, and ongoing exploration activities position it well for sustained growth. The focus on security, cash management, and expansion into new blocks further enhances its prospects.
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