Pakistan Petroleum Limited has been a frontline player in the energy sector since 1950s. The company has been in this business for more than seven decades, contributing about one-fourth of total gas supplies, besides producing crude oil, condensate and LPG.
The current capital structure of the company consists of 67.51 percent shareholdings of GOP, 7.35 percent of PPL employee empowerment trust, and 25.14 percent of private investors, after the privatisation procedure that resulted 2.5 percent of government holding divestment. The company operates the largest gas field at Sui and five others at Khandot, Hala, Chachar, Adhi and Mazarani. It holds working interest in 12-partner operated fields including Qadirpur, Sawan, Nashpa, Latif, etc. PPL-operated fields produce an average of one bcfd which is sold to the company's main clients: WAPDA, Sui Southern Gas Company, and Sui Northern Gas Pipeline. At present, PPL's share in the country's total natural gas production stands at around 24 percent.
The wholly-owned subsidiary's main objective is exploration and production of oil and gas. During the year FY13, PPL successfully acquired 11 exploration blocks though bidding. It has also acquired 100 percent shareholding of MND E&P Limited, a company incorporated in England and Wales. Its name has been changed to PPL Europe E&P Limited. The company has also established a wholly-owned subsidiary, PPL Asia E&P B.V. with corporate seat in Amsterdam.
Together with its subsidiaries, Pakistan Petroleum Limited has a portfolio of 47 exploration assets of which the company operates 27, including one contract in Iraq, while 20 blocks, comprising three offshore leases in Pakistan and two onshore concessions in Yemen, are operated by joint-venture partners
FY13 HIGHLIGHTS Oil flows were the fulcrum for profitability for the E&P sector during FY13 amid dwindling gas production. PPL was able to bag three discoveries in Sindh, two at Gambat and one in partner operated block in Sukkhpur during the fiscal year 2013. The firm was also able to successfully test production from deeper reservoirs in Hala Block. Additionally, it was able to achieve commencement of first tight gas production of the country from partner operated Kirthar Block.
The MND deal also took place in FY13 where PPL also acquired the entire share capital of MND Exploration and Production Ltd. Falling gas flows continued to scar the company's performance, where its financial performance is livid with ageing gas fields. Maturing fields, which also happen to be the 80 percent contributor to the company's total gas production, were the main reason behind falling gas volumes. However, the revenues of the firm remained stable from the growing inclination towards oil production. The firm's oil production was increased by 17 percent year on year in FY13. Growth in the bottom line was restricted not only due to the amortisation expenses, but also higher field expenditure.
9M FY14 PERFORMANCE FY14 has largely been driven by strong production flows, and that too mostly through oil production, for the exploration and production companies of Pakistan. PPL's oil production also jumped up by 31 percent year on year in 9M FY14, particularly due to robust oil production from its non-operated blocks like Tal and Nashpa.
On the gas side, production remained lackluster, and gas production from the aging fields like Sui, Sawan and Manzalai continued to decline. However, gas sales from Tal, Nashpa, Latif and Hala fields and commencement of production from Kirthar and Sukhpur assuaged some loss from the main fields. The contraction in gas sales volumes was around six percent, year on year, in 9M FY14.
Overall, PPL's revenues in 9M FY14 increased by 15 percent year on year. However, growth in the bottom line was cut short by increase in field expenditure. High exploration cost came in shape of dry wells, predominantly during 3Q FY14. Earnings of PPL were further affected by a decline in other income.
E&P companies have dollar-denominated revenues, and improvement in rupees value recently was expected to negatively affect E&P sector's profits. A quarter-on-quarter performance of the latest quarter shows that rupee appreciation is one key factor that affected the earnings in 3Q FY14 versus 2Q FY14.
OUTLOOK Given the non-ending energy crisis, some serious drilling and production activity is required by the country. Exploration activity of PPL remains upbeat; ten new exploration licenses won during Bidding Round March 2013 were formally granted to PPL as operator by the government, while Kuhan Block was included as partner-operated exploration license in the PPL's exploration portfolio.
The firm recently discovered a gas field in Naushahro Firoz Block. Also, PPL has a drilling target of five wells for FY14 compared to four exploratory wells in the previous three years. And with development activities in the famous Tal and Nashpa block on the go, oil flows are also optimistic. This aggressive exploration strategy shall bear fruit in the long term by replenishing the diminishing reserves.
The government divested its five percent holding in Pakistan Petroleum Limited. At a price of Rs 219, the PPL transaction was oversubscribed; thanks to which the government has garnered a total of Rs 15.98 billion from the transaction. Together with good operational history and the stock's performance after the secondary public offering, the overall performance of the firm in FY14 is upbeat.
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Pakistan Petroleum Limited
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FY12 FY13 9MFY14
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Profitability
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Operating margin 60% 58% 62%
Net margin 43% 41% 43%
ROE 32% 28% 23%
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Liquidity
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Current ratio 4.38 2.29 3.18
Cash to current liabilities 1.74 0.94 0.06
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Efficiency
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Total asset turnover 0.65 0.53 0.40
Fixed asset turnover 1.89 1.61 1.12
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Market
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EPS (Rs/share) 24.91 25.53 19.32
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Source: company accounts
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