Pakistan Oilfields Limited (POL)

A subsidiary of the Attock Oil Company Limited (AOC) and a key player in the local E&P oil and gas sector, Pakistan Oilfields Limited (PSX: POL) is primarily engaged in the exploration, drilling and production of crude oil and gas in the country. After its incorporation in 1950, it took over the exploration and production business of the group in 1978, and since has been investing independently and entering into JV partnerships with various local and foreign E&P firms

Its product portfolio includes crude oil and natural gas, and it also produces 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 group's refinery, and its associate company: Attock Refinery Limited (ATRL).

POL shareholdings

More than half of the company's shareholding rests with the Attock Oil Company (AOC), which is the group. 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. Another key shareholder with more than 5 percent of the shareholding is the State Life Insurance Corporation of Pakistan. A category-wise breakup of the shareholding is shown in the illustration.

Past performance POL has been an oil heavy company where its crude oil revenues have accounted for over 55-60 percent in the past, while natural gas has accounted for 20-25 percent of the total sales; A look back at FY15 shows that the E&P company suffered at the hands of declining crude oil prices; At the same time higher exploration and prospecting expenditure in year further axed the profits for the year. However, the company witnessed positive growth on the volume side especially that of crude oil.

Then in FY16, the revenue growth for POL remained constrained as the oil prices touched historic lows, which also impacted the bottom-line that declined by 14 percent, year-on-year. But unlike FY15 where the firm showed positive growth in production volumes, FY16 was marred with slowing down production by around 2-3 percent from its key fields like Mamekhel and Manzalai fields. This time however, some respite to the bottom-line came from lower exploration and prospecting expenditure.

FY17 was a better year for the E&P sector as the oil prices rebounded and POL's revenues and earnings were up by 10 percent and 34 percent, year-on-year respectively after continuously declining for the two years. Where exploration costs remained under control POL witnessed a drop in production flows from its key Tal block.

FY18 was successful for POL in terms of new finds and operations. In FY18, POL made four new exploratory successes, which included Jandial - a field that reportedly has high production prospects. Three of its development wells were also successful in the fiscal year. Revenues climbed by over 19 percent, and profit after tax grew by 17.6 percent, year-on-year. Growth in the top-line came from better crude oil prices as well as highest crude oil production in the company's 10-year history. Exploration costs remained on the higher side for POL in FY18 due to seismic acquisition of Balkassar Lease, DG Khan and Gurgalot block, and dry and abandoned wells and some irrecoverable costs. What was an added factor to company's profitability in FY18 was the in exchange gains due to depreciating currency, shown as part of the other income head.

POL in FY19 FY19 was a good year for the E&P sector not only because of higher average oil prices, but also significant domestic currency devaluation. Both these factors have made it to the top drivers for earnings accretion for the E&P companies in FY19.

In FY19, the Company sales and profit were the highest ever in history. POL company saw its top-line grow by 25 percent, year-on-year, which is mainly because of 5.5 percent increase in average price of crude oil, 26.4 increase in gas prices, 15.6 percent increase in POLGAS prices, and favourable dollar to PKR parity. Volumetric growth remained tepid as crude oil volumes dipped, while the gas volumes increased slightly. Cost of sale has increased by 19.56 percent year-on-year mainly because of higher operating cost, workover cost, POLGAS cost, royalty and amortization. During the year however, the exploration cost decreased as lesser seismic activities were carried out during the year and also included cost of two dry and abandoned wells.

Growth in finance cost in FY19 for POL was due to exchange loss on decommissioning cost. Other income increased grew 120 percent, which was likely due to higher income on bank deposits and exchange gain on foreign currency accounts.

Overall profitability at POL has seen regular improvement, generating healthy profitability growth. This growth is driven by increase in sales volume of gas and POLGAS by 0.7 percent and 1.8 percent in FY19 as compared to previous year.

The overall liquidity position of POL is geared towards enhanced liquidity with operating activities generating enough cash to meet company needs including the investments activities. Increase in ratios from last year is mainly because of cash and bank balances increased by 66 percent due to increase in sales.

1QFY20 and beyond It might be too early to predict any slowdown in the E&P sector performance in FY20, but Pakistan Oilfields saw a slow beginning of FY20. Crude oil prices remained on the cooler side in 1QFY20, and domestic currency stayed stable resulting in sluggish quarterly performance.

POL's revenues (net) witnessed a decline of three percent year-on-year. The volumes for oil, gas and LPG declined by 5.7, 3.8 and 2.2 percent, year-on-year respectively in 1QFY20, which was mainly due to the annual turnaround of plants at TAL block.

POL's earnings for 1QFY20 grew by only 3.6 percent, year-on-year despite a decline in exploration and prospecting costs. Growth in other income was also missing from 1QFY20 performance. However, lower seismic activity points to lower productivity of the sector, which should pick up for a rebound in volumetric sales.