MGCL is a Pakistani E&P company currently operating in the second largest gas fields in the country, located at Dharki, District Sukkur. The company is the third largest in the industry, holding 12.3% of the total oil and gas reserves of the country, preceded by OGDC and PPL. MGCL has the highest reserves life (28.8 years) in the industry.
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Company Snapshot
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COMPANY NAME MARI GAS COMPANY LIMITED
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Ticker Symbol MARI
Average Share Price 1QFY10 Rs 165.67
PE Ratio 72.66
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During the FY05, MGCL discovered gas in the Ziarat Block of Balochistan. The company plans to establish the early production facilities on a fast track basis after acquisition of 2D seismic data, completion of Well No 1 and drilling of two appraisal wells. The Ziarat Block is a joint venture between MGCL with 60% working interest as operator and MND Exploration and Production Company Limited of the Czech Republic (40% working interest).
Besides this, the company also has exploration licences at Hanna, Harnai and Sujawal as operator with 100% working interest. In addition to this, the government, on the 19th of July 2007, granted two petroleum exploration licences to the company along with OGDCL.
MGCL entered into the Zarghun south gas sales and purchase agreement with SSGC during August 2006. MGCL, with 35% interest, is the operator in the Bolan block in which the Zarghun Gas Field is located. According to the agreement, the Bolan Venture will supply 20-22mmscfd of pipeline quality gas to SSGC. The gas reserves are expected to last 15 years and the field development project is in progress.
Mari Gas Company Limited has made a significant new gas discovery in Koonj Well No 1A in Sukkur exploration block. The Sukkur joint venture comprises MGCL - Operation with 50 percent interest share, Petroleum Exploration Limited (PEL) 35 percent, a Pakistani exploration and production company and international Sovereign Energy Corp 15 percent, a Canadian exploration and production company.
The well was spud-in on April 22, 08 and drilled down to a depth of 1475 meters in Pab Sandstone of Cretaceous age. As a result the Koonj Well No 1A discovery was made in the Sui Main Limestone Formation which tested minimum gas flow rate of 14.28mmscf/day. The flow rates are expected to increase significantly with acidization treatment, which is planned to be completed well after completion.
The company has also conducted extensive exploration activities in the block area. There exist two other prospects within Sukkur block area, which will be drilled shortly.
The construction of wellhead facilities and laying of pipelines are almost completed and the Foundation Power Co Dharki Ltd will start the commissioning period for their plant from March 2009. Similarly, the drilling of three deep wells in Mari D&P Lease is in progress.
MGCL being one of the major gas producers of the country has also made three new gas discoveries viz. (i) Mari - Sui Main Limestone, (ii) Mari - Pirkoh Limestone Formation and (iii) Ziarat Gas Field.
It is listed on all the three stock exchanges of the country.
RECENT RESULTS 1Q10
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MGCL- Financial Highlights
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(PKR mn)
1QFY2010 1QFY2009 change
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Sales - net 1,273 1,464 -13%
Royalties 159 183 -13%
Exploration Cost 48 114 -58%
Finance Cost 44 16 175%
Other income 97 75 29%
Profit before tax 630 751 -16%
Taxation 198 24 725%
Profit after tax 433 727 -40%
Earnings per Share 2.26 1.88 20%
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Gross sales for the 1st quarter 2010 totalled to Rs 7,051 million compared to Rs 6,744 million in the corresponding quarter 2009. This increase of 4.5% is mainly due to an increase in average selling price from Rs 154.99 to Rs 158.46/mscf. The operating results in the financial statements for 1st quarter show profit after tax of Rs 433.2 million as against Rs 727.28 million for the corresponding quarter of the previous FY09. The main reason for the decrease in profit of 67.88% is due to the decrease in effective well head price from Rs 45.70 to Rs 38.83/ MMBTU. The increase in finance cost by 181% and increase in taxation by 740% also contributed towards eroding the bottom line of the company.
The company continued un-interrupted gas supply throughout first quarter under review to all its customers, namely, Engro Chemical Pakistan Limited, Fauji Fertilizer Company Limited, Fatima Fertilizer Company Limited, Pakistan Electric Power Company Limited (PEPCO) and Sui Southern Gas Co Ltd. The gas produced during the first quarter ended September 30, 2009 was 44,496mmscf at a daily average 484mmscf as against 43,510mmscf at daily average of 473mmscf for the 1st quarter FY09, which is as per the requirement of the customers.
Regular maintenance of gas gathering network and production facilities was carried out and production optimization plans were followed to avoid any water coning and loss in production through effective production and reservoir management system and as per the good oil/gas field practices.
FINANCIAL PERFORMANCE FOR FINANCIAL YEAR 2009
Gross sales for the period FY09 increased to Rs 26,532 million from Rs 21,566 million in 2008-09 (23.03% increase) due to increase in selling price from Rs 125.81/mscf to Rs 156.33/mscf.
After witnessing impressive growth trends in net sales for the past few years sales slowed down and registered a decline of 13% to stand at Rs 578.92 million for FY09. Although sales increased in FY09, however there was a sharp rise in gas development surcharge of about 47% and sales tax of about 30%. This negatively impacted the net sales revenue and chewed away considerable profit margins. Consequently, profit after taxation for the period FY09 fell at a rate of approximately 15 percent and stood at Rs 215.19 million.
The guaranteed return to the shareholders of the Company has been increased from 22.5% per annum to 30% per annum with effect from July 01,2001. The shareholders are also entitled to further increase in return on incremental gas production from the present level to 425mmscfd (at the rate of 1% for every 20mmscfd of gas or equivalent oil produced, prorated for part thereof on annual basis) subject to maximum of 45% per annum. On the operations side, Mari provided uninterrupted gas supply to its large customers like Fauji Fertilizer Company Limited, Engro Chemical Pakistan, WAPDA and Sui Southern Gas Co Ltd. The average daily gas production in the six-month period stood at 465mmscf as compared to 464mmscf in the SPLY.
FINANCIAL ANALYSIS (FINANCIAL YEAR 2004-2008)
MGCL accounts for approximately 8.8% of the total production of oil and gas in the industry and 12.2% of the total gas production. This makes it the third largest producer of gas in the country.
Company's net sales growth trend had shown positive trends over the last three years. However, this year the company has suffered a slight setback in terms of profitability. This can be attributed to a number of factors. MGCL's net sales growth showed an impressive 82.13 percent growth in the FY08 but declined slightly by 15 percent in FY09. This decline can be attributed to rising operations and other costs plus rises in duties and taxes haven't helped the trend either. Operating expenses have grown by 35%, exploration expenses by 77% and other incomes have declined by 11%. All these factors signal towards tough times but still are not strong enough to erode the solid foundations laid down by years of past profitability. The operating results in the financial statements for the year show profit after tax of Rs 2,152 million as against Rs 2,560 million of the previous year. Lower wellhead price, increase in operating as well as exploration expenses along with increase in finance cost were the major reasons for decrease in profitability.
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PROFITABILITY
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2004 2005 2006 2007 2008 2009
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Profit margin 18.81% 13.42% 6.73% 18.60% 38.23% 37.17%
Return on Asset 7.36% 4.56% 2.30% 7.45% 20.34% 10.52%
Return on Common Equity 22.05% 13.87% 7.05% 18.20% 41.30% 26.14%
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The company's ROE and ROA has also been improving because of impressive performance showed by the company's bottom line until last year, however this year returns of assets and common equity both suffered sharply. ROA stood at 10.52% whereas ROE stood at 26% in FY09.
ASSET MANAGEMENT
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ASSET MANAGEMENT
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2004 2005 2006 2007 2008 2009
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Inventory Turnover 22.64 20.55 21.38 17.90 9.92 12.79
Day Sales Outstanding* 111.70 127.55 155.18 142.62 127.61 447.02
Operating cycle 134.34 148.10 176.55 160.52 137.54 459.81
Total Asset turnover 0.39 0.34 0.34 0.40 0.53 0.28
Sales/Equity 1.17 1.03 1.05 0.98 1.08 0.70
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MGCL was always better in managing its trade debts than the competitors. However this year the DSO stood at 447.7, considerably higher than the previous year's 127.61. This is signaling towards a relaxed policy with respect to trade debtors.
The company's liquidity management, as reflected in the current ratio, is below the industry's standards. The liquidity position measured in terms of the current ratio continued to deteriorate till FY06 and then after a slight increase in FY07 declined to FY06's level. In FY07-08, both current assets and current showed nominal growth rates of 2.1 percent and 4.59 percent respectively. However this year the liquidity position remained tough. The current ratio for FY09 stood at 1.10, lower than that in FY08.
LIQUIDITY RATIO
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LIQUIDITY RATIO
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2004 2005 2006 2007 2008 2009
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Current Ratio 1.36 1.24 1.20 1.23 1.20 1.10
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The debt ratios for MGCL have been considerably higher than its competitors. This reflects a much greater degree of leverage for the company compared to the average firm in the industry. The TIE seems satisfactory on a standalone basis but in comparison to the industry, the company's financial strength appears tarnished. This year ie FY09, the long-term loan of the company grew by a staggering 140%. Similarly the current maturity of long-term liability grew by 180%. The company in FY08 arranged a term finance loan of Rs 500 million from a consortium led by Bank Alfalah and other financial institutions. The company acquired these loans to finance the drilling of three wells in Mari Deep, Goru B reservoir.
MARKET VALUE
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MARKET VALUE
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Earning per share 14.14 9.84 5.15 18.61 69.67 7.42
Price earning ratio 20.41 43.76 25.02 30.81 2.97 2.97
Cash Dividend per share 3.02 3.05 3.10 3.18 3.23 3.22
Number of shares issued 36750 36750 36750 36750 36750 36750
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