Mari Gas Company Limited (MGCL) is a Pakistani E&P company currently operating in the second largest gas field 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 OGDCL and PPL. MGCL has the highest reserves life ie 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 1HFY10 Rs 140
PE Ratio 24.6
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During 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 a 60% working interest as operator and MND Exploration and Production Company Limited of the Czech Republic with 40% working interest.
Besides this, the company also has exploration licences at Hanna, Harnai and Sujawal with 100% working interest. Moreover, the government on 19 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 where 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 has made a significant new gas discovery in Koonj Well No 1A in its 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, 2008 and drilled down to a depth of 1475 metres 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 the 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 Daharki 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 a public listed company and listed on all the three stock exchanges of the country.
SHAREHOLDER PERCENTAGE AMOUNT
-- Fauji Foundation 40%
-- Government of Pakistan 20%
-- OGDCL 20%
-- General Public 20% 73.50
RECENT RESULTS 1H10
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MGCL- Financial Highlights (PKR 000's)
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1H'10 1H'09 Change
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Sales - net 2,722,554 3,263,806 -20%
Royalties 340,319 407,976 -20%
Exploration Cost 148,235 379,371 -156%
Finance Cost 209812 143,713 32%
Other income 226823 165,444 27%
Profit before tax 1258762 1,647,639 -31%
Taxation 289491 15,608 95%
Profit after tax 969271 1,663,247 -72%
Earnings per Share 21.47 45.26 -111%
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Gross sales for 1H10 showed a decline compared to 1H09, it decreased to about 20%. The main reason for decrease in profit is due to decline in wellhead price and increase in taxation for the current period due to adjustment of surplus and increase in financial charges by 32%.
Sales volume however increased by 4.38%, though it failed to mitigate a decline in profitability. Operating expenses increased mainly due to higher fuel charges and higher depreciation charges, while the exploration costs declined. Other income increased by 27% to be Rs 226 million. PAT was recorded at Rs 969 million as compared to Rs 1663 million in 1H09, a decline of 72%.
The company continued uninterrupted gas supply throughout the first half under review to all its customers namely, Engro Chemical Pakistan Limited, Fauji Fertiliser Company Limited, Fatima Fertiliser Company Limited, Pakistan Electric Power Company Limited (PEPCO), Foundation Power Company Daharki Limited and Sui Southern Gas Co Ltd. The gas produced during the first half ended December 31, 2009 was 89,281mmscf at a daily average of 485mmscf, as against 85,535mmscf at daily average of 465mmscf for the corresponding period of last year, which is as per the requirement/withdrawal of the customers. In addition, 1,371 BBL of oil was produced and sold in the current period against 259 BBL in the comparative period.
FINANCIAL PERFORMANCE FOR FY09
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 the 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 Fertiliser 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 (FY04-1H10)
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 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 in FY09. This decline can be attributed to rising operations and other costs including rise in duties and taxes hasn'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 the 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 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.
In 1H10, Mari Gas profitability slightly declined, as the Net Profit reduced to Rs 969,271 million compared to last year where the Net Profit stood at Rs 1,663,247 million, which shows a decline of 72%. Major reason was an increase in the finance cost which amounted to Rs 209,812, as mark-up on long-term financing - secured amount enlarged to Rs 103,042 million from Rs 51,482 which left the Net Profit margin standing at 35.60% in 1H10.
The return to shareholders consequently also showed a decline as the ROE and ROA ratios reduced to 10.53% and 4.56%. DSO stood at 447.7, considerably higher than the previous year's 127.61, signaling that Mari Gas may be a victim to the circular debt as well.
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ASSET MANAGEMENT 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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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 ratio 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 FY08.
The liquidity condition is unchanged and the company is able to maintain its liquidity compared to last year, as the Current Ratio stood at 1.12, showing the ability to pay off its short term debts. However, comparing it with previous years, the liquidity condition still remains in a decline.
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LIQUIDITY RATIO 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 those of 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. The leverage condition remains high for the company in 1H10 as the Debt to Asset Ratio continue to be at 0.57, showing the leveraging of the company higher than the average in the industry.
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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