Pakistan Petroleum Limited is the pioneer in the gas industry of the country contributing about one fourth of total gas supplies besides producing crude oil, condensate and LPG. Exploration and production of hydrocarbons is a complex business that entails a spectrum of activities, risks, resource mobilisation and timeline.
PPL has been in the business since 1950 with the establishment of a public limited company through major shareholding of a Britain based company - Burmah Oil Company (BOC). In September 1997, BOC divested from the E&P sector world-wide and sold its equity in PPL to the Government of Pakistan. Subsequently, the government reduced its holding through an initial public offer in June CY04 and through Benazir Employees Stock Option Scheme (BESOS) in August CY09.
The current capital structure of the company consists of 71.05 percent shareholdings of GoP, 7.36 percent of PPL employee empowerment trust, and 21.59 percent of private investors. In order to accelerate the pace of privatisation, another 2.5 percent of government holdings are to be divested via domestic stock exchanges during the current year FY12.
Exploration Portfolio 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. The exploration portfolio of the company consists of 34 exploration blocks. PPL is the operator in 19 of them, while it has working interest in 15 of them as well. Moreover, PPL also has exploration licence in Yemen in a joint venture with OMV and Yemen General Corporation for oil and gas. The company is expecting the granting of participation in the offshore block Indus-G soon.
Production and Operations The company has six producing fields where it is the operator, and owns working interest in 12 fields like Qadirpur, Sawan, Nashpa, Latif etc. PPL-operated fields produce an average of 1 bcfd which is sold to the company's main clients: WAPDA, SSGC and SNGPL.
The company claims to aggressively indulge in exploration and production at a time when the country is faced with depleting reserves and the biggest energy crisis of all times. The company's proven reserves as at December 31, CY11 were 2.737 tcf of natural gas, 40.135 million barrels of oil and 303,058 tonnes of LPG.
Growth & Performance 1HFY12 At a time where the country is falling in a 'gasless' ditch, PPL has emerged as a survivor. When it comes to its performance, the company has been able to meet the sanguine expectations quite precisely. PPL stood to its promise of growth as a prime focus. Compared to 1HFY11, the sales of the company have witnessed an impressive growth of 21 percent during 1HFY12. With daily gas production of 1 bcfd from PPL-operated and partner-operated fields, the company undoubtedly accounts for one fourth of total domestic gas production.
While there was increase in gas and oil sales volumes from Kandhot, Adhi, Tal, Nashpa and Latif block during 1HFY12, the E&P firm saw a decrease in gas and condensate sales from Sui, Hala, Chachar, Sawan.
Profitability With EPS of Rs 15.30, the rise in the earnings of the company during 1HFY12 was in line with the growth in sales revenue. Backed by relatively higher international oil prices, domestic wellhead gas price, volumetric increases due to rising demand and rupee depreciation, the company was able to push its earnings per share up by 21 percent during 1HFY12.
An even bigger contributor to the profits has been the sources of income other than the top line: the investments the company has made during the 1HFY12 and especially the 2QFY12. This was primarily due to increasing interest income through investments in T-bills and bank placements worth Rs 1136 million during 1HFY2. Breaking the spell, field expenditure soared for PPL. Due to circular debt issue and security situation especially in Balochistan, drilling activity and search for new hydrocarbons has remained very slow during the first half of FY12. Similarly the royalty expense ballooned by 21 percent for the period under review.
E&P Activities The activity continued to be skewed towards development activities with E&P sector falling short of the targets set. Although PPL drilled one development well and no exploratory well during 1HFY12, it aims at achieving its target of three to four wells in total.
Coupled with inefficiency of subsequent petroleum policy to translate the revised gas wellhead price to the previous licenses, recently some wells have been suspended or declared dry. Such write-offs can make a significant portion of the rising field expenditures.
However, the company inculcates a scrupulous drive towards adopting new technology. PPL continues its ambitious programme of exploring both conventional and unconventional reservoirs. The company is the first to attempt to bring shale gas exploration to the country's E&P map and attract the foreign investors amid the falling FDI.
Opportunities and Challenges Amongst the challenges faced by the company, the urgency in the energy market is the most important issue for not only the company but the entire E&P sector.
One major obstacle hindering an exploration and production company from going full throttle is the security situation in various oil and gas rich areas. The responsibility gets even more for a public sector E&P that has to play a major role in addressing the energy crisis.
The company however benefits in the present times from the latest petroleum policy announced that promises higher gas wellhead prices of existing and new explorations. Also great opportunity lies in for PPL if it progresses with shale and tight gas exploration and production.
Prospects and Outlook As the reserves of oil and gas continue to deplete and the energy supply demand deficit widens, the situation calls for an aggressive exploration and production programmes to help replenish the shrinking bank. The company is known for continued drive to acquire prospective areas locally and internationally. The company is amongst the 46 participants that qualified the fourth exploration licensing round in Iraq.
The strain on the oil supplies arising from the Iran-US deadlock has pushed crude prices up massively in a short span of time. With expectations of higher oil prices throughout CY12 and Arab Light currently hovering above 120 dollars per barrel, the E&P sector remains attractive for the investors. Higher and firm oil prices due to geo-political situation around the globe would positively impact the E&P sector's profitability. However, the circular debt which stands at Rs 396 billion remains the key concern for the receivables of the industry.
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Pakistan Petroleum Limited
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1HFY12 1HFY11 1HFY10
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Production
Natural Gas (mmcf) 163,088 163,283 156,125
Crude Oil & Condensate (bbl) 1,421,438 1,293,888 761,122
LPG (tonnes) 11,076 13,458 10,587
Profitability
Net Profit Margin 44.44% 44.42% 38.57%
ROE 17.93% 18.15% 13.87%
ROA 13.45% 13.81% 10.43%
Solvency & Efficiency
Current ratio 3.05 3.72 2.98
Fixed asset turnover 0.98 0.87 0.68
Total asset turnover 0.30 0.31 0.27
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