Pakistan Petroleum Limited (PSX: PPL) announced its financial performance for the latest quarter last week where its earnings jumped by over 74 percent year-on-year. The same was seen growing by 37 percent year-on-year in overall 9MFY22. Growth in bottomline for 3QFY22 was however not due to higher oil and gas production, which declined by around 14 and 4 percent year-on-year respectively. Oil and gas production in the country has remained depressed as reserves continue to deplete and most discoveries are small in the upstream oil and gas sector. PPL’s natural gas production declined around 4 percent year-on-year. The declining gas production coupled with a fall in the Sui wellhead price were the main factors for dragging the E&P giant’s revenues in FY21.

However, higher bottomline for the E&P companies in recent times has been due to higher oil prices and currency depreciation. During 3QFY22, revenues for PPL increased by 38 percent year-on-year due to over 65 percent year-on-year spike in international crude oil prices as well as higher Sui wellhead gas prices. At the same time, weakening Rupee also boosted the topline for PPL in 3QFY22. Overall, 9MFY22 revenue growth was 25 percent year-on-year due to 70 percent higher crude oil prices; higher Sui wellhead gas prices and currency depreciation.

On the expense side, the exploration and prospecting expenditure also grew by over three times and 2.7 times in 3QFY22 and 9MFY22, respectively which was due to higher seismic activity and dry wells. However, PPL’s bottomline was also supported by over three times increase in other income due to exchange rate variance on FX denominated assets in 3QFY22 and 9MFY22. Apart from that, PPL also incurred a reduction in loss from its associate, Pakistan International Oil Limited in 3QFY22 versus 2QFY22.

Going forward, the key concern for the sector is the declining oil and gas production. Depleting reserves and small discoveries must be addressed by the sector and the government with policies and incentives to spur investment.