Pakistan Petroleum Limited invariably known as PPL is the pioneer in the gas production of the country, contributing about one fourth of total gas supplies, besides producing crude oil, condensate and LPG. Pakistan Petroleum Limited has been in the business of exploration and production since 1950 with the establishment of a public limited company through major shareholding of a Britain based company (Burmah Oil Company).
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 IPO 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 sometime during the current year.
Expanding the E&P Portfolio Nothing excites the media and the retail investors more than news on bonus shares. And this is what happened when PPL announced its 25 percent bonus issue along with its FY12 financial result in August 2012. While some were positively surprised, for others it was expected on account of the company's acquisition and growth plans.
Presently PPL's share in the country's total natural gas production stands at around 24 percent. The company operates the largest gas field at Sui and five others at Kandhkot, Hala, Chachar, Adhi, and Mazarani. It holds working interest in 12 partner operated fields including Qadirpur, Sawan, Nashpa, Latif etc. PPL-operated fields produce an average of one bcfd which is sold to the company's main clients: Wapda, SSGC and SNGPL.
During the year, PPL participated in Iraq's fourth licensing round and successfully acquired Block 8 as an operator. In addition, the company is also moving ahead with the acquisitions of MND Exploration and Production Company, a wholly owned subsidiary of a Czech Republican group.
The exploration portfolio of the company consists of 35 exploration blocks including offshore block Indus-G. Pakistan Petroleum Limited is the operator in 19 of them, while it has working interest in 15 of them as well. These numbers also include the exploration license in Yemen, which is a joint venture between PPL, OMV and Yemen General Corporation for Oil and Gas. However, due to security issues, progress in this regard has been halted completely in recent times.
Financial & Operational Performance FY12
Oil revenues of Pakistan Petroleum Limited gained massively from higher realised international crude oil prices as well as oil production, bringing in flows from Nashpa and Tal. The average realised prices of crude oil during the said period increased by 18 percent YoY.
Growth in gas revenues however, galloped only on account of 15 to 16 percent subsequent increase in gas well head prices; production stats remained stunted with no new flows as well. Field expenditure increased by 27 percent year-on-year during FY12 due to 2D and 3D seismic data acquisition in several fields including Sui, Adhi, Kandhkot, Nashpa, Tal, etc. Moreover, the inclination in field expenditure also came from the fast amortisation charges.
Signing off FY12 on a jovial note, the bottom line took the hint from the accretion in the top line and expanded by a mammoth 30 percent, clearly in line with the performance of the E&P space in the country. With no debts on its books, PPL's profits during FY12 were also significantly pushed up by almost two folds increase in other income during compared to FY11. This growth is in sync with the growth in company's long-term and short-term investment and excessive cash balance.
In short, the company's earnings jumped by a 30 percent YoY on the back of trickling down of higher realised prices, increased production from oilfields, a rise in other income and rupee weakening to end with. To beef it up further, PPL also announced final cash divided of Rs 6.5 per share, showing that the company's liquidity is smooth sailing. In terms of production flows by the E&P Company, an accretion in oil was the highlight of the year where the growth figures suggest an increase of around 17 percent YoY. On the other hand, the natural gas production remained a level close to that of FY11, inching up by a mere 1 percent YoY. The daily production from operated and partner-operated fields during the period under review averaged at 997mmcfd of gas, 6,145bpd of oil, and 57 tons per day of LPG.
Outlook
Though oil prices plunged after their long rising rally during FY12, the recent rebound will bode positive for the state E&P player. Furthermore, Pakistan Petroleum Limited will also gain from the lag reflection of international crude price change on its uncapped gas well-head prices. Analysts anticipate it to be massive as around 70 to 80 percent of PPL's fields are uncapped.
During FY12, the company and the E&P sector benefited massively from the high international oil prices as well as depreciating currency, while expectations of bumper profitability in FY13 hinges significantly on production accretion. Going forward, growth in FY12 has set the stage for the PPL which aims for an aggressive growth strategy such as that of acquiring MND Pakistan and developing the block acquired in Iraq. The obstacles like security situation, depleting reserves, underperformance of major fields and the dearth of energy in the country persist, but some acceleration awaits the E&P sector after the official announcement of the Petroleum Policy 2012 which offers a much better pricing scenario.
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Pakistan Petroleum Limited
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FY08 FY09 FY10 FY11 FY12
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Profitability
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Operating margin 65% 67% 58% 61% 60%
Net margin 43% 45% 39% 40% 43%
ROE 45% 44% 29% 33% 32%
ROCE 64% 62% 39% 46% 43%
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Liquidity & Efficiency
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Current ratio 2.79 3.10 3.21 3.15 4.38
Total assets turnover 0.82 0.86 0.63 0.68 0.65
Fixed assets turnover 2.49 2.19 1.56 1.78 1.89
Debtors' turnover 4.11 3.00 2.05 2.49 2.34
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Market
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EPS (Rs/share) 26.1 33.4 23.4 26.3 31.1
P/E 9.4 5.7 7.9 7.9 6.1
Dividend Yield 6.3% 6.9% 4.9% 5.8% 6.1%
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