The oil and gas exploration and production sector has witnessed a weak first quarter of FY25, primarily due to weaker oil prices, falling production flows, and appreciating domestic currency. Pakistan Petroleum Limited (PSX: PPL) reported a 20 percent year-on-year decline in earnings in 1QFY25. However, despite ongoing challenges in production and market prices, a favorable cost structure supported PPL’s earnings overall in 1QFY25.

PPL’s topline during 1QFY25 was down by 15 percent year over year. A 10 percent decline in oil prices and a contraction in production led to this outcome. Oil and gas production fell by 11 and 7, respectively, percent year-on-year in 1QFY25 due to aging fields and reduced production from not only PPL-owned fields but also from partner-operated fields. Appreciation of PKR further squeezed the topline.

PPL experienced a 24 percent decrease in its exploration expenses year-over-year. Although the lack of a dry well likely contributed to the lower expenses, the quarter’s lukewarm exploration and seismic activities also resulted in lower exploration and drilling charges.

The decline in exploration expenses was more than offset by lower other income. PPL’s other income experienced a significant increase of 70 percent year-on-year in 1QFY25, primarily due to a significant increase in late payments and cash and cash equivalents.

PPL announced an interim cash dividend of Rs2.0 per share in 1QFY25. On a positive note, the gradual recovery of outstanding trade debts from gas utility firms due to energy sector reforms under the IMF program is likely to prevent future buildup. This will free up cash flow for exploration activities and dividends.