Mari Petroleum Company Limited (MPCL) has been operating the country's largest gas reservoir at Mari Gas Field, Daharki, Sindh. It is an integrated oil and gas exploration and production company, formerly known as Mari Gas Company Limited. MPCL is primarily an exploration and production company in the upstream segment of the petroleum industry with the principal business activities of oil and gas exploration, drilling, field development, production and distribution of hydrocarbons like natural gas, crude oil, condensate and LPG. The company enjoys around 70 percent exploration success rate, which is much higher than industry averages of a little over 30 percent national and 14 percent international success rates, as per the company's annual accounts.
The firm is the second largest producer of natural gas with a market share of around 18 percent. In addition to Mari Gas Field, it holds development and production leases over Zarghun South, Sujawal, and Halini X-1 and has operatorship of eight exploration blocks (Sujawal, Karak, Ghauri, Sukkur, Ziarat, Harnai, Peshawar East, and Bannu West). In crude oil, the company's share stands close to 2.5 percent.
Mari Petroleum is also a significant supplier of natural gas to the fertilizer manufacturers, power generation companies and gas distribution companies, while its crude oil and condensate are supplied to the refineries. MPCL accounts for 80 percent of the gas to the fertilizer segment and its key customers include Engro Fertilizer Limited, Fauji Fertilizer Company Limited, Fatima Fertilizer Company Limited, Foundation Power Company Daharki Limited, Central Power Generation Company Limited, Sui Northern Gas Pipelines Limited, Sui Southern Gas Company Limited, Attock Refinery Limited, National Refinery Limited, Pakistan Refinery Limited, Pak Arab Refinery Limited, Western Power Company (Pvt) Limited, Petrosin CNG (Private) Limited and Foundation Gas.
Shareholding pattern
The government of Pakistan has around 18.39 percent shareholding in Mari Petroleum, with divestment plans on the cards for some time now. Apart from the GoP, Mari has two key shareholders: Fauji Foundation with 40 percent shareholding; OGDCL with a share of 20 percent, and the general public with over 21 percent share. All Fauji Foundation group companies as well as OGDCL are the associated companies of MPCL.
Past performance
While the domestic gas production continued to remain flat, Mari Petroleum Company Limited has not only seen better crude oil production, but its gas flows have also notched up. the company has been outperforming its local peers in the sector in terms of profitability/cost efficiency and production. The consistency in revenues and earnings has kept the company's future prospects sanguine. Consistently growing revenues and profits over the last five years is an indicator of Mari Petroleum's optimistic performance.
Back in FY16, the E&P company's net revenues grew by12 percent year-on-year, which was not only due to increased hydrocarbon production in general but also due to 60 mmcfd additional gas sales under incentive price provided to Guddu Power Station. Simultaneously, MPCL's aggressive exploration and production resulted in doubling of E&P expenditure that affected the bottom-line growth. Earnings for MPCL in FY16 were up by 7 percent year-on-year.
Revenues improved further in FY17, rising by 30 percent year-on-year, while this time, the growth in earnings was significant (over 50%), which came from better cost management and improved efficiency. This has been a highlight of the company's performance over the years where MPCL has seen its operating expenditure come down consistently - from 46 percent of sales in FY12 to 26 percent in FY17. In FY17 for Mari Petroleum witnessed 18 billion cubic feet of incremental gas and earned the incentive revenue. It has been the company's strategy to increase production of oil and gas to benefit from the incentive offered in the 2012 Petroleum Policy on enhanced production of gas from the existing reservoirs. As a result, the company drilled 8 out of 9 planned wells, while only one non-operated well was deferred to next year not on technical grounds but due to land acquisition issues. These 8 wells included 5 explorations, 2 appraisals and 1 development well that resulted in the discovery of 123 BCF of new reserves Moreover, the firm also successfully finalised a three years' exploration programme and also developed a five years' exploration vision.
Things continue to improve for MPCL that had been benefiting from higher oil prices; FY18 was another prolific year as MPCL was able to post highest ever production rates and profits. During the year, it made one new hydrocarbon discovery in its operated blocks and also completed one appraisal and one development well during the year. In terms of production, MPCL produced a total of 34.02 million barrels of oil equivalent (MMBOE) in FY18 compared with 32.32 MMBOE in FY17. The company was able to further enhance incremental production significantly as planned. Total incremental production of gas reached 27,797 MMCF in FY18 compared with 17,999 MMCF in FY17. In terms of profitability, Mari Petroleum's gross sales exceeded Rs100 billion for the first time in the history of the company. The impact of increased revenues in FY18 was reflected in the earnings that climbed by 68 percent year-on-year. All this has resulted in higher rate of return to the shareholders for the year, which increased to 44.4 percent in FY18 against 42.59 percent in FY17.
Financial performance 1HFY19
Mari Petroleum's growth momentum seems to continue in FY19 so far. The E&P sector including MPCL enjoyed currency depreciation and higher oil prices by around 30 percent in the first 6 months of FY19. The company reported an increase of over 60 percent year-on-year in its top line for 1HFY19, which was due to higher oil price environment and improved gas production flows.
Growth in the top line for MPCL was supported by around six percent year-on-year up tick in gas production along with over 50 percent hike in wellhead price of Mari gas field. On the other hand, oil price increased by around 30 percent year-on-year, while production volumes for crude oil were down by 18-19 percent. Hence the company's earnings were up by 62 percent, year-on-year.
Operating expenses however, were higher in 1HFY19 by 23 percent, year-on-year due to high cost of production. Also, exploration and prospecting expenditure were significantly up in the period under review on a year-on-year basis particularly due to costs incurred on an exploratory well in 1QFY19; on a standalone basis, the exploration and prospecting expenses were down by 12.6 percent year-on-year in 2QFY19.
In summary, increase in net sales and finance income, and decrease in finance cost were the key factors behind increased profitability in 1HFY19 for MPCL. This was offset by higher operating costs, exploration and prospecting expenditures, higher royalty and other charges.
Future prospects
MPCL's future exploration and drilling activity includes the acquisition of two new blocks in Sindh and the tribal areas that have been acquired during the government's recent bidding round for 10 exploration blocks. Their combined financial commitment is around $45 million. As part of its strategic business planning, MPCL also has plans to set a 180-megawatt Mari Power Plant.
However, recently it has been facing resistance from the government for gas supply to the plant where the government has refused to allocate Mari field gas to the combined-cycle thermal power plant allegedly in favour of the fertilizer sector.
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MPCL-Pattern of Shareholders as on June 30, 2018
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Major shareholders %
Fauji Foundation 40.0
OGDCL 20.0
Govt of Pakistan 18.4
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Source: Annual Accounts FY18
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MPCL-Five Years at a Glance
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FY14 FY15 FY16 FY17 FY18
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Revenue-Rs(mn) 70,571 88,792 95,898 96,189 100,602
Government levies-Rs(mn) 58,599 73,242 77,328 74,298 70,409
Sales-Rs(mn) 14,878 19,376 21,713 28,175 40,676
EPS - basic and diluted-Rs/share 35.77 51.25 54.89 82.87 139.45
No. of days in receivables (Days) 111 131 114 153 273
Price earnings - on the basis of EPS 10.44 9.14 16.55 19.01 10.8
Cash dividend per share-Rs/share 3.78 3.72 4.5 5.1 5.7
Dividend Yield (%) 1.01 0.79 0.5 0.32 0.38
Dividend payout ratio (%) 72 77.18 81.08 86.29 88.51
Return on capital employed (%) 26.43 37.37 36.78 38.19 50.55
Debt : Equity ratio (%) 1.94 44.69 5.57 14.04 0
Liquidity ratio (times) 1.06 1.02 0.87 1.14 1.18
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Source: Companny accounts
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Mari Petroleum Company Limited
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Rs (mn) 1HFY19 1HFY18 YoY 2QFY19 2QFY18 YoY
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Net Sales 28,987 18,017 60.9% 14,646 8,682 68.7%
Royalty 3,685 2,288 61.0% 1,857 1,101 68.7%
Operating Expenditure 5,657 4,662 21.3% 2,889 2,730 5.8%
Exploration and Prospecting
Expenditure 2,647 1,356 95.2% 971 1,110 -12.6%
Other operating income 371 308 20.4% 132 667 -80.2%
Other charges 1,199 660 81.6% 612 315 94.3%
Operating Profit 16,170 9,359 72.8% 8,449 4,091 106.5%
Finance income 604 304 98.8%- 336 184 82.3%
Finance Cost 338 609 -444% 51 313 -83.7%
PAT 11,058 6,815 62.3% 5,916 3,202 84.7%
EPS (Rs/share) 91.18 56,20 62.2% 4878 26.41 84.7%
Operating margin 55.79% 51.94% 57.69% 47.12%
Net margin 38.15% 37.83% 40.39% 36.89%
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