Petroleum policy 2011 is to further incentivise the exploration and production companies and encourage drilling activity in the energy starved country. As per reports, the policy proposes to raise the floor price from $30/bbl to
$50/barrel while keeping the ceiling unchanged at $100/bbl.
The policy may benefit Pakistan Petroleum Limited (PPL) with significant stake in off-shore blocks including Indus-C, Indus-M and Indus-N along with working interests in areas with potential shale gas reserves including Kirthar block. In the wake of this production flows from Nashpa (PPL Stake: 26.05 per cent) and TAL block (PPL stake: 27.8 per cent) are expected to get a boost and they would be the major source of incremental flows.
Earnings to depict CAGR 10.4 per cent: Overall impact of development at production front is expected to boost the profitability of PPL in coming years. Growing stock of cash and investment at Rs38 billion or Rs29/share are to further prop-up the bottom line expansion with pre-tax impact of Rs4.60/share. It is to be noted that PPL’s profits grew by a staggering 35 per cent YoY for FY11 to Profit after Tax of Rs31,446 million with earning per share of Rs23.92 along with a cumulative cash payout of Rs12.0/share and 10 per cent stock dividend. Oil based revenue has gained share in the pie whilst diversifying the risk away from natural gas. During FY11, 20 per cent of the revenue came from oil while 78 per cent came from sale of natural gas. With the expected tie-in, share of oil based sales are likely to generate one-third of revenue by FY14, said Salman Vidhani, Senior Analyst at HMFS.
Key Highlights of FY11: Revenue stream surge by 31 per cent YoY for FY11 owing to 24 per cent rise in average realised wellhead price to Rs 1200/bpd; spike in production of both oil and gas by 49 per cent and 1 per cent YoY, respectively; and depreciation of rupee against the green back by 2.2 per cent. Similarly, field expenditure expanded by 11 per cent YoY as seismic data acquisition was up while merely 1 exploratory and 3 developmental wells were spud during the year; other income escalated by 73 per cent YoY as cash and investments have piled up to Rs38 billion or Rs29/share; despite mounting trade debt which has bourgeoned to Rs32 billion, the payout ratio was in line with historical trends at 46 per cent against 38 per cent for FY10 and FY09.
Revenue mix tilting towards oil: Share of oil jumped to 20 per cent in FY11 versus 13 per cent in FY10 which is likely to climb further to one-third of the overall pie depicting a gradual shift towards oil. Though diversifying the risk away from high concentration toward gas, revenue volatility will gradually increase owing to the erratic nature of oil prices.
Encouraging production flows to prop up bottomline: Drilling of Makori East-02 in TAL block (PPL stake: 27.8 per cent) commenced in July-2011 with expected tie-in in 1HFY13 while we expect production to start from Makori East–01 in 2HFY12. Combined production from the two is likely to add 8,000-8,500 bpd of oil and 30mmcfd of gas, doubling the oil flows from TAL which currently stands at 8,600bpd. In the same block, gas
production from Manzalai is expected to jump to 350mmcfd from current flow of 250mmcfd after drilling of more wells.
Similarly in Nashpa block (PPL stake: 26.05 per cent), we have incorporated flows from appraisal well Nashpa-03 where drilling commenced in March-2011 with expected tie-in in 1HFY13, he added.
In Gambat block (PPL Stake: 30 per cent), after unsuccessful drilling at Tajjal- 2 and 3, gas discovery at Tajjal-4 is expected to boost the flows to 40-50mmcfd of gas by December- 2011 from current production of 18mmcfd. Flows are likely to offset the natural decline in production from Sui.
In Hala block (PPL Stake: 65 per cent), where Adam-I remains a producing field while Bhit Shah X-I is in a drilling stage. Total production is to witness FY12-FY15 CAGR of 2 per cent led primarily by oil which is expected grow by a CAGR of 14 per cent.
