Topline of the E&P Sector experienced impressive escalation of 25% YoY mainly due to 4.4% YoY depreciation of Pak Rupee (PKR) against the Greenback (USD), handsome increase of 21% YoY in the price of crude oil (Arab Light) and rise in the well head price of major gas producing fields (Qadirpur up 3% YoY and Sui up by massive 24% YoY).
Despite the up tick in the operating cost coupled with 28% YoY increase in the royalty during the period under consideration the gross margins of the sector experienced minor expansion of 2pps. Exploration costs of the sector were dampened by 40% during FY12, highlighting the passive exploration policies that were followed by the companies in PPL, POL & OGDCL for the majority of the year, said the analysts at InvestCap Reserach.
They said the mammoth increase of 150% YoY experienced under the other income head primarily due to the increase of astounding 161% YoY felt by PPL in the other income due to reversal of provision for workers welfare fund amounting to Rs4.4bn was the prime driver in swelling the sectors net margins by 5.5pps during FY12. As a result the sector’s bottom line felt robust growth of 41% YoY during FY12.
Despite additional production coming in from Makori East, topline of the sector during 4QFY12 remained stagnant at Rs87bn. This was primarily due to 9% QoQ reduction in the price of crude oil (Arab light) coupled with mere 1.7% depreciation of PKR against USD during the mentioned period. In addition to sluggish topline performance, the operating cost of the sector was jacked up by huge 80% as compared to previous quarter, which resulted in contracting the gross margins by meaningful 9pps QoQ. 49% QoQ increase in the exploration cost point towards the fact that companies adopted aggressive exploration activities to achieve their exploration targets.
Bottomline of the sector was tapered off 10% during 4QFY12 against the previous quarter. However, the mentioned head could have thinned by 20% QoQ had it not been for the massive Rs4.4bn increase in other income head of PPL, which bolstered the sector’s other income by astonishing 127% QoQ. With fall in the US oil stocks due to hurricane Isaac we expect exuberant buying to come in from the US, coupled with the stimulus policy announced by the Fed was foreseen to inflate the price of the commodity in the international markets, therefore bolstering the profitability of the local E&P companies going forward.
