With energy being the focus of attention, and quite obviously the defining sector to gauge the current government’s tenure, the energy sector was always going to get a boost at KSE following the elections in May. As soon as PML-N took over the helm, projects like Sinjhoro, KPD-TAY, Naspha & Tal were all given the green signal, boosting the credentials of OGDC in the stock market. However, even though the energy sector stocks have been easing themselves into prominence it wasn’t until the previous week that they really took the index by the scruff of its neck.
The oil and gas sector stocks upped three percent during this Wednesday and Thursday alone. While the approval given to the aforementioned projects has obviously had a say in that, there are several other reasons influencing the rise. Like for instance the recent crude surge – that got a slight breather following Mohammed Morsi’s ouster in Egypt – and the recent government noise apropos circular debt resolution, among other factors. And so, with all the positivity surrounding the energy sector, it is no major surprise that the oil and gas stocks have traced an upward trend.
At the forefront of this upsurge is of course OGDC that has recently subscribed to Rs 50.772 billion worth PIBs (Pakistan Investment Bonds), as a part of a partial settlement of the overdue receivables. OGDC would be getting a coupon rate of 11.5 percent per year on the investment. This in turn means Rs 1.2 per share earning impact during this fiscal year and is a major cause of sanguinity that is driving investors toward OGDC.
The other usual suspects from the energy sector – PPL, POL and Hubco – are also in the mix, as far as promise in investing in the oil and gas sector is concerned. PPL recently signed an agreement with the British oil and gas exploration firm Orion Energy Plc. PPL and Orion plan on exploring the Indus and Makran Offshore looking for any hyrdrocarbon potential. Depending on whether or not any reserves are traced, further developments are also expected. Furthermore, last week PPL also successfully tested gas-condensate in Sindh, from a reservoir in Sanghar.
Pakistan Oilfields (POL), meanwhile, entered Fiscal Year 2014 with a 43 percent YoY earning growth leading into a value of Rs 72.2 per share. After a disappointing FY13, owing to a downward spiral in oil and gas production, POL would be looking to additions from Manzalai, Mamikhel-2, Makori East and Maramzai-2 to lead to a 5 percent production growth in the next three years along with a 14 percent CAGR.
Hubco, in the meantime, has showcased a return of 48 percent over the last seven months and is expected to show a precipitous ascent in FY14 as far as its share price is concerned.
Oil production struck a 22-year high last fiscal year, repercussions of which would also add to the overall potential in investing in the energy sector stocks. Despite the 14 percent growth in oil production, we witnessed a 3 percent dip in the production of gas, something that seems to be on the verge of rectification if the recent government announcements and plans are anything to go by. This not only bodes well for the prospect of solving the energy predicament in our neck of the woods, but for the average Joe investor the energy sector stocks might be the go-to play in FY14.
