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Pakistan Oil & Gas Exploration: ENI mulls selling upstream assets in Pakistan; Listed E&Ps may opt to buy these assets

• Pakistan E&P sector is amongst the most profitable sectors in Pakistan wherein, the companies have operating margins of around 55%, EBITDA margins of 63% and Net margins of 40%.
• Taking cue from listed companies, balance sheet position of E&P companies is also strong with no debt and strong cash balance. Nonetheless, state owned companies like OGDC and PPL have serious cash flows problems due to piling gas sector circular debt.
• Currently there are 24 operators working in Pakistan E&Ps space, out of which 14 are international and 10 are local.
• Reportedly, ENI is divesting its upstream business in Pakistan. which is currently being conducted through three entities, 1) ENI Pakistan Limited, 2) ENI AEP limited and 3) ENI Pakistan M limited.
• ENI major producing assets in Pakistan comprises of Bhit, Badhra and Kadanwari, which generates 75% of its revenue.
• We estimate, at US$50 per barrel, ENI revenue from E&P assets at US$105mn (or Rs17.4bn). Fields of the company like Bhit and Badhra are priced at Petroleum Policy 2001 (uncapped), Kadanwari is priced based on Furnace Oil, while Mitha is priced as per Petroleum Policy 2012.
• As per our estimates, over 90% of the revenues of ENI are coming from Gas, for which we believe EV to reserve of Mari Petroleum will be well suited for valuation purpose.
• Generally, 1 boe of gas fetches lower revenues (discount of over 50%) than 1 boe of oil/condensate, that’s why application of sector EV/reserve of US$2.24 would be misleading and inflationary.
• Net remaining reserves of ENI (84mmboe) translates into total value of US$94mn using EV/reserve of Mari. With industry’s average, total value comes at around US$189mn. Taking cue from the previous transactions, any premium above EV/reserves cannot be ruled out.
• During 2018, United Energy Group of Hong Kong completed acquisition of OMV group assets in Pakistan with total transaction value of Euro 158mn. BP Sold its assets in Pakistan back in 2010 for a total value of US$775mn to United Energy. In 2016, Hashoo Group acquired BHP Billiton’s operations through orient petroleum. Al-Haj group through its subsidiary also signed SPA in 2017 with premier oil Pakistan to acquire their upstream assets in Pakistan worth of US$65.6mn.
• Further, Solar power of 10MW was 100% equity financed by ENI at total capex of US$10mn as per notice available on NEPRA.
• Reserves of ENI assets currently have a remaining life of ~4 years, which can further be enhanced through more drilling of more exploratory/appraisal wells.
• If these are assets are acquired by any listed company (MARI, OGDC, PPL or POL), the following will be the impact on their earnings (Please see attached file).

Other than earnings impact, the upcoming operators can further explore opportunities and enhance reserve base of these blocks/fields over the long term