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Pakistan Oil & Gas Exploration: E&Ps earnings revised up 1-42%; Overweight Stance maintained

• We revise up our earnings forecasts of our E&Ps universe by 1-42% over FY21-FY23 after (1) revising up our Arab Light oil price assumption by 9-19% from US$38/46 per barrel in FY21/22 to US$45.3/50.1 per barrel following upward revision in the said estimates by Energy Information Administration (EIA) in its Dec-2020 report and (2) incorporating recently announced discoveries and financial results by E&Ps.
• Oil prices have recently recovered to over US$40 per barrel after hitting a bottom of US$13 per barrel (Arab Light) in Apr 21, 2020 on the back of continuation of production cuts by OPEC+ countries along with gradual reopening of economies after COVID-19 led shutdown.
• Oil and Gas Development Company (OGDC): We raise our OGDC earnings forecast by 4-8% over FY21-23 after incorporating revised oil price assumption and addition of three new discoveries namely Mamikhel South, Togh Bala and Siab. Mamikhel South is expected to come online by Apr-2021 with estimated flows of 3.24k bopd and 16.1 mmcfd, while for Togh Bala and Siab we have assumed production from 1QFY22. However, we have slightly increased our exploration cost estimate of the company for FY21/22.
• Pakistan Petroleum Limited (PPL): We revise up our earnings forecast for PPL by 1-14% over FY21-FY23. Commercial operations of already announced discoveries remains a grave concern for the company. The company has announced hydrocarbon backlog of ~170Mmcfd of gas, of which ~160Mmcfd was announced before Dec-2018. Among these flows, we have assumed start of 30 mmcfd before start of FY22, while remaining we have assumed between FY22-FY23.
• Mari Petroleum (MARI): We have revised up our MARI earnings forecast for FY21-23 between 12-42% on the back of (1) upward revision in oil price assumption, (2) increase in flows from Mari field to 682Mmcfd (vs. earlier 650mmcfd) and (3) addition of new discoveries (like Togh Bala, Hilal and Iqbal), which together will contribute 15 mmcfd in total that is 2% of existing sales volume. MARI also has a backlog of over 70 mmcfd from already announced discoveries like Tipu, Shaheen, Shahbaz among others. These flows are expected to come online after installation of gas processing units to supply pipeline quality gas to Sui companies (likely in next couple of months).
• Pakistan Oilfields Limited (POL): We have revised up our earnings forecast for POL by 11-25% from FY21-23 after upward revision in oil price assumption and addition of Mamikhel South from Apr-2021. This field alone will add Rs4.0-4.5/share (10%) to annual earnings.

Key Risks: Key risks to our E&Ps estimates includes (1) delay in commissioning/installation of gas processing facilities, (2) lower than expected oil prices, (3) worsening of circular debt and (4) unfavorable decision in Tal Block wind fall levy case.