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Pakistan Oil & Gas Exploration: Listed E&Ps profit declined by 40% YoY in 4QFY20

• Pakistan Oil and Gas Exploration (E&Ps) sector’s profitability during 4QFY20 has declined by 40% YoY, with full-year FY20 earnings dropping by 10% YoY. Our sample of four listed companies (100% of the sector’s market capitalization) earnings’ have declined to Rs36bn during 4QFY20, lowest in last 11 quarters on the back of decline in Revenues by 28% YoY and Other Income by 64% YoY.
• The sector’s Revenues during the quarter declined due to 61% YoY fall in average Arab Light oil price to US$27/bbl compared to US$69/bbl in 4QFY19 and US$54/bbl in 3QFY20. Similarly, Oil and Gas production of our sample fell in the range of 1-37% YoY in 4QFY20 due to COVID-19 outbreak as refineries production remained on the lower side, thus impacting E&Ps offtake.
• Exploration costs fell by 51% YoY as exploratory activities of Pakistan Petroleum Limited (PPL) remained low due to the cash crunch the company is facing on pretext of gas sector circular debt.
• During FY20, profitability of the sector went down by 11% to Rs196bn due to 3% YoY decline in Revenues and 35% YoY decline in Other Income. Other Income fell as PKR devalued by Rs8 per US$ in FY20 as against Rs39 in FY19.
• Amongst the companies, Oil and Gas Development Company (OGDC) posted a 52% YoY decline in earnings during 4QDY20 due to fall in Oil and Gas production by 18% and 23% YoY, respectively. Other income of the company declined by 58% YoY due to absence of heavy exchange gains.
• Pakistan Petroleum Limited (PPL) posted a 24% YoY decline in earnings, relatively lower than peers (POL and OGDC) as 92% YoY fall in exploration cost cushioned the drop in earnings. In line with peers, Other Income of the company fell by 69% YoY due to absence of heavy FX gains.
• Pakistan Oilfields Limited (POL) witnessed the largest decline in earnings to the tune of 57% YoY due higher concentration of its revenues towards oil. Oil and Gas production during outgoing quarter fell by 27% YoY and 29% YoY, respectively.

Mari Petroleum (MARI) posted a 6% YoY decline in its earnings as decline in oil prices did not affect its gas pricing due to the 6-months lag formula being applied for well head gas price calculation. Gas production of the company also remained intact, witnessing a fall of just 1% YoY, while oil production fell by 5% YoY.