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Pakistan Oil & Gas Exploration: Oil & Gas production to fall 17-25% YoY in 4QFY20 due to COVID; E&P profits to decline by 38% QoQ

• Pakistan Oil production during 4QFY20 is likely to fall by 25% YoY to 5.9mn barrels, taking full year FY20 decline to 13% YoY to 28mn barrels.
• Production during the outgoing quarter, fell by higher than previous quarters, due to disrupted operations of refineries amidst COVID-19 led lockdowns during the period.
• Production from top 8 fields, constituting 60% of country’s production fell by 29%, wherein flows from Mardankhel, Maramzai and Makori East (all three fields of Tal Block) dropped in the range of 38-63% during 4QFY20.
• Whereas, Makori Deep and Chanda flows, improved by 79% and 35% YoY respectively due to injection of Makori Deep 02 and Chanda 5.
• Affected by COVID-19, Pakistan Gas production during 4QFY20 is likely to decline by 17% YoY and 11% QoQ, taking full year FY20 production decline to around 10% YoY.
• Field wise, Kandhkot is expected to post a higher decline of 43% YoY due to lower offtake demanded by the power sector (mainly Gencos). 
• During the quarter, Mari field reported all time high offtakes of 737mmcfd and 741 mmcfd in last two weeks of Jun-2020, which contained its QoQ decline to 5%.
• As per PPIS data, companies reported nine discoveries during FY20 and ten dry wells, translating into a success ratio of 47% vs. historical average of 36%. During 4QFY20, sector reported one discovery and two dry wells.
• In Jun-2020 report, there is also one possible discovery by MARI from Hilal-1 field as status is showing ‘discovery notice under approval’.
• Meterage drilling during the year fell by 33% YoY to 187k meters, wherein resources spent on exploratory wells also fell to 44% of the total in FY20 compared to 50% in FY19.
• 2D seismic acquisition increased by 105% to 4,312 L.Kms in FY20 backed by higher efforts of OGDC and MARI. 3D acquisition fell by 10% to 1,436 Sq.Kms. In 4QFY20, 2D and 3Q acquisition fell by 8% QoQ and 62% QoQ mainly due to prevailing lockdowns in the country.
• In 4QFY20, Topline’s E&P universe profits are expected to post a decline of 38% QoQ due to decline in universe’s oil and gas production by 18% QoQ and 11% QoQ, respectively. Furthermore, crude oil prices (Arab Light) average during the outgoing quarter remained at US$27 per barrel, down 50% QoQ.
• MARI: Mari Petroleum’s (MARI) earnings during the quarter are likely to remain unchanged YoY, while decline by 11% QoQ. The sequential decline is attributed to 10% QoQ lower revenues due to decline in oil and gas flows. We estimate exploration cost at Rs680mn, down 70% QoQ due to lower seismic acquisition. FY20 earnings are likely increase by 26% YoY.
• POL: Pakistan Oilfields (POL) is likely to register the highest decline due to its more reliance on oil production. We estimate 59% QoQ decline in POL earnings in 4QFY20 due to fall in oil prices by 50% QoQ. Oil and Gas production during the quarter is likely to decline by 23% and 29% QoQ, respectively due to disrupted operations of fields amidst low throughput of refineries. Exploration costs during the outgoing quarter are estimated to come down by 52% QoQ due to lower seismic acquisition. FY20 earnings are estimated at Rs56.9/share, down 4%. We expect a final cash DPS of Rs25.0 taking total DPS to Rs45.0.
• OGDC: Oil and Gas Development Company (OGDC) earnings are likely to decrease by 48% QoQ in 4QFY20 due to decline in hydrocarbon production by 13-16% QoQ coupled with expected increase in exploration costs by 29% QoQ due to likely expensing of two dry wells (vs. one in last quarter). In last quarter, PPIS reported two dry wells, which we believe will be expensed in this quarter. Further, other income is also likely to fall by 55% QoQ due to absence of heavy exchange gains. FY20 earnings are estimated at Rs23.2/share, down by 16% YoY. We expect final cash dividend of Rs3.0/share taking total DPS to Rs7.25.

PPL: Pakistan Petroleum (PPL) earnings are likely to decline by 24% QoQ due to fall in hydrocarbon production by 7-28% QoQ. Exploration costs of the company are expected to decline by 78% QoQ as no dry well is reported (as per PPIS data). However, over last quarters company has surprised by expensing out fields like Talagang (announced as discovery in Sep 2018) and Zarbab (Hala Block). FY20 earnings of the company are likely to decline by 15% YoY to Rs18.5 per share with final dividend estimated at Rs2.0/share.