· The Pakistani E&P sector had a mixed performance during 2QFY26. On the positive side, oil production increased slightly, and companies paid good dividends to their shareholders. However, overall profits were hurt by falling global oil prices, rising operational expenses, and lower earnings from investments as interest rates dropped.

· Net Sales for the sector stood at PKR217.17bn during 2QFY26, remaining largely flat (-0.1% YoY) as a modest increase in oil production was negated by lower realized hydrocarbon prices and a decline in gas off-take.

· Gross Profit declined by 11.0% YoY to PKR114.8bn, with gross margins contracting from 59.4% in 2QFY25 to 52.9% in 2QFY26, reflecting the sharp rise in operating and royalty costs.

· Profit before tax fell by 20.2% YoY to PKR109.2bn, as cost pressures intensified across the sector, particularly in operating expenses and exploration costs.

· Profit After Tax (PAT) recorded a 15.3% YoY decline to PKR74.1bn, driven by a combination of lower operational profitability, a 37.6% YoY drop in other income due to falling interest rates, however, a lower effective tax rate for the sector.

· Operating & Field Costs surged by 18.8% YoY to PKR69.1bn, primarily attributable to annual salary increments, higher activity levels, and inflationary pressures across the supply chain. Royalty Payments increased by 9.8% YoY to PKR33.5bn, with Mari Energies witnessing a notable rise in its effective royalty rate to 23.8% (vs. 19.4% in SPLY) on the Mari D&PL field. Exploration Costs stood at PKR14.1bn, up 2.9% YoY, with POL reporting a significant 3.3x YoY increase in exploration expenses, indicating heightened geological activity and drilling campaigns.

· Other Income plummeted by 37.6% YoY to PKR21.4bn, as declining investment yields and reduced cash balances, following large payments such as PPL’s Sui lease extension bonus, eroded non-operating income streams.

· Outlook: The escalation of the Iran-US conflict introduces a structurally positive outlook for Pakistan’s E&P sector, driven a sharp rise in energy prices, creating a strong upside for domestic exploration and production companies. Local producers benefit from international price linkages, while disruptions to seaborne gas shipments are allowing previously curtailed domestic wells to ramp up output. However, sustained gains depend on timely adjustments to gas prices; any delays risk reigniting circular debt and offsetting the sector’s near-term advantages.

Courtesy – AHCML Research