§  MARI has effectively leveraged its ownership of Mari field, the largest gas field in Pakistan by reserves. The SGPC project (completed in 2023) has ramped up the field’s production to nearly 900mmcfd but also raised its exposure to the circular debt issue (another risk for payouts).

§  The company has been ramping up exploration activity outside Mari to diversify its revenues which are heavily concentrated. The new blocks include Bannu West in the high-risk, high-reward areas. Though it promises to yield a large discovery, such a program will also elevate lifting costs (hitherto the lowest among peers).

Initiate at Neutral with a TP of PKR2,904/sh

We initiate coverage on Mari Petroleum Ltd. (MARI) with a Neutral rating and a June 2025 TP of PKR2,904/sh. MARI is the largest gas producer in Pakistan, boasting a reserve life of 16 years (vs an average of 9 years for the listed peers). MARI has effectively leveraged this favourable gov’t policy to drive an impressive 5yr earnings CAGR of 2% (vs average -7% for peers). However, we are Neutral on MARI because at current valuations – FY25f P/E of 5.1x and EV/EBITDA of 2.1x – it is already trading at 1.4x premium to its peers. Its major asset – Mari field (c.90% of revenues) – has entered a depletion phase that trims gains from incentive pricing (PP12 price); and its aggressive drilling programs will demand more cash-flows – limiting its payout policy to a relatively moderate 40% over FY25-27f, in our view.

Maximizing profits from the Mari field

Mari D&P accounts for 98% of the company’s total gas production and contributes 88% to MARI’s revenue. About 75-80% of its gas is supplied to the Fertilizer industry. The field’s major reservoir, Habib Rahi Limestone (HRL), enjoys incentive pricing at par with PP12 upon meeting a benchmark production of 525mmcfd. To maximize the production of Mari field, the company initiated the SGPC project to process low BTU gas from Mari Deep reservoirs (Goru B and Tipu). The project was completed in 2023 and is currently producing c.100mmcfd gas.

Less exposed to the circular debt issue

MARI is much less exposed to the circular debt issue (CD) than OGDC and PPL with its recovery ratios averaging 95% over the past five years – despite being the largest gas producer in Pakistan. This is because MARI’s major customer, the Fertilizer industry, is not beset with CD. However, MARI’s exposure to CD has been rising since it commissioned the SGPC project and has increased supplies to the utility, SNGP (trade debts have shot up by 164% since FY20, albeit from a low base). Nonetheless, continued reforms in the gas chain, under an IMF program, should elevate recoveries for MARI and other gas producers, in our view.

Increasing focus on high-potential areas

MARI has shifted its focus to high-risk, high-reward areas located in the North of Pakistan (which have higher costs of exploration and drilling). In this endeavour. MARI has already made a large discovery – Bannu West with estimated reserves of 1tcf gas. MARI is also in a JV with PPL (operator), which has discovered a major oil reservoir, Bolan East (presently producing c.800bpd). MARI has aggressive development plans for these assets; as a result, its payout policy has moderated to 35% DPO in FY23 from 50% in FY21-22.

Courtesy –  Intermarket Securities Limited