Pakistan Oil & Gas: Strong operational 4QFY22 for E&Ps

·         4QFY22 marked a phenomenal period for the Exploration & Production sector, with macros providing the much-needed tailwind to the sector in the face of lackluster production statistics.

·         AKD’s E&P Universe Net sales rose by 11.1%QoQ/62.3%YoY in 4QFY22, clocking in at PkR198.6bn. This was despite the 11.8%YoY and 4.3%QoQ dip in oil production amongst the listed entities.

·         On the flip side, dampeners to the sector’s profitability emerged in the form of high taxation charges in lieu of Super Tax, along with high exploration charges realized during the quarter. As a result, the after-tax profitability of the sector was down by 53.3%QoQ/26.0%YoY to PkR37.8bn.

·         Due to the nature of the pricing mechanism to determine well-head gas prices, persistently high international oil prices over the recent past would start reflecting for natural gas sales starting from 1HFY23.

·         We have revised our exchange rate assumptions to average PkR245/US$ in FY23, along with an annual depreciation of 8% in FY24 and 7% annual depreciation thereafter.  Resultantly, our FY23 earnings estimates have been revised upwards by ~21% on average.

·         Our top picks remain POL (revised TP: PkR660/sh) and MARI (revised TP: PkR3,330/sh), due to their relatively clean balance sheet as compared to OGDC (revised TP: PkR152/sh) and PPL  (revised TP: PkR121/sh), with MARI posing the added advantage of credible prospects of growth in its production in the coming years.

  AKD Research

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