Pakistan Oilfields Ltd (POL) has posted an unconsolidated net profit of PKR2.9bn (EPS PKR10.31) for 3QFY21, down 3% qoq and 46% yoy, much below our EPS estimate of PKR14.8 and consensus expectations. This takes the 9MFY21 net profits to PKR9.6bn (PKR33.74/sh), down 31% yoy.
Deviations from our estimate are many: (i) lower revenues, (ii) higher Opex, (iii) greater exchange losses and (iv) abnormally high effective tax rate.
Key Highlights for 3QFY21:
Net Sales have clocked in at PKR9.5bn, up 8% qoq but down 8% yoy, against our expectation of PKR9.9bn. Both Oil and Gas production of POL fell 2% qoq to c.6,200bpd and c.76mmcfd, respectively, where lower production from Tal block (natural depletion) was a key drag. Jhandial’s production continued to decline – not providing the needed support. Average exchange rate was nearly flat qoq at 160 and average crude oil prices rose 35% qoq to US$59/bbl. The latter is attributed for the sequential growth in revenues.
Exploration expenses have dwindled to PKR72mn compared with PKR34mn in 2QFY21 and PKR362mn SPLY. We attribute: (i) lower oil prices had discouraged drilling, (ii) lack of major success from recent exploratory drilling in POL’s operated fields, and (iii) completion of new geological studies at Tal block last year.
Other income is a negative PKR372mn. We think that POL has booked PKR800-900mn of losses, much higher than the c.PKR550mn we expected. The losses, however, are offset by negative PKR300mn of Finance costs – future decommissioning costs written down.
Amortization costs are down 15% qoq and 12% yoy due to lower production and earlier reserves upgrade. For the second consecutive quarter, POL has booked an effective tax rate of c.40%; which arises from discrepancy in certain development costs in tax accounting.
This is overall a very weak result by POL where expenses have risen amid lower revenues and hefty exchange losses. Only the latter can be expected to normalize in coming quarters. Compare POL’s 3Q result with that of OGDC, where profits rose 28% qoq despite hefty dry-well costs. The company has not been able to achieve commercial success from its recent drilling activity (including at Jhandial). Nonetheless, pending additions of new wells to production at Tal block are key catalysts (drilling of Mardankhel-4 well has been delayed, while negotiations with the government for pricing of Mamikhel South discovery are ongoing). We maintain our Buy rating on POL with a TP of PKR500/sh, as it is forward DY of 14-15% at assumed oil prices of US$60/bbl.
Courtesy – Intermarket Securities Limited.