In a recent notice, POL has announced a significant hydrocarbon discovery from Jhandial-3 well, located in Ikhlas block in Attock, Pakistan. Initial flows of oil and gas are estimated at 677-767bpd and 8.4-10.2mmcfd, respectively at different pressure levels (choke size). The said discovery is expected to be connected to the production line within three weeks. POL holds 80% working interest in Ikhlas block.
Key Highlights
§ The discovery is expected to increase POL’s total oil and gas production by 15% to c.5,600bpd and c.73mmcfd, respectively. This will result in incremental earnings of PKR3.6bn per year (c.PKR12.60/sh) based on oil price assumption of US$80/bbl and average PKR/USD exchange rate of 280.
§ As we highlighted in our note on POL that Jhandial reserves were downgraded mainly due to drilling issues in the appraisal well (Jhandial-2) while the reservoir depicted sufficient hydrocarbon potential. This discovery should result in reserve upgrade in Jhandial, thereby increasing its reserve life (presently estimated at seven years).
§ Another exploratory well Razgir-1 in Tal block is in testing phase (Tal block is currently producing c.15,000bpd oil and c.270mmcfd). POL owns c.21% working interest in Tal block which contributes 75% to its total revenues. Given the high potential of the block, any significant discovery in Razgir-1 should further improve its earnings, in our view.
POL is one of the top dividend yielding stock in our coverage with a FY25f DY of 15%. We believe the recent discovery in Jhandial-3 will further increase company’s payout capacity. Moreover, POL is in the process of drilling another exploratory well, Balkassar Deep-1A, which might further improve its reserve life – which presently stands at seven years, lowest in the sector. POL is less exposed to circular debt as most of its revenues come from oil and LPG sales. We reiterate our Buy rating with a TP of PKR600/sh.
