PPL plans to drill five development wells and five exploratory wells during FY21

Pakistan Petroleum Ltd (PPL) posted an unconsolidated NPAT of PKR50.3bn (EPS PKR18.47) compared to PKR61.6bn (EPS PKR22.65) in FY19, where the 17% yoy decline was due to (i) c.23% yoy lower oil prices, (ii) lower production due to Covid-19 induced disruptions, and (iii) lower exchange gains. PPL also announced an annual payout of PKR1.0/sh.

Production Guidance

PPL guided total production of about 900mmcfd equivalent in FY21, about same as in FY20.

In Sui, PPL has been able to contain the depletion rate at 4-4.5% pa compared to a natural rate of 6%. PPL continues to engage the government for approval of Sui’s D&P lease (it remains to be governed by a Mining lease).

Production from Kandhkot during FY20 was c.135mmcfd against potential output level of 230mmcfd, where less than committed off-take from the sole buyer Genco-II has been the main issue. PPL has engaged the government to let it supply the excess gas (nearly 100mmcfd) to a third party or utilize it for power generation. The GSA with Genco-II will expire in 2022, but PPL has applied for an extension.

PPL will commission the GPF-IV plant Phase II during FY21, which will add 30-35mmcfd gas (total production from Gambat South block will rise to 130-140mmcfd gas).

Exploration & Future Drilling Plans

PPL plans to drill five development wells and five exploratory wells during FY21, which together are much less than 15-16 wells pa drilled in the past. Circular debt is a major reason for the reduced activity.

Future exploratory activity will remain tilted towards the Frontier areas (particularly West of Baluchistan); however these will be high-risk, high-cost and potentially high-reward drillings.

The management is optimistic about the Morgand discovery in Margand block, Baluchistan (Dec 2019). An appraisal well will be drilled by June 2021 to ascertain the true potential of the find. PPL estimates a total development plan of US$300mn for the discovery (including more wells and a processing plant), should the appraisal well yield encouraging results.

In Iraq, PPL will assess drilling a second well (the first well was not a commercial success); but it will first conduct more seismic survey, which has been delayed by the pandemic.

In Dhok Sultan (discovered in Dec 2015), PPL will drill a second well by September 2021. The first well had potential flows of about 3,800bpd oil and but production was halted due to lack of certain approvals from OGRA.

Circular Debt

Of the PKR312bn outstanding receivables, PKR305bn remain overdue.

The recovery ratio (collection from customers) improved to over 70% in 1QFY21 vs 43% in FY20. This can be partly attributed to the improved liquidity in the overall Energy sector after the GoP Energy Sukuk-II issue. PPL, however, received only PKR7bn from the Sukuk issue.

Intermarket Securities Limited.

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