· International oil prices, which had already gained 55% in CY21, received another major push recently after the Russia, the third largest producer of the commodity, started gathering troops on its border with Ukraine. Since the news of potential Russian invasion broke, oil touched US$95/bbl, highest level in 7yrs.

· However, as of yesterday the threat of invasion has cooled somewhat after Russia started to withdraw its troops from the border area and thus resulting in a slight ease-off in international oil prices, which has come down to US$92.7/bbl, down 3% from the high it posted just a couple of days ago.

· Having gained ~30% since the Russia-Ukraine hostilities made headlines, recent diffusion of war threat in immediate term may correct oil prices down, between the range of US$85/bbl – US$90/bbl. However, with major producers unable to ramp up production, correction maybe limited.

· Consequently, we now expect FY22 average oil price to settle around US$85/bbl while our FY23 and FY24 oil price assumptions now stand around $80/bbl and $75/bbl (LT assumption now revised up to US$70/bbl). Consequently, we have also revised up our CAD estimates where we now expect FY22 to close with a CAD of US$17.8bn and FY23 at US$12.6bn.

· From the vantage of local E&Ps the soaring oil prices will result in improving profitability where we have revised our earnings estimates for AKD E&P universe by 7% – 15% over the next three years, while the valuations have been revised upwards by ~8% as a result. However stronger profitability should be supplemented by circular debt repayments (improved prospects for that to occur on the back of recording PHPL debt on GoP’s balance sheet). POL stands to be most sensitive to oil prices, therefore is likely to outperform. That said, potential improvement in earnings quality could unlock value in OGDC the most.

Courtesy – AKD Research