Topline Pakistan Research has reviewed Pakistan Oilfields (POL) and recommends a “buy” rating. We have revised our FY26 earnings estimates for POL downward by 17%, from Rs 97.2 to Rs 80.2 per share. This decline is due to lower production in the Tal Block due to gas curtailment, reduced oil price assumptions at US$65 per barrel, and higher exploration costs.

Despite this revision, we maintain a “BUY” stance on POL, as we’ve included the newly discovered Razgir field in our reserves. The stock has underperformed the market by 20% since January 1, 2025. We expect oil and gas production to decline by 19% and 13%, respectively, in FY26 compared to the FY25 estimates, even with the addition of new fields like Razgir and Makori Deep-03.

**Tal Block Developments**: Gas production from existing fields in the Tal Block is projected to decrease by 26% year-over-year in fiscal year 2026. The Razgir-1 field, with estimated flows of 25 MMcfd, is expected to start production by late July or early August 2025. We are conservatively assuming production will begin from 2QFY26. Gas from Razgir will be supplied to a third party, reducing the risk of curtailment. Makori Deep-03 is expected to contribute 22.08 MMCFD of gas and 2,112 BPD of oil starting August 2025.

**Exploration Costs**: POL is conducting 3-D seismic acquisition and expects FY26 exploration expenses to be 2.7 times the historical average, due to ongoing activities. We anticipate that these costs will stabilize after FY26.

**Production in FY27**: We project that production levels will normalize in FY27, driven by favorable government negotiations with Qatar, resulting in a 41% year-over-year increase in earnings.

**Valuation**: We maintain our target price for POL at Rs 687 per share, translating to a total expected return of 25.3%, including an 11.3% dividend yield.

**Key Risks**: Earnings risks include prolonged production disruptions, further declines in global oil prices, and unsuccessful drilling activities leading to additional dry wells.