Earnings forecast of Pakistani exploration & production companies revised

Pakistan’s leading brokerage house, Topline Securities has revised earnings forecasts of its Exploration & Production (E&P) universe for FY21-FY23 after the increase in per barrel price assumption of Arab Light oil from US$45/50 to US$52/58 following upward revision in the said estimates by Energy Information Administration (EIA) in its March 2021 report and incorporating production flows from recent discoveries/development wells.

Oil prices per barrel (Arab Light) have recently crossed US$60, recovering from its bottom of US$13.3 on 21st April 2020 on the back of production cuts by OPEC+ countries along with expectations of global economic recovery.

Oil and Gas Development Company (OGDC) earnings forecast has been increased by 8-10% over FY21-23 after incorporating revised oil price assumption and 2) upward adjustment in operating expenses. The brokerage house expects production of the Company to 59/59/56 million barrels of oil equivalent (boe) in FY21/22/23, respectively. It expects the Company to pay dividend of Rs7/11/11 during FY21/22/23.

Pakistan Petroleum (PPL) earnings have been revised up our by 11-18% for the period. The brokerage house has assumed additional flows of 30 mmcfd before start of FY22 from the backlog of discoveries (160-170mmcfd), while remaining we have assumed between FY22-FY23. Exploration expense forecast to Rs6 billion for FY21 from Rs11 billion earlier, due to lower number of wells drilled by the Company (till 9MFY21) and lower seismic acquisition. The brokerage house expects the Company to pay cash dividend of Rs6/8/8 during FY21/22/23, respectively.

Mari Petroleum (MARI) earnings forecast has been raised between 5-8% on the back of 1) upward revision in oil price assumption and 2) addition of new production fields  (like Togh and Togh Bala). MARI also has a backlog of over 70 mmcfd from already announced discoveries like Tipu, Shaheen, Shahbaz among others. These flows are expected to come online after installation of gas processing units to supply pipeline quality gas to Sui companies (likely in next couple of months). Gas reserves of Mari field have increased by 0.7 tcf in December 2020. This addition of reserves increases Target Price estimate of the Company by Rs140.

Pakistan Oilfields (POL) earnings have been revised up by 14-26% from FY21-23 after upward revision in oil price assumption and incorporation of additional flows from Pindori 10 (540 bopd). This field alone will add Rs1.6/share to annual earnings. The brokerage house has also revised down reserves of MamiKhel South (field yet to commence operations).

Key risks to E&P estimates includes: 1) delay in commissioning/installation of gas processing facilities, 2) lower than expected oil prices, 3) worsening of circular debt and 4) unfavorable decision in Tal Block wind fall levy case.

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