Pakistan: OGDC, PSO and KAPCO results

OGDCLPakistan’s largest E&P entity, Oil & Gas Development Company (OGDC) has announced its 1QFY14 financial results on Friday posting profit after tax of PkRs33.6 billion (EPS: PkR7.81) as against net profit of PkR25.6 billion (EPS: PkR5.97) during the corresponding period last year, a remarkable growth of almost 31 per cent.

The earnings were considerably higher than analysts’ estimates. Along with the result, OGDC declared interim dividend of PkR2.0 per share. For full year FY14, analysts expect OGDC to announce dividend of PkR11.5 per share.

The two major factors contributing to this substantial growth in profit were 1) topline growth (up 16.0%YoY; 15.0%QoQ) due to higher crude and gas production. Oil output was up by 4.5%YoY (40,205bbl/day) and 3.6%YoY (1,181mmcfd), respectively during 1QFY14. Besides, higher net realized price of crude (US$85.76/bbl in 1QFY14 compared to US$81.53/bbl in 1QFY13) and gas (PkR274.87/mcf in 1QFY14 compared to PkR251.16/mcf in 1QFY13) and 2) higher Other Income of PkR7.4 billion (up 49%QoQ) was due to interest received on its investment in PIBs and TFCs as well as currency gains.

Increase in crude oil production by 4.5%YoY came from commencement of production from Nashpa-4 well and Sinjhoro fields as well as increase in share of crude oil production from non-operated JV fields. The 3.6%YoY increase in gas production was mainly because of production from Sinjhoro field coupled with increase from Kunnar, Nandpur and Punjpir fields.

Additionally, development work on Kunnar, Pasakhi Deep, Sinjhoro, Uch-II, Neshpa-Mela, Jhal Magsi and Sara West is going on and management expects incremental production of 14,300bbl/day oil, 350mmcfd gas and 700tpd LPG.

PSOPakistan’s largest oil marketing company, Pakistan State Oil (PSO) is scheduled to announce its 1QFY14 result on Monday, 28th October. Analysts expect the Company to post profit after tax of PkR2.3 billion (EPS: PkR9.19), a sizable decline of 46%YoY in profit.

This expected decline is likely to come mainly from substantial increase in operating costs and currency depreciation. Rupee depriciation is expected to result in foreign exchange loss of PkR6.7 billion. Other highlights of the result include 1) increase in revenue by 18%YoY to PkR324 billion led by a 5%YoY increase in volumetric sales, motor gasoline sale increased by 19%YoY and furnace oil by 7%YoY, 2) a substantial 66%YoY decline in financial charges to PkR979 million owing to reduced payables and short-term borrowing post circular debt retirement in June’13, and 3) inventory gains of PkR2.7 billion.

While motor gasoline sale by the company is anticipated to increase on the back of CNG shutdown during winter season and better economic activity, furnace oil sales is expected to remain depressed as liquidity issues of energy chain has reoccurred despite payment of nearly half  a trillion Rupees to companies belonging to energy chain on 28th June this year. PSO’s receivables have built up to Rs100 billion within a short span of time. In addition to this, exchange losses are likely to reduce going forward on account of stabilization of exchange rate.

Going forward, while core operations are likely to normalize, profit and payout capacity will largely depend on liquidity across the energy chain. In this regard, analysts expect benefits of increase in power tariffs to flow to PSO while additional earnings from PIBs should also add to the bottomline. Moreover, a potential increase in oil marketing company’s margins should prove to be a key upside going forward.

KapcoDuring this past week Pakistan’s largest privatized power plant, Kot Addu Power Company (KAPCO) also announced its 1QFY14 financial result. The company posted profit after tax of PkR1.7 billion (EPS: PkR1.96), posting a marginal decline of 2%YoY. The earnings were below expectations mainly due to lower than anticipated gross margin, declining to around 9%; record low for the company. Analysts await detailed financial results to shed light on the said decline.

Key highlights of 1QFY14 results include: 1) revenue growing to PkR29.8 billion, posting increase of 2%YoY and 13%QoQ and 2) financial charges declining by a substantial 55%YoY and 74%QoQ to PkR806 million due to lower mark-up on payables after circular debt retirement by the GoP in June this year.

Analysts maintain positive stance on KAPCO despite disappointing 1QFY14 result and anticipate benefits from energy sector reforms but await detailed financial results for 1QFY14 for further clarity.



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