IGI Securities Limited - Day Break (September 08, 2022)

Brokerage

IGI Securities Limited – Day Break (September 08, 2022)

September 8, 2022

Karachi, September 08, 2022 (PPI-OT): Oil and Gas Exploration Companies – Pakistan oil reserves up by +4% while gas reserves down by 2% as at Jun-22 end; RRR still below par

Major revision in reserves during 2HFY22 included: Upward revision in Mari oilfield reserves by 18mnbbls to 20mnbbls as at Jun-22. Makori East gas reserves have been revised upward by 6bcf to 151bcf as at Jun-22, up by +4%. Pasakhi/Pasakhi NE oil reserves dropped by 21% as at Jun-22.

Major revision in reserves during FY22 included: Downward revision in Nashpa and Mela oilfield reserves by 38%y/y and 74%y/y respectively. Mari oil reserves up by +13xy/y. Chanda oil reserves up by +3xy/y/. Qadirpur gas reserves down by 14%y/y. Tolanj West gas reserves are up by +2xy/y as at Jun-22.

Reserve Replacement Ration (RRR) for OGDC, PPL, POL and MARI remained below par during FY22. For oil and gas RRR was (0.35) and (0.93) for OGDC, (1.1) and (0.11) for PPL, 0.99 and 0.57 for POL and 42.4 and 0.16 for MARI. Only MARI reported oil RRR of more than 1 due to upward revision of Mari oil reserves.

Pakistan Oil reserves up while gas reserves are down by 2% as at Jun-22

As per data published by Pakistan Petroleum Information Service (PPIS), Pakistan’s total oil reserves are up by +4% to 232.5mnbbls as at Jun-22 compared to 222.9mnbbls at Dec-21. Gas reserves are up marginally down by 2% to 19.5tcf as at Jun-22 compared to 19.99tcf at Dec-21. Compared to Dec-21, oil reserves are up due to upward revision in Mari field reserves (contributing nearly 20mnbbls). Compared to Dec-21, oil reserves increased by 9.6mnbbls as at Jun-22 compared to 2HFY22 production of 12.9mnbbls. Gas reserves are down 2% or 473bcf as at Jun-22 which is below 2HFY22 production of 617bcf mainly due to upward revision of Makori East gas reserves. On yearly basis, oil and gas reserves are down by 7%y/y each, mainly due to downward revision of Nashpa and Mela oil reserves compensated by upward revision in Mari and Makori East reserves and natural depletion of gas reserves.

Major revision in reserves during 2HFY22 included:

Upward revision in Mari oilfield reserves by 18mnbbls to 20mnbbls as at Jun-22.

Makori East gas reserves have been revised upward by 6bcf to 151bcf as at Jun-22, up by +4%.

Pasakhi/Pasakhi NE oil reserves dropped by 21% as at Jun-22.

Major revision in reserves during FY22 included:

Downward revision in Nashpa and Mela oilfield reserves by 38%y/y and 74%y/y to 27mnbbls and 5mnbbls respectively as at Jun-22.

Mari oil reserves up by +13xy/y to 20mnbbls as at Jun-22.

Chanda oil reserves up by +3xy/y/ to 6mnbbls as at Jun-22.

Qadirpur gas reserves down by 14%y/y to 873bcf as at Jun-22.

Tolanj West gas reserves are up by +2xy/y to 30bcf as at Jun-22

POL: Oil reserves remain flat while gas reserve marginally down by 1% as at Jun-22

POL’s oil reserves remained flat at 31.73mnbbls while gas reserves reported at decline of 1% to 0.39tcf, as at Jun-22, compared to 31.88mnbbls and 0.40tcf as at Dec-21. Oil reserves remained flat due to upward revision in Meyal Reserves by 0.5mnbbls compared to total production of 0.9mnbbls while gas reserves declined due to upwards revision in Meyal and Makori East gas reserves (total up by 4.6bcf) compared to production of 12.4bcf during 2HFY22. This brings POL’s estimated reserves life to 15.6yrs each for oil and gas (total reserve life of 15.6yrs).

OGDC: Oil and gas reserves down by 6% and 2% respectively as at Jun-22

OGDC’s oil reserves are reported at 80.91mnbbls down by 6% while gas reserves are recorded at 6.5tcf, down by 2% as at Jun-22, compared to 86.17mnbbls and 6.6tcf at Dec-21. The decline in oil reserves was below 2HFY22 production of 6.1mnbbls mainly due to addition of cumulative reserves of 0.9mnbbls from Sono and Dhakni. Decline in gas reserves was also below 2HFY22 production of 183bcf mainly due to upward revision in Dakhni, Kadanwari and Makori East (cumulatively adding 29bcf). This brings OGDC’s estimated reserves life to 6.3yrs for oil and 17.7yrs for gas with total reserve life of 15.9yrs.

PPL: Oil reserves down by 6% and gas reserves down by 4% at Jun-22

PPL’s oil reserves are reported at 29.8mnbbls down by 6% while gas reserves are recorded at 2.63tcf, down by 4% as at Jun-22, compared to 31.6mnbbls and 2.75tcf at Dec-21. The decline in oil reserves (down by 1.8mnbbls) was below 2HFY22 production of 2.2mnbbls due to upward revision in Makori East reserves while decline in gas reserves of 122bcf was slightly below 2HFY22 production of 132bcf owing to upward revision in Makori East reserves. This brings PPL’s estimated reserves life to 5.9yrs for oil and 9.4yrs for gas with total reserve life of 9.1yrs.

MARI: Oil reserves up by +6.8x while gas reserves down by 4% at Jun-22

MARI oil reserves are reported at 21.7mnbbls up by +6.8x whereas gas reserves are down by 4% to 4.9tcf as at Jun-22 respectively, compared to 3.2mnbbls and 5.0tcf at Dec-21. The incline in oil reserves is primarily attributable to upward revision of 18mnbbls from Mari oil reserves. Gas reserves declined by 130bcf as at Jun-22, which was slightly below 2HFY22 production of 143bcf mainly due to addition of Iqbal and Hilal gas reserves under Mari gas field adding cumulative of 12.3bcf. This brings MARI’s estimated reserves life to 47.1yrs for oil and 17.5yrs for gas with total reserve life of 17.7yrs.

Reserve Replacement Ratio (RRR) remains key concern

Recommendation

MARI and POL remain our preferred picks among IGI E and P Universe with our Dec-22 target prices of PKR 2,050/share and PKR 537/share offering +22% and 30% upside from last close respectively. MARI and POL are trading at FY23F P/E of 4.2x and 4.4x. We base our liking for MARI and POL on the back of negligible exposure to circular debt and strong cash position. Both MARI and POL also offer healthy dividend yield of 12% and 16% respectively. However, for OGDC and PPL, we await any positive development on circular debt resolution which would initiate a multiple re-rating for both these companies.