JS Securities Limited – Morning Briefing
Web Desk
Karachi, January 08, 2018 (PPI-OT): E and Ps: FO restrictions result in lower crude oil offtake in Dec-2017
Oil and Gas production witnessed decline during 2QFY18 as indicated by Pakistan Petroleum Information Service (PPIS) data. During the quarter, oil production declined by 2.5% YoY to 89,662bpd.
Gas production also witnessed decline of 2.8% YoY to 3,951mmcfd, while LPG production changed by 1.7%/-4.5% YoY/QoQ to 1,878tpd.
Lower crude oil offtake can be broadly attributable to lower offtake from Nashpa, Makori East, Makori Deep and Mardankhel fields in the aftermath of Furnace Oil (FO) based power generation restrictions.
We believe that oil price recovery (average Arab Light prices up 19% QoQ to ~US$60/bbl in 2QFY18) will be a major profitability protector during 2QFY18.
We prefer Pakistan Petroleum (PPL, Dec-18 TP: Rs246) and Oil and Gas Development Company (OGDC, Dec-18 TP: Rs199) in Pak E and Ps.
Crude oil offtake drops on short lifting by refineries
Oil and Gas production witnessed decline during 2QFY18 as indicated by Pakistan Petroleum Information Service (PPIS) data. During the quarter, oil production declined by 2.5% YoY to 89,662bpd. Lower crude oil offtake can broadly be attributable to lower production in Dec-2017 from Nashpa, Makori East, Makori Deep and Mardankhel fields in the aftermath of lower Furnace Oil (FO) based power generation and restrictions imposed by the government. As per our discussion with industry sources, this problem is likely to be resolved soon as the government has reiterated its resolve to ensure full utilization of local hydrocarbon resources. However, the timing of this remains uncertain for the time being which may lead to weak production levels in the next month as well. Meanwhile, oil price recovery (Arab Light average up 19% QoQ to ~US$60/bbl in 2QFY18) will be a major profitability protector during the quarter.
Gas and LPG production also decline
Gas production also witnessed decline of 2.8% YoY to 3,951mmcfd, while LPG production changed by 1.7%/-4.5% YoY/QoQ to 1,878tpd. Lower gas offtake was majorly because of the aforementioned reason (lower crude oil offtake leading to lower gas offtake of above-mentioned fields), lower production from Kandhkot field (mainly because of lower offtake from Guddu Power Station) and natural gas production decline from other fields. The table below summarizes key statistics from recent production numbers.
‘Overweight’ for E and Ps – PPL and OGDC top picks
We prefer Pakistan Petroleum Limited (PPL, Dec-18 TP: Rs246) and Oil and Gas Development Company (OGDC, Dec-18 TP: Rs199) in Pak E and Ps. Key risks to our valuations include (1) decline in international crude oil prices, (2) less than expected change in PKR/US$ parity and (3) higher than expected dry well or less than expected production from fields.
