|  | 

Brokerage

JS Securities Limited – Morning Briefing

Karachi, January 15, 2018 (PPI-OT): POL: One-off to propel 2QFY18 earnings and payout

Pakistan Oilfields Limited (POL) is scheduled to announce 2QFY18 earnings on January 24, 2018 wherein we expect the company to post profits of Rs5,530mn (EPS of Rs23.38) for the quarter, up by a gigantic 136%/118% YoY/QoQ.

The massive increase in earnings is largely attributable to one-off retrospective revenue impact for field conversions.

Excluding the one-off, earnings are likely to clock in at Rs15.88/share (+61%/48% YoY/QoQ), where improvement in profitability is likely on the back of (1) higher average Arab Light crude oil prices and (2) higher oil, gas and LPG production.

Alongside result, we expect the company to announce an interim cash payout of Rs21/share.

We reiterate our ‘Buy’ call on POL with Dec-18 Target Price of Rs677. We highlight that our valuation remains conservative in treatment of new find, Jhandial-1.

Bumper earnings likely in 2QFY18

Pakistan Oilfields Limited (POL) is scheduled to announce 2QFY18 earnings on January 24, 2018 wherein we expect the company to post profits of Rs5,530mn (EPS of Rs23.38) for the quarter, up by a gigantic 136%/118% YoY/QoQ. The massive increase in earnings is largely attributable to one-off retrospective revenue impact for field conversions. To recall, POL had notified retrospective bill of Rs2.9bn for Sui Northern Gas Pipeline Limited (SNGP) in lieu of notified gas price revision of Makori East, Mamikhel and Maramzai after acceptance of conversion application to later policies.

Excluding the one-off, earnings are likely to clock in at Rs15.88/share (+61%/48% YoY/QoQ), where improvement in profitability is likely on the back of (1) higher average Arab Light crude oil prices (+17% in 2QFY18) and (2) higher oil (+10% YoY to 7,620bpd), gas (+16% YoY to 90mmcfd) and LPG (+9% YoY to 173tpd) production. The company is also likely to book dividend income from investments in Attock Petroleum Limited (APL) and National Refinery Limited (NRL). In terms of average, oil prices shot up by 19% QoQ to average at US$60/bbl during 2QFY18 compared to realized oil prices of US$49/bbl and US$48/bbl booked during 1QFY18 and 2QFY17, respectively. Alongside result, we expect the company to announce an interim cash payout of Rs21/share.

Jhandial-1 reserves to unlock further value

We reiterate our ‘Buy’ call on POL with Dec-18 Target Price of Rs677. We highlight that our valuation remains conservative in treatment of new find, Jhandial-1. Our calculations suggest that incorporation of full reserves potential of the field (23mmbbls of oil and 0.29tcf of gas) will (1) almost double company’s reserves life from 7.6 years to ~12 years based on current production levels – higher than PPL and OGDC’s 2P reserves life of ~10 years and 11 years, respectively and (2) increase our Target Price to Rs773. This will also address concerns on company’s heavy dependence on Tal Block (~70% of gross revenues in FY17A).

Tal Block makes up approximately 59% of company’s reserves (excluding Jhandial-1) and with incorporation of full reserve potential of the well as highlighted in the media, Tal’s contribution will reduce to 32% as Ikhlas block will gain top spot with overall share of 46% in company’s total reserves in terms of barrels of oil equivalent (58.86 mmboe at full potential). Key risks to our valuations include (1) lower-than-expected reserves of Ikhlas block, (2) weaker than expected crude oil prices, (3) higher-than- expected dry wells and (4) weak progress on exploration front.

js-securities-limited-morning-briefing-179

ABOUT THE AUTHOR

Categories

ARCHIVES