JS Securities Limited -Morning Briefing

Karachi, June 12, 2018 (PPI-OT): Weak production in May-18; PKR deval and strong oil prices offsetnegativities

Pakistan Petroleum Information Service (PPIS) data indicates sequentialdecline in oil production for the month of May-2018 of 2% MoM. Ascompared to May-2017 however, production improved by 7% YoY toclock-in at 88,428bpd.

Natural gas production remained weak, both on a YoY and MoM basisclocking-in at 3,772mmcfd, indicating decline of 5.2%/3.2% YoY/MoM.

LPG production showed a similar trend as oil production, increasing on aYoY basis but declining sequentially to clock-in at 2,181tpd. Thistranslates into a change of 14% YoY.

Cumulatively during 11MFY18, oil production shows an increase of 2%YoY (90,438bpd vis-à-vis 88,250bpd) where gas production shows adecline of 1% YoY (3,994mmcfd vis-a-vis 4,035mmcfd).

In the JS E and Ps Universe, Oil and Gas Development Company (OGDC)posted dismal performance with oil and gas production declining by 1%/2%YoY/MoM and 14%/12% YoY/MoM respectively.

Pakistan Petroleum Limited (PPL) remained the best performer withincrease in oil and gas production of 11%/1% YoY/MoM and 3%/8%YoY/MoM respectively.

Pakistan Oilfields Limited (POL) saw its oil and gas production decline asboth posted decline as compared to Apr-18 of 3% MoM. This can beattributed to weak flows from Jhandial-1 field and Tal block.

Oil production disappointed in May-18 again

Pakistan Petroleum Information Service (PPIS) data indicates sequential decline inoil production for the month of May-2018 of 2% MoM. As compared to May-2017however, production improved by 7% YoY to clock-in at 88,428bpd. During themonth of May-18, production from key blocks such as Tal, Nashpa, Sinjhoro andTando Alam posted decline on a sequential basis, culminating into weakperformance for the month.

Good production from KPD-TAY fields and Adhi failed to offset production declinefrom other key blocks.With these numbers, overall oil production during 11MFY18now stands at 90,438bpd vis-à-vis 88,250bpd in the corresponding period last year,indicating an increase of 2% YoY. Performance of national giant OGDC remainedweak as it posted YoY/MoM decline of 1%/2% to clock-in at 40,210bpd. KPD-TAYflows have continued to post decline during FY18 and currently stand at 9,001bpdfrom a high of 10,161bpd recorded in Aug-17 during the ongoing fiscal year.Overall during 11MFY18, OGDC’s oil production has withered by 5% YoY to clock-in at 40,974bpd.

POL also lagged in terms of oil production if seen on a sequential basis. Of coursenew production additions, especially Jhandial-1 make comparison on a YoY basis irrelevant at this point of time and investors have continued to pin their hopes onthe Ikhlas block to sustain production decline from Tal blocks.

Despite optimistic forecasts, Jhandial has continued to disappoint with productionduring May-18 clocking-in at just 578bpd vis-a-vis 702bpd recorded in Apr-18, farfrom 1,438 bpd production recorded in Nov-17. Resultantly, overall productionduring May-18 clocked-in at 7,430bpd, up 9% YoY but down 3% MoM. PakistanPetroleum Limited (PPL) remained the best performer during the month withincrease in oil production of 11%/1% YoY/MoM, all thanks to Adhi fields whereflows improved by 13% MoM to clock-in at 9,600bpd (PPL has 39% stake in thefield).

The natural decline of natural gas

Natural gas production remained weak, on both a YoY and MoM basis clocking-inat 3,772mmcfd, indicating decline of 5.2%/3.2% YoY/MoM. Decline can mainly beattributed to weak production from KPD-TAY, Nashpa and Tal block fields.Cumulatively during 11MFY18, gas production has posted decline of 1% YoY toclock-in at 3,994mmcfd.

Here again, both OGDC and POL underperformed whereas PPL postedimprovement on a sequential basis given rebound in production from Sui fields of1.8% MoM. That said however, overall natural decline in Sui gas fields continuedduring FY18 as well.

Jhandial-1 remained a disappointment in terms of gas flows as well with overallproduction averaging at 6.62mmcfd during the month.As mentioned earlier, gas production from KPD dragged volumes downforOGDC as well. Field flows remained lower than average for FY18 during themonth.

LPG sales offer no respite

LPG production showed similar trend as oil production, increasing on a YoY basisbut declining sequentially to clock-in at 2,181tpd. This translates into a change of14%. Cumulatively during 11MFY18, lpg flows have increased by 17% YoY toclock-in at 2,119tpd, mainly due to full commissioning of KPD-TAY phase 2 project.

As flows from KPD-TAY fields increased, OGDC outperformed in LPG segmentduring the month with YoY/MoM increase of 21%/4%. Other E and PS generallyremained laggard in this segment.