February 22, 2006	Wednesday	Muharram 23, 1427

KARACHI, Feb 21: The anonymous discovery of ‘enormous’ amount of oil and gas in Tal block is driving share prices of main O&G exploration companies at the stock exchanges, but is anyone absolutely certain that the information is accurate?

Since the bullish fire over the past several months had been fuelled by the fertilizer, cement and particularly the banking sector, oil and gas rally was expected. But it has come not with a thud, but a bang. In just the last 13 trading sessions during the current month, the stock price in Pakistan Oilfields Limited (POL) has shot up by as much as Rs145 (32pc) from Rs460.75 on Feb 1 to Rs605.30 at the close of business on Tuesday. Pakistan Petroleum Limited (POL) has seen similar run up; its price has scaled by Rs71 (32pc) from Rs220 to Rs291. The third giant — sleeping possibly since the March 2005 crisis — has also awakened to climb by Rs28 (23pc), from Rs125 to Rs154 during less than two weeks of trading.

All the euphoria has obviously been built up on the back of ‘unexpectedly high estimates’ of new oil and gas reserves in the Tal block in which all three O&G companies have stakes: POL 21 per cent; OGDC and PPL 27.80 per cent each.

The question is what is the source of the vital information? Most of the market pundits and analysts refer to the ‘Pakistan Energy Yearbook 2005’. Should that be the proper reference and absolutely reliable material to cause such ‘irrational exuberance’ in the three stocks? What if the figures are misplaced? When the stocks change their course to south, investors who are now taking stakes at fabulously high prices in those O&G companies would be ruined. It is noticeably that in some cases the prices have shot up worryingly higher than their ‘fair value’ and ‘p/e ratios’. Due to their huge (38pc) weightage in the KSE index, the entire market will be dragged down.

The memory goes back to March 2005 crisis, when investors were cajoled into buying cement scrips at incredibly high prices on the prospects of imminent construction of huge dams, that never were to be. Then too O&G companies stock prices were pushed up on the ‘rumours’ of huge discoveries, none of which were found. No one can forget OGDC that led the rise and fall of the market in March 2005. The stock climbed to the dizzy height of Rs191, before losing nearly half that value and trapping and ruining investors in just over a week.

If the reasons for the current euphoria, in at least those major index driven stocks are the same as in last March, can the results be different? No one is suggesting that all the new discovery of oil and gas mentioned in the Yearbook is just ‘in the air’. But the information should come through the proper sources: The O&G exploration companies themselves. It is the function of the Regulators to see if there has been a breach of code of corporate governance under which companies are required to swiftly disseminate ‘material information’ to the public.

Last week, the stock market rally was totally driven by the O&G scrips. The KSE-100 index, which had climbed by 300 points during the week was all due to POL, PPL and OGDC, which had contributed 368 points, effectively showing that keeping those stocks aside, the market had not risen but dipped by 68 points. Things are going about the same way in the on-going week.

Most companies under such circumstances take the plea that they do not comment on ‘rumours’. But this is more than that. Investor education about stock investing is poor and in spite of all the reforms such as ‘undisclosed’ trading, ‘herd mentality’ is still prevalent. The regulators can not sit idle and watch another catastrophe, in case the information is incorrect. It does fall upon them to close the stable door before the horse has bolted.