March 02, 2007	Friday	Safar 12, 1428

KARACHI, March 1: The overall profitability of listed companies in the Oil and Gas Exploration (E&P) sector rose by 22 per cent to Rs35.31 billion for the first half of the current fiscal year ended December 31, 2006, from Rs28.98 billion in the corresponding period of the previous year.

The major reason for the growth in earnings of listed companies in this sector (OGDCL, Pakistan Oilfields and Pakistan Petroleum Limited) was “higher oil prices on the international front and domestic gas well-head prices,” writes Analyst Jawad Haleem, head of research at brokerage firm, Atlas Capital Markets in his “morning buzz” of Thursday.

Oil prices rose by 11.4pc (Opec Basket) y-o-y and gas well-head prices surged by 15pc. However, on a q-o-q basis, total earnings of the three companies combined depicted a decline of 3.6pc to Rs17.34bn. That was attributed to a 14pc fall in global oil prices during 2Q/FY07 over the previous quarter.

At the same time, operating costs which predominantly include exploration and production expenditure and royalty payments rose by 6.5pc. As a result operating profits and margins of the sector fell by 7.8pc and 333bps respectively. The individual financial numbers of the three companies in the sector were as follows:

Oil and Gas Development Company Limited: OGDCL witnessed a 14pc increase in earnings to Rs23.11bn (EPS: Rs5.37) during 1H/FY07 compared to Rs20.31bn (EPS: Rs4.72) previously. While production of crude oil rose by a marginal 1.5pc to 7.13m barrels, gas sales fell by 5.5pc on y-o-y basis to 155bcf because of annual turnaround at Uch Gas field during 1Q/FY07 coupled with suspension of gas production and supply from Loti Field up till the latter part of the first quarter of the current fiscal year.

This also explains the 8pc q-o-q increase in gas production as a result of which sales revenue fell by only 4pc while as earlier mentioned, crude prices plunged by 14pc. On the other hand, costs of the company inflated rather extraordinarily by 22.5pc, largely because of 110pc increase in exploration expenditure which the management attributes to higher write-offs related to dry/abandoned wells.

This led to a 17pc and 900bps fall in operating profits and margins whereas profits during 2Q/FY07 fell by 12.5pc to Rs10.79bn (EPS: Rs2.51). OGDCL also announced a second interim dividend of Rs1.75 taking the total dividend payout so far to Rs3.5 from Rs3.0 announced cumulatively for 1H/FY06.

Pakistan Oilfields Limited: POL saw a 30pc jump in its bottom-line to Rs3.75bn translating into an EPS of Rs19.0 as against a PAT and EPS of Rs2.89bn and Rs14.67 recorded during the corresponding period of last year.

The dynamics of POL during 1H/FY07 were different to that of OGDCL in the way that while POL’s sales revenue rose by 10pc y-o-y, its operating costs were down 13pc. The major reason for this was that during the second quarter of FY07, POL made a one time reversal on the exploration cost of Tal Block.

As a result costs during 2Q/FY07 fell by 40pc. However, PAT during the second quarter rose by only 3pc to Rs1.9bn (EPS: Rs9.65) due to a 59pc drop in other income and 5 per cent increase in the effective tax rate to 29pc from 24pc in 1Q/FY07. Another surprise was that the company made no payout compared to a bonus adjusted dividend of PRs5 last year.

Pakistan Petroleum Limited: PPL’s earnings grew by 46pc to Rs8.45bn (EPS: Rs12.32) compared to Rs5.78bn (EPS: Rs8.4) recorded during the corresponding period of last year. The factors responsible for the growth in profitability included a 23.8pc increase in top-line mainly as a result of a 31pc increase in weighted average well-head prices of its gas fields (sales fell by 3.6pc y-o-y).

At the same time, costs of the company remained on the lower side as they grew by only 4pc yielding operating profits and margins of Rs11.66bn and 65.5pc, up 37pc and 646bps respectively. In addition a 74.8pc upsurge in other income due to huge cash and bank balances coupled with a sharp increase in interest rates and a 5.1 percentage points (pps) reduction in effective tax rate to 27pc during 2Q/FY07, taking the half year effective tax rate to 30.7%, supported the bottom-line.