KARACHI: The oil and gas exploration and production (E&P) sector recorded impressive growth of 31 per cent in profitability to Rs188.2 billion in FY14 compared to Rs144.1bn the earlier year.

Growth in earnings was attributed to increase of 9pc in average level of oil production; lower exploration cost by 25pc (on reduced dry well write‐offs) and healthy other income (up 11pc YoY).

Moreover, reduction in effective tax rate enabled higher profitability.

“Despite the strong trend in earnings growth, the BMA E&P Universe under-performed the KSE100 by 13pc CYTD primarily due to liquidity and price concerns owing to secondary offering (SPO); delay in absence of any major discovery on the exploration front and appreciation of 6pc in rupee value against dollar in 2HFY14”, observed Analyst Muhammad Affan Ismail at BMA Capital.

Analysts at brokerage Sherman Securities pointed out that three companies OGDC, PPL and POL represented more than 85pc share in E&P market capitalisation.

Those three companies also commanded more than 70pc share in country’s oil production and contributed 50pc to country’s gas production.

Company wise data showed that OGDC posted highest earnings growth of 36pc during FY14, followed by PPL and POL as their earnings grew by 23pc and 19pc, respectively.

Sherman Securities listed major reasons for growth in profitability to higher rupee sales.

During FY14, combined sales of the three E&P companies (OGDC, PPL and POL) grew by 16pc to Rs412bn. However, revenue growth turned out to be almost in line with preceding five-year average sales growth of 13pc. Growth in revenue was ascribed to higher oil and gas revenue during FY14. The increase oil revenue was due to production while improved gas revenue was due to higher realised gas prices.

“Interestingly, during FY14, country’s oil production grew by 14pc to 86kbd (thousand barrels per day) while gas production remained almost flat at 4.1bcfd (billion cubic feet per day)”, analysts at Sherman said.

They stated that where net revenue remained higher by 16pc during FY14, total operating and exploration cost rose by only 12pc to Rs117bn. Lower growth in operating and exploration costs was due to sharp decline in dry wells drilled in FY14 as cost of dry well was reduced by more than 35pc.

Similarly, other income remained higher by 11pc to Rs27.5bn primarily due to higher income on cash placed in banks and better return on government securities.

Muhammad Affan Ismail at BMA Capital noted that going forward, the E&P sector was gearing up for an eventful year ahead owing to completion of major development projects (KPD‐TAY, Sinjhoro, Uch‐II); tie‐in of previous successful exploration attempts (Gambat South, Ghauri, Naushahro Firoz); ramp‐up of production from TAL, Latif and Adhi blocks and start of exploration in newly awarded concessions.

Published in Dawn, August 31th, 2014