Morning Briefing for July 10, 2012 – Standard Capital

Karachi, July 10, 2012 (PPI-OT): E and P companies strategies alignment with investor’s strategy

Standard Capital has the desire to align investor’s strategies with oil and gas exploration companies overall strategies.

In this context, Standard Capital see overall hydrocarbon activity is restricted to Pakistan’s biggest company OGDC, which is also the biggest in terms of acreage of blocks.

According to Standard Capital see center of activity revolves around second biggest gas producing field Qadirpur as well as old structures such as Kunnar (Sindh province based)and other areas such as Rajian in Punjab. OGDC is the only company which despite adverse cost benefit analysis, usually undertake exploration activities and take part in government based auction announcements. As Standard Capital mentioned on Standard Capital’s previous reports its activity in Zin proved to be adverse in terms of cost benefit analysis. However, it is also one of the gainers in joint venture with MOL on Tal Block (KP province based). Standard Capital has plotted field wise data and Standard Capital see prospects of incremental growth in few fields with respect to OGDC. Hence Standard Capital considers OGDC to be Standard Capital’s top pick given prospects of growth in production of hydrocarbons. Some of the pitfalls in OGDC is, however, government interference, but recent leadership change is a good omen. Standard Capital see growth outlook translates into 15% earnings increase in FY13.

PPL is a quasi government entity, which is slow in discoveries and mainly depend upon government designated pricing policy of giving reprieve twice a year. Recently, PPL is active in installing compression plants in some of its old fields which is not enough. Hence PPL is moving elsewhere such as Yemen and vying to buy stakes in Czech based MND. PPL depends upon gas revenues since it is sitting with a major stake on Pakistan’s biggest gas producing field Sui. However, depletion in Sui has resulted in gas shortfall. Though Standard Capital see better earnings growth in PPL which is somewhat exaggerated given its mundane production growth.

POL, being a very small player of the private sector i.e Attock Group, is merely depending upon joint venture partners, most notably, Hungarian based MOL, on Tal block. It did find good flow of oil in its indigenous Dumial – Attock Distt. Yet activity on other fronts is miniscule in the context of Pakistan’s energy shortage. It does show promise in shape of FY13 earnings growth i.e. 19%.

MARI is also quasi government plus Fauji Foundation sponsored company which produces low caloric value gas that is supplied to fertilizer plants. Recently, it has a success in Distt. Karak on hydrocarbons which will now be part of SNGP systems. MARI is now center of focus given government’s initiative of supplying uninterrupted gas supplies to fertilizer players. This will enhance MARI’s dividend payment capacity i.e. Rs 3 to Rs 4.5/sh from FY12 onwards.

E and P snapshot – future earnings prospects
EPS PE Dividend outlook
FY11FY12EFY13EFY11FY12EFY13EFY11FY12EFY13E
OGDC 14.77

21.6

24.89

13.2

7.9

6.9

5.5

6

7

PPL  23.92

34.4

39.8

8.2

5.7

4.9

12

14

16

POL  45.72

53.44

63.36

8.3

7.1

6

35

38

45

MARI 19.13

24.38

25.33

5

3.9

3.8

3.34

4.5

4.5