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Indigenous production of gas

Published on 10th Nov, Edition 45, 2014

 

Some of the quarters are spreading disinformation that Pakistan is currently passing through the most difficult phase of its economic history. The country’s acute energy crisis is posing a serious predicament for its feeble economy and volatile national security. The demand is outstripping supply. The expansion at Tarbella is expected to cost US$840 million but it will not be completed before mid to late 2018. Similarly, the nuclear expansion project at Karachi Nuclear Power Plant, KANUPP-II of 1,100MW will be completed in 2019 at a cost of US$4.8 billion. This means Pakistan has no solution to the ongoing problem at least for the next four years except for LNG import which could come in as early as end of 2014.

However, some quarters are dismayed on the arguments being put forward in favor of LNG. It is being said that India has struck a deal with Qatar for LNG ranging between $10 and $12 per mmbtu. However, Platts McGraw Hill Financial revealed the average price of LNG imported by India in the last five trades was between US$17.30 and $17.50 per mmbtu. Additionally, it was said that India imports LNG from Qatar at $16.19 per mmbtu (not including the additional terminal price) under deals signed much earlier — when LNG prices were lower.

The claim US$9/mmbtu LNG is a possibility for Pakistan at the current time, in a globally competitive LNG market, is invalid. Whilst there are numerous exporting nations around the globe (17 currently), only a handful are within economic shipping distance of Pakistan and of those, only Qatar has LNG left to sell. Oman, Yemen and the UAE are all sold out.

Reportedly the demand for gas in Pakistan is expected to double over the next 10 years and current gas production at 4 billion cubic feet a day (BCFD) was less than the required 6 BCFD. At the current rate of growth, by 2020, the demand could touch 13 BCFD. If this happens then the energy conundrum in the country could well become an energy catastrophe. Towns and rural areas will be in perpetual darkness, and majority of the industrial units will be forced to shut down or remain uncompetitive. Consequently, unemployment will sky rocket, a greater majority of Pakistanis will be below the poverty line, food inflation will be rampant and social indicators will be well below that of sub-Saharan countries.

Keeping in view there is an urgent need for enhancing indigenous production of gas. One is completely dismayed at the policies being followed by the state owned exploration and production companies and oil marketing companies. A closer look at their periodical accounts helps in understanding the contours of GoP policies, aimed at maximizing dividend income rather reinvestment.

 

Pakistan State Oil Company (PSO) is the largest oil marketing company of the country and its receivables exceeds Rs200 billion but analysis of its financial tell a contrary story. For July-September quarter PSO has posted profit after tax of Rs5.2 billion (EPS: Rs19.30) as compared to net profit of Rs7.8 billion (EPS: Rs28.70) for 1QFY14, a decrease of 33%YoY. Despite declining sales, the company improved its gross margins to 4.0% in 1QFY15 as compared to 3.87% for the same period last year. Analyst’s statement that a massive decline 67%YoY in ‘other income’ was due to very little to no penal income received from the IPPs makes a person laugh.

Pakistan Petroleum Limited (PPL) announced its 1QFY15 financial results posting profit after tax of Rs13.69 billion (EPS: Rs6.94) as compared to net profit of Rs12.48 billion (EPS: Rs6.33) for 1QFY14, registering a growth of 10%YoY. Major factor responsible for 1QFY15 earnings growth remained 11%YoY increase in revenue. This growth in revenue was underpinned by expected 35%YoY increase in production coming in from Tal block, which is likely to have boosted company’s crude oil production up by 22% to 14,200 barrels per day (bpd) as compared to 11,600 bpd for 1QFY14. Operating margins declined to 59.9% for 1QFY15 due to 29%YoY increase in field expenditures.

Oil And Gas Company Limited (OGDC) posted profit after tax of Rs123.9 billion (EPS: Rs28.81) for the year ended June 30, 2014 (FY14) as compared to Rs91.7 billion (EPS: Rs21.22) a year ago, translating into growth of 36%YoY. The result was accompanied by final dividend of Rs3.0/share, taking full year payout for FY14 to Rs9.25 per share (92.5%. The Company’s topline grew by 15%YoY owing to enhanced production of hydrocarbons (mainly led by oil). Support to profitability came from ‘other income’ which rose by 22%YoY to Rs19.1 billion during FY14, the increase primarily attributed to interest earned on PIBs it received as partial settlement of circular debt which took place in June last year. Last year the company expensed out 10 dry wells which escalated its exploration and prospecting costs. For FY15, the Company has capex plan of Rs80-85 billion as it plans to drill 35 wells out of these 19 will be exploratory, while remaining will be of development type. The company also plans to ramp up its oil and gas production by 9% and 15%, respectively during FY15.

Pakistan Oilfields Limited (POL) posted profit after tax of Rs12.9 billion (EPS: Rs54.5) for FY14, registering a growth of 19%YoY. The result announcement was also accompanied by a final cash dividend of Rs32.5/share taking full year payout to Rs52.5/share. The notable surge in earnings during FY14 can be attributed to a 23% increase in the topline to Rs35.5 billion on account of 1) a 25%YoY increase in oil production to 6,000bpd and 2) a 6.3%YoY depreciation in average Pak Rupee value against the US dollar.

Pakistan Petroleum Limited (PPL) has hit another petroleum reserve, fourth discovery in the particular lease located in Sanghar district of Sindh province. Initial testing flowed 12 million cubic feet per day (mmcfd) of gas along with condensate, thereby confirming presence of commercial quantities. PPL is the operator of Gambat South block with 65% working interest along with its joint venture partners Government Holdings and Asia Resources Oil Limited, which holds 25% and 10% interest, respectively. In the same block, it has already found three producing wells Wafiq, Shahdad and Sharf. The expected output from the (Kinza X-1) well will translate into approximately 2,100 barrels per day.

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