PAKISTAN

PETROLEUM
LIMITED
PORTFOLIO MANAGEMENT

TERM ASSIGNMENT
 A research paper for the course of
Portfolio Management

PPL

By

Saadat Ullah Khan – M03-MS038

Under the supervision of

Mr. SHAHZAD AWAN

July, 2005

Hailey College of Banking & Finance,

University of the Punjab, Lahore, Pakistan
Introduction
Pakistan Petroleum Limited (PPL) is one of the pioneer exploration
and production (E&P) companies in Pakistan oil and gas sector. On
behalf of the Government of Pakistan (GoP), the Privatisation
Commission (PC) plans to proceed with a strategic sale of 51%
shareholding in PPL along with transfer of management control.
Merrill Lynch International and KASB Securities (Pvt.) Ltd. (KASB) are
the Financial Advisors (FA) for the strategic sale.

Company History

PPL was incorporated on June 5, 1950 whereby the company inherited

the assets and liabilities of the Burmah Oil Company Limited and
commenced operations on July 1, 1952. At the time of incorporation,
the Burmah Oil Company held the majority stake of 70% with GoP
accounting for 30% stake and the balance held by private Pakistani
shareholders. Burmah Oil divested 6% of its shares to the
International Finance Corporation (IFC) in 1982, whereas in 1997 it
sold the remaining shareholding to the GoP.

In July 2004, the Government successfully concluded a 15% offer for

sale and IPO of the company on the domestic stock exchanges at PKR
55 per share. The current shareholders of PPL are the Government of
Pakistan (78.3%), International Finance Corporation (6.1%) and
institutional and individual investors (15.6%).

PPL holds joint ownership with the Government of Balochistan in

Bolan Mining Enterprises (BME), which is involved in the business of
mining exploratory well-drilling grade barite powder. BME is the
operator of the Gunga barytes mine in Balochistan having remaining
recoverable reserves of 0.74 million metric tons, as of 01 July 2004.
PPL’s head office is located in Karachi. The company’s total staff
strength is about 2,539 employees including 300 qualified personnel
in the fields of engineering, geology, finance and information
technology.

Vision
Our vision is to maintain PPL’s position as the premier producer of
hydrocarbons in the country and at the same time make a strategic
transition to become an international company, exploiting oil and gas
resources beyond the borders of Pakistan, resulting in value addition
to shareholders’ investment and to the nation as a whole.
Mission
Our mission is to optimize hydrocarbon production and pursue an
aggressive exploration program in the most efficient manner on the
local as well as international horizons through a team of professionals
utilizing the latest developments in the exploration and production
technology and maintaining the highest standards of health, safety
and environment

Core Values
 Recognize that Leadership, Empowerment and Accountability
are essential for Corporate Success.
 Pursue the Highest Standards of Ethical Behavior and
Integrity.
 Consider Our People as the Most Important Resource.
 Value Creativity and Innovation.
 We are committed to Excellence in all Spheres of
Performance.
 Work as a Team and advocate Teamwork.
 Respect the Environment and are committed to its Protection

Company Overview

Pakistan Petroleum Ltd is Pakistan's Premier E&P company, the oldest

and largest Exploration and Production Company in the country was
incorporated on 5th June 1950 subsequent to the promulgation of the
Pakistan Petroleum Production Rules, 1949 with the main objective of
conducting exploration, development and production of Pakistan's oil
and natural gas resources. PPL inherited all the assets and liabilities
of the Burmah Oil Company (Pakistan Concessions) Limited and
commenced business on 1st July 1952.

PPL and its ex-parent Burmah Oil Company have been active in the
subcontinent since the early part of the 20th century. A total of 239
wells including 65 exploratory and 174 appraisal / development wells
have so far been drilled which resulted in the discovery of about 19.90
Tcf gas (both operated and non-operated leases). A gas condensate/oil
field at Adhi with original recoverable reserves of 1,253 MT liquefied
Petroleum Gas and 39.4 MMbbl of oil/condensate was also discovered
by PPL.
The Company also operates a Baryte mine in Balochistan province. It
produces oil well drilling grade Baryte powder from the mine, which
has proven reserves of 1.25 million tones. For the year 2004-05, PPL's
share of average production from its operated and non-operated fields
was 953 MMcfd of gas, 1,372 bpd of oil/NGL and 26 tones per day of
LPG. Production of gas from these fields meets about 25.1% of the
country's indigenous production. The gas, LPG and NGL production
from PPL operated and non-operated fields for the year 2004-05 in
terms of oil equivalent, was about 171,205 barrels of crude oil per
day.

The Company has a staff of about 2563 employees with about 430
qualified technical staff in the fields of engineering, computer and
earth sciences. PPL has well established IT department and all staff in
the Head Office has access to computers and are interconnected
through Local Area Network (LAN). The Wide Area Network (WAN)
has also been established connecting PPL's three major producing
fields and Regional Office in Islamabad with the Head Office at
Karachi. The Company has implemented SAP in 2004 integrating core
business processes using Costing, Finance, Human Resources,
Materails Managemnet, Plant maintenance and Project Systems
modules.

The Government of Pakistan (GoP) in September 1997 purchased the

entire equity interest of Burmah Castrol PLC, formerly Burmah Oil
Company, in the Company (comprising 21 million ordinary shares of
Rs.10 each) representing 63.91 percent of the Share Capital thereby
increasing its holding in the Company to 93.35 percent. Subsequent
to June 2004, the GoP has disinvested a portion of its equity in the
Company equivalent to 15% of the paid up share capital of (i.e.
102.873 million shares of Rs.10 each) through an Initial Public
Offering (IPO). The GoP has made a policy decision to privatize PPL
and IPO is a significant step towards this direction.

GoP is in the process of offloading additional portion of GoP’s equity

equivalent to 51% of the paid up share capital in the Company with
the Management control to a Strategic Investor, Merrill Lynch has
been appointed as the Financial Advisor to the Privatization
Commission. The Technical, legal and Accounting Consultant are
presently conducting a detailed Due Diligence Review. The
Privatization Commission has invited Expression of the Interest and
the last date for the submission of Statement of Qualification was 30
April 2005 by which , eleven (11) investors have submitted their
Statement of Qualification. The Privatization Commission plans to
conclude the Transaction in the last quarter of 2005

Reserves and Production

The proven remaining recoverable reserves (1P) of PPL operated and

non-operated interests as of July 01, 2004 were 4.84 trillion cubic feet
of gas and 9.6 million barrels of oil/NGL. For the FY 2004, PPL’s
average production was 942 mmcf/d gas and 1,697 bbl/d oil. The
company’s share in average production from its operated and non-
operated joint venture fields are as follows:

PPL Production
FY 2002 FY 2003 FY 2004
Oil/NGL (barrels per day) 1,353 1,697
988
Natural Gas (million cubic feet per
926 910 942<
day)

Achievements

Year Event

1952 Discovery of Pakistan's Largest Gas Reserves at Sui

1955 Commencement of pipeline quality Natural Gas supply to

Karachi for industrial and domestic use within record time of
three years of discovery at Sui
1959
Discovery at Kandhkot Gas Field. Discovery of Gas at
Mazarani Field
1976 Commercial Production of Barytes by Bolan Mining
Enterprises

1978 Crude Oil discovery at Adhi field

1980 Commercial Production of Crude Oil from Adhi field

1982 Execution of Sui Gas Well Head Price Agreement (1982 GPA)
 stipulating cost-plus fixed return Gas Pricing Formula

1986 Commissioning of Sui Field Gas Compression Project (Phase

1) in Sui Main Limestone (SML) formation

1987 Start of Commercial Production From Kandhkot Gas Field

1990
Installation of Liquefied Petroleum Gas (LPG) and Natural
Gas Liquid (NGL) Plan and Commencement of LPG, NGL and
gas production from Adhi

1995 Commencement of gas production from Qadirpur Gas Field

(operated by a Joint Venture Partner)

1997 Completion of Phase II Extension of Sui Field Gas

Compression Project at SML and three Turbo Compressor
Trains in Sui Upper Limestone Reservoir

2000 Commencement of Extended Well Test (EWT) Production

from Block-22, Shikarpur

2001 Supply of gas from Miano Gas Field (Operated by a Joint

Venture Partner)

2002 - Dismantling of 1982 GPA and execution of new market

based Sui and Kandhkot Gas Price Agreement linking the Sui
and Kandhkot gas price with international oil prices.
- Acquisition of Sui gas Purification Plant jointly owned by
SSGCL and SNGPL

2003 - Commencement of gas supply from Mazarani Gas Field.

- Commissioning of Gas Processing Facilities (Phase 1) and
supply of gas from Sawan Gas Field. (Operated by a Joint
Venture Partner)
- Discovery of Pipeline Quality Gas Reserves in Tal
Exploration block, NWFP (operated by a Joint Venture
Partner)
2004 - Country's first ever supply of 100,000 tonnes of indigenous
iron ore from Dilband, District Mastung, Balochistan, to
Pakistan Steel, Karachi
Highlights of the Year 2004
 Average Products sold
Product July 2003 – June 2004 July 2004-Sept 2004
Gas(MMscf) 270,500 67,000
Crude Oil(BBL) 868,800 181,800
LPG(M.Ton) 22,500 5,700
NGL(BBL) 517,300 123,400
Condensate(BBL) 26,500 6,200
 The Government off loaded a portion of its equity equivalent to
15% of the paid-up Share Capital of the Company (10% followed
by an additional 5% Green Shoe option) through an Initial Public
Offering (IPO). Subsequent to the year-end, the Company was
listed on all the Stock Exchanges of the country (Karachi,
Lahore, and Islamabad).

 Achieved all time high Sales Revenues of Rs. 17.7 billion

representing 45% growth over last year.

 Profit before tax depicted robust growth of Rs. 4.2 billion

representing a 87% growth over last year.

 Profit after tax increased to Rs. 6.6 billion representing 58%

growth over last year.

 The year saw SAP ERP System Go Live in January 2004 after a
rigorous Process Re-engineering and Information Systems
Management (PRISM) Exercise.

 Phase III Extension of Sui Field Gas Compression Station

(SFGCS) facilities (addition of High Pressure Casings) on all size
Turbo Compressor Trains completed in October 2003.

 Ahdi Well-15 was successfully completed as an Oil Producer in

Sakesar Limestone in April 2004.

 Kandhkot Well-24 was successfully completed in December 2003

as a gas producer. It is the highest rate producer in Kandhkot
Gas Field To date.

 Qadirpur Phase II and III Field Development Projects, to

enhance Gas Processing capacity to 500 MMscfg were
 successfully tested and commissioned in January 2004 and
March 2004 respectively.

 Sawan Phase II was successfully completed in October 2003 and

the plant was tested to deliver up to 360 MMscfd gas.

 Four new areas namely Nushi, Latif, Hala and Khuzdar were
added during the year Company's Exploration Portfolio in line
with its Accelerated Exploration Strategy.

 Mazarani Gas Field developed and commissioned in June 2003

came into its prime as 3,533 million cubic feet of gas was sold
from the field during the year

Strategic Sale Process

The Government of Pakistan is currently seeking Expressions of

Interest (“EoIs”), from parties who would like to participate in the PPL
strategic sale process. EOI’s should be sent to Mr. Munir Ahmed,
Director General (B&U), accompanied with a non-refundable
processing fee of US$ 5,000/- or Rs. 300,000/- payable in the form of a
bank draft favoring Privatisation Commission, Government of
Pakistan. As soon as an EOI is received, the interested investor will be
sent a Request for Statement of Qualifications (“RSoQ”). RSoQs would
outline the information to be submitted by potential investors for the
pre-qualification process in the form of a Statement of Qualification
(“SoQ”). Based on the SoQ documents submitted by the parties the
GoP would pre-qualify potential investors for participation in the
strategic sale process. The last date for submission of EOIs and SOQs
is April 30, 2005.

Following the pre-qualification of potential investors by the GoP, pre-

qualified parties would receive an Information Package that provides
more detail on the Company, the Pakistan oil & gas industry and the
Pakistan economy. The pre-qualified parties would then be invited to
visit the data-room and provided an opportunity to meet with PPL’s
management.

PPL - Investment Highlights

Large Concentrated Asset Base with High Degree of
Operatorship
 Largest natural gas producer in Pakistan with approximately
one-third of Pakistan’s natural gas production – average FY2004
production of 952 MMcfe per day (942 MMcfd of natural gas and
1,697 bbld of crude oil/NGL);
 Proven (1P) reserves of 4.9 tcfe (4.84 tcf of natural gas and 9.6
MMbbl of crude oil/NGL) as of 1 July 2004[1];
 Eight producing fields – Four operated producing fields
representing 88% of PPL’s production and 87% of 1P reserves.
Development and Exploration Upside
 Potential for enhanced recovery and further appraisal and
development of producing fields to realise identified reserve
potential;
 Strong exploration track record and extensive exploration
database (4,084 line km of 2D and 3,891 km2 of 3D Seismic
acquired since 1998);
 Promising exploration portfolio (ownership in 13 exploration
concessions, including 5 onshore operated concessions, and two
offshore operated concessions) with high prospectivity;
Legacy as an Independent Entity
 Track record of over 45 years as an independent company; GoP
did not acquire majority stake until 1997 following divestment by
Burmah Oil;
 Listed on the Pakistan stock exchanges with minority shares
held by public investors and the International Finance
Corporation;
 Modern management practices and company structure;
 SAP ERP System implemented in January 2004.
New Natural Gas Pricing Regime Improving Profitability
 Replacement of PPL’s 1982 Gas Price Agreement (“GPA”) with
the 2002 GPA, allowing natural gas price increases for Sui and
Kandhkot fields under a phased 5 year program that began in July
2002.
Attractive Domestic Natural Gas Market and Macroeconomic
Environment
 Pakistan is a net importer of primary energy with growing
domestic natural gas demand (estimated at 4-7%p.a. over the next
20 years);
  Excellent exploration success ratio (1:3) and high natural gas
prospectivity of basins;
 Standardised, transparent and investor friendly regulatory
regime offering competitive fiscal terms;

High GDP growth rate, improved sovereign credit ratings, increasing

foreign exchange reserves and stable exchange rate.

PAKISTAN PETROLEUM LIMITED

::.Registered Office P.I.D.C. HOUSE DR ZIAUDDIN AHMED
Address: ROAD P. O BOX NO. 3942,
::.AUTHORISED
10000265200
CAPITAL:
::.PAID UP CAPITAL: 6835375808
::.CEO NAME: SYED MUNSIF RAZA
::.CEO ADDRESS: 63/III, KHAYABAN-E-BADAR PHASE-VI,
::.INCORPORATE
6/5/1950
DATE:
::.AUTHORISED
1000026510
CAPITAL SHARES:
::.PAID UP CAPITAL
68353758
SHARES:
::.AUTHORISED PER
10
VALUE:
::.PAID UP PER VALUE: 10