E & P Sector

Pakistan Oil Fields

Corporate Member: Karachi Stock Exchange (Guarantee) Ltd.


December 2005

Pakistan Oil Fields - BUY
12000 450


10000 8000 6000


400 350 300 250 200

4000 2000

150 100 50

11/4/2003 3/24/2004 7/29/2004 12/9/2004 4/19/2005


Current Price : PKR 420 EPS for FY05 : Rs 28.63 EPS for FY06F : Rs 46.50 PER : 9 (based on expected earnings for FY06)



POL is involved in exploration and production in a total of 26 areas in Pakistan. Currently POL’s own operated Exploration Licenses include Hyderabad with working interest of (75%), Chakral (100%) and Ikhlas (100%). At present POL has nine Development and Production Leases: Pariwali, Meyal, Joya Mair, Minwal, Dhulian, Khaur, Pindori, Turkwal and Balkassar.

Market Capitalization:PKR 55,193.88m Outstanding no of shares : 131.414m Estimated free Float: 42% Major Share Holder: 54%

Price Performance (Dividend Adjusted) 52 week High/Low: 428/202 18 week High/Low: 428/288

Financial Highlights YE Revenue(PkR mn) Net Profit(PkRmn) EPS (PkR) EPS change Price/Earnings Dividend (PkR/share) Dividend Yield

Research Department

SC Securities (Pvt) Ltd.
Tel: 92 21 111 111 721 (Ext 107,108) Email: research@scsecurities.net

June 2004A 6842 2495.1 18.98 2.7% 22.12 13 3.1%

2005A 8998 3762.7 28.63 50.8% 14.66 12.5 2.98%

2006F 16740 6110.75 46.5 62.42% 9.03 14 3.4%

2007F 21245 7648 58.2 25% 7.2 16 3.4%

SC Securities (Pvt) Ltd.


E & P Sector

Pakistan Oil Fields

POL plants also manufacture LPG, Solvent Oil and Sulphur. POL markets LPG under its own name of POLGAS as well as through its subsidiary CAPGAS (Private) Limited. POL owns and operates a drilling rig capable of drilling deep wells to + 16,000 feet.

keeping conservative view on the daily production of oil and international oil price, we expect POL to report an EPS of PkR 46.50 for FY06

As per the latest printed accounts, POL is currently producing approximately 7000 barrels per day for 1Q FY06 as compared to 4926 barrels per day for the corresponding period last year showing the growth of 43% YoY basis. The impressive increase in production coupled with the jump in international oil prices, helped POL to post ever higher NPAT. With a view that the international oil prices would move in the band of $50 - $55 coupled with the POL to maintain it’s daily production not going below 6800 barrels per day, we expect the company to post an EPS of Rs. 46.50. Investment Highlights

Currently trading at the Oil prices are expected to discounted PER to - $55 remain around $52the average of it’s PER band mark

?? Pakistan Oil Fields is currently trading at a discount of 11 percent from our fair value of Rs 465 based on DCF valuation. POL seems to be the one of most discounted share and therefore it is advised for long-term investors to keep a positive stance on this stock and invest in the stock with long term perspective.

?? POL is currently trading at the PER of 9 based on the expected EPS of FY06 and offers a prospective yield of 3.4%. POL has a PE band of 6.8 – 13, having conservative approach, we apply an average PEx of 10 which is at a discount to the E&P sector and Market as well, expecting the company to report an EPS of Rs. 46.5, the fair value comes to Rs. 465. Financial Highlights
18000 16000 14000 12000 10000 8000 6000 4000 2000 0 FY03A Sales FY04A FY05A FY06F NA PT 1000 0 5000 4000 3000 2000 7000 6000

?? POL has achieved third consecutive record breaking ever highest results for FY05 which translates into the growth of 50.8%. ?? In spite of the big hit from financial cost on P&L for the acquisition of NRL, POL was able to post growth of 6% and 118% on QoQ and YoY basis respectively for 1QFY06, translating into an EPS of PkR 10.96 against PkR 5.02 in the corresponding period last year.

SC Securities (Pvt) Ltd.


E & P Sector

Pakistan Oil Fields

Production and Reserves
140 120 100 80 60 40 20 0 FY2004

8000 7000 6000 5000 4000 3000 2000 1000 0 FY2005

BOPD (Crude Oil)

BOPD (Solvent Oil)

POL produced 5555 barrels oil per day (BOPD) and 28.89 MMcfd of gas on average for the year 2003-04 and maintained it for the next financial year 2004-05 with an average daily production of 5540 BOPD and 31.39 MMcfd of gas. The impressive increase in production from 5540 BOPD and 31.39 MMcfd of gas for the FY05 to 7043 BOPD and 46.5 MMcfd of gas for the first quarter of FY06, accompanied by the spike in international oil prices helped POL to post ever highest earnings. POL shared 15.62% of total oil production of the country in 2004-05 whereas, it holds 8.16% of total oil oil reserves.

Oil Production 2004-05 OTHERS 6%

BP 25%

OGDC 47%

PPL 6% POL 16%

Oil Reserves 2004-05

OGDC 37%

BP 22% PPL 13% POL 8%

SC Securities (Pvt) Ltd.


E & P Sector
International Oil Scenario

Pakistan Oil Fields

Oil prices are expected to remain around $55- $60 mark

Oil prices in about a years time has almost doubled this is due to the fact that oil consumption across the world accelerated by far higher pace than the new reserves discovered. The falling production from the oil producing countries, mainly in the Gulf of Mexico and the North Sea, is supposed to be main reason for the high prices of oil. The upsurge in demand is mainly attributed to the fast growing economies of China and India. Other factors that have been part of this steep rise in international oil prices are the political instability in Middle East and the hurricanes like Katrina and Emma hitting the Gulf of Mexico. Though it looks like as if this steep rise in oil prices has already seen its peak and is now settling down at $55 mark. Also if the oil prices will continue to make new highs the global economic growth will slow down consequently resulting in lower demand for oil. This argument can also be backed by the fact that rising trend in oil prices has resulted in increased demand for alternative fuel sources like natural gas, and this will lower the demand for oil.

Valuation and Recommendation: POL is trading on the lower side of the PE band of the share for the last two years. Based on the DCF valuation and expectation for the handsome growth in earnings for the years to come, we recommend a strong buy for long-term investors and buy on dips for short-term investors.

DCF valuation 8.0% Terminal growth 0% 3% 4% 5% 6% 612.2 904.4 1,099.3 1,424.0 2,073.5 10.0% 473.0 625.4 710.0 828.5 1,006.3 Discount rate 12.0% 13.5% 381.3 471.5 516.6 574.6 652.0 330.8 395.2 425.6 464.5 511.0 14.0% 268.6 307.9 325.4 346.0 370.8 16.0% 231.8 259.6 271.5 285.3 301.3

SC Securities (Pvt) Ltd.


E & P Sector

Pakistan Oil Fields

Share Holding in Exploration Licenses and D&P/Mining Leases

Exploration License Hyderabad Ikhlas Gurgalot Kotra Nawab Shah Block Tal Block D&P/Mining Lease Balkassar Dhulian Joyamair Khaur Meyal Minwal Pariwali Soan(Pindori) Turkwal Adhi Chaknaurang Soan(Bhangali) Dhurnal Ratana Sara/Suri

Operator POL POL OGDC OGDC Tullow Pakistan MOL Pakistan Oil & Gas Co. POL POL POL POL POL POL POL POL POL PPL OGDC Orient Petroleum Orient Petroleum Orient Petroleum Tullow Pakistan

Interest % 100 100 20 28.50 25 25 100 100 100 100 100 82.50 82.50 35 67.37 11 15 7 5 4.54 14.54

Disclaimer All rights reserved. Copying and redistribution prohibited. SC Securities obtains informationfrom sources demmed reliable, but does not warrant its accuracy and disclaims for itself and its information providers all liability arising from its use. No information provided shall constitute tax, legal, or investment advice, or an offer to buy or sell securities.

SC Securities (Pvt) Ltd.


Sign up to vote on this title
UsefulNot useful