Pakistan Oilfields Limited (POL) reported lower-than-expected 4QFY14 earnings of Rs11.77/share (down 13% QoQ) on the back of higher-than-expected amortization of development and decommissioning costs (d&de) associated with the write-off of Domial.- Despite soft 4QFY14, FY14 earnings clocked in 19% YoY higher at Rs54.48/share vis-à-vis FY13 earnings of Rs45.78/share owing to (1) 26% YoY higher oil production and (2) 5% YoY higher gas production.
- Post FY14 results, we tweak down our earnings estimates for POL by 0.3%-5.3% over FY15F-FY17F. That said, we keep our Target Price intact at Rs598.
- We reiterate our ‘Buy’ rating on POL given (1) FY15F D/Y of 12% & (2) substantial exploratory & development potential, particularly in Tal Block.
Domial write off drags down 4Q earnings
Pakistan Oilfields Limited (POL) reported lower-than-expected 4QFY14 earnings of Rs11.77/share (down 13% QoQ) with consensus pegged at Rs14.8/share (JS estimate: Rs14.3/share). Higher-than-expected amortization of development and decommissioning cost (d&de) of Rs1.9bn (vs. our estimate of Rs1.1bn) dragged down earnings by ~Rs2.7/share. As per our understanding higher d&de cost is associated with write-off of Domial, which last produced hydrocarbons in March 2014. Hence we do not expect higher d&de costs to be a recurring theme for POL. Despite soft 4QFY14, FY14 earnings clocked in 19% YoY higher at Rs54.48/share vis-à-vis FY13 earnings of Rs45.78/share. Alongside FY14 result announcement, POL announced a final cash payout of Rs32.5/share – taking cumulative FY14 cash payout to Rs52.5/share.
Key takeaways of FY14 result
Revenues up 23% YoY in FY14 on the back of 26% YoY and 5% YoY higher oil and gas production respectively despite an average PKR appreciation of 10% YoY vis-à-vis USD. 4Q revenues were up 10% QoQ and 25% YoY. Exploration costs down 5% YoY in FY14, while 4Q costs down 51% QoQ and 57% YoY due to lower seismic activity.
Operating costs rise by just 1% YoY in FY14 with 4Q costs rising by 16% QoQ. Other Income clocks in at 7% YoY lower in FY14, with 4Q income declining by 15% YoY (but up 32% QoQ).
‘Buy’ intact with TP of Rs598; FY15F D/Y of 12%
Post FY14 results, we tweak down our earnings estimates for POL by 0.3%-5.3% over FY15F-FY17F. That said we keep our Target Price intact at Rs598. We reiterate our ‘Buy’ rating on POL given (1) FY15F dividend yield of 12% and (2) exploratory and development potential, particularly in Tal Block. We believe substantial production upside exists from exploration and developmental activities in Tal Block, where Maramzai-3, Makori East 4 and Makori East 5 wells have been approved for drilling in FY15F. We believe, based on recent finds, successful appraisal of these wells could provide 12-25% upside to our oil and gas production estimates for POL in FY16F.
