By: Foundation Securities Limited
- Collapsing oil prices have dented value proposition of Pakistan Petroleum Limited, but not to the extent reflected by the battered stock price. Focused on near term earnings attrition, we believe investors have underestimated the potential of Gambat South and probable conversion of Sui field pricing mechanism to PP12. The developments can drastically improve the earnings profile of the company that in our base case would shows 4-yrs earnings CAGR of 13%.
- Gambat south provides traction to PPL…: We believe the market does not truly appreciate the importance of Gambat South for PPL’s future outlook. In just under 2 years, the block has delivered 8 discoveries with a cumulative oil and gas production of 114mmcfd and 1953bpd (14% and 13% of PPL’s existing production flows). Primarily gas-based, the production ramp-up from this block (post installation of EPCC) will compensate for production constraint in its aging fields like Sui and Kandkhot. Ongoing exploration activity (Hadi X-01 under drilling) is to provide further upside and we like to highlight that all new discoveries in this block would be priced on PP12 policy. To put things in perceptive, average discovery in Hadi would have an incremental earnings impact of Rs0.5/sh (4% of FY17 basecase earnings) on PPL, previously from Rs0.3/sh.
- …. complemented by stake in other productive block: Besides, we see that improved production from Naspha (Naspha X-5 and Shawa-01 under drilling), Tal (Tolanj South -01, Makori Deep- 01, Tolanj West-01 under drilling) and Adhi (Adhi-25 under drilling) also have potential to add further to PPL’s growth story. At present, we foresee company’s hydrocarbon production to grow by an average of 10% in the coming 2 years.
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