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September 2017 turned out to be another volatile month for the market. Negativity prevailed during the first half of the month on penalty imposition of up to US$630 million on Habib Bank Limited (HBL) by the US authorities, later on slashed to US$225 million. However, foreign buying, resulting in an inflow (net) of US$28.9 million marked the first sizable monthly inflow during the current financial year. Sectors dominating market performance included: Pharmaceuticals, Food Producers, Chemicals, Electricity and Oil & Gas. Going forward October, foreign flows are likely to play a vital role in determining the market direction in the absence of any major positive triggers.

As the anti-graft body orders an investigation into the merger of KASB Bank with BankIslami Pakistan, State Bank of Pakistan (SBP) and a chartered accountancy firm is likely to come under probe. The Executive Board of the National Accountability Bureau (NAB) has decided to turn an ongoing inquiry into the conduct of officials of the SBP, BankIslami and AF Ferguson into investigation. An official statement released by NAB stated that the accused allegedly misused their authority in terms of non-transparent amalgamation of KASB Bank into BankIslami and granted Rs20 billion in concessionary loan for the purpose, causing a loss of billions of rupees to the national exchequer. However, the SBP denied these allegations, saying it took the merger decision due to KASB Bank’s constant failure to meet the minimum capital requirement. It is NAB’s second decision that would have implications for the financial sector. Earlier, it decided to file a reference in the case of Rs18.5 billion fraud in the Bangladesh branch of National Bank of Pakistan.

One of the emerging crises in Pakistan is growing inability of the country to meet its external debt serving due to paltry foreign direct investment, growing trade deficit and remittances falling short of the desired level. According to an announcement of State Bank of Pakistan (SBP) foreign exchange reserves held by the central bank have dropped below US$14 billion for the first time in two years. Reserves of SBP declined by US$276 million to US$13.86 billion for the week ended 29th September 2017. The central bank said the reduction of US276 million was because of debt servicing and other foreign payments. Falling reserves have sparked a debate on the rupee’s impending devaluation and the strategy to boost exports. Foreign exchange reserves held by SBP had touched a peak of US$18.9 billion in October 2016. The reserves started eroding afterwards as major sources of foreign currency, like exports and remittances, continued to decline or flattened out.The government paid about US$8billion in debt servicing in 2016-17.


The recent hike in international prices of crude oil has brought the index heavy weight exploration and production (E&P) companies back into the limelight. Fueled by geopolitical tensions and hopes of a market rebalance, the domestic E&P companies are emerging as major beneficiaries. Taking advantage of low cost oil field services around the globe post FY14, the companies have embarked on multiple exploration programs including geological surveys, seismic data acquisition and drilling of wells in lesser explored areas of Balochistan and Khyber Pakhtunkhwa (KPK).

A closer look at the ongoing E&P activities in Pakistan reveals that post-security clearance; seismic activities are undertaken by OGDC and PPL. Workovers at Adhi, Sui, Kandhkot and various other fields, appraisal and tie-in of newer discoveries in TAL block (Tolanj West, Makori Deep etc.) and plans to spud 100 wells in FY18 are likelyto act as major volumetric triggers in times to come. Oil based revenue makes up to 43% of the FY18 forecasted net revenue of Pakistani E&P companies. Any hike in global oil prices can further lift the annualized return of players like OGDC, PPL and POL. Well workover programs at various old wells is likely to boost pumping quantities from oil and gas fields. This, along with continuous spudding of exploratory and development wells has sustained oil and gas production in Pakistan intact with August’17 output rising 90,500 bpd oil and 4.07bcfdgas. It is necessary to mention that and depreciation in Pak Rupee against greenback can further enhance the profitability of the sector in the long run.

POL has announced discovery of hydrocarbons at its exploratory well Jhandial-1. The well was spudded almost one year ago in self-operated Ikhlas block (Attock), where the company holds 80% share. While it may be too early to speculate about the quantum of hydrocarbons present at the field, analysts are of the opinion that fields surrounding the well (Meyal, Pariwali, Dhulianetc) are rich in hydrocarbons. Dhok Sultan X-1 has been a successful discovery in the same district in December’15 with flow rates of 468bpd of oil and 0.62mmcfdgas, but has so far not been tied-in to the production facilities. Gas pricing from Jhandial-1 shall be based on PP12.

Analysts estimate that 100bpd oil of commercial discovery will have an incremental (annualized) EPS impact of Rs0.29/share and every 5 mmcfd gas discovery will augment its (annualized) EPS by Rs1.42/share. Amidst steady formation of both volumetric and price triggers, the domestic E&P sector is once again coming into limelight. While pricing policy upgrades with regards to Sui and certain fields in TAL block are bottomline boosters, appraisal of Tolanj West and Makori Deep, tie-in of Mardankhel-2 and Mardankhel-3 and development of various development wells in Adhi field shall act as near term production booster for the Oil & Gas companies.

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