Updated Apr 09, 2005



Pakistan Oilfield's bottom line is expected to grow over the next five years. POL's oil, gas and LPG production would enhance through further development of its own and joint venture operated fields. POL is currently drilling a development well each in Balkassar, Pindori and Pariwali fields while development of recently discovered joint venture field, Tal, is under way by the operators MOL. Tal is expected to produce 5,850 million barrels of oil/condensate and 224MMCFD of gas. POL with a post discovery stake of about 21% would benefit the most due to its lower base. POL's LPG production would increase by 24% in 2HFY06 through installation of another LPG plant at Adhi field (POL's stake is 11%). Due to favorable revenue composition and higher value addition in LPG business, the company stands to benefit the most from sustained higher oil prices. POL derives 50% revenues from oil and 25% revenues through sales of LPG, both having direct linkages with international oil and LPG prices. POL through selling LPG at dealers' level realizes 29% higher prices than normal sales of LPG. Assessment of reserve potential from new discoveries is expected to alleviate concerns over low reserves life of POL and higher relative EV/Reserves (BOE). POL reserves life currently stands at 10 years for oil and 34 years for gas, while EV/reserves is a little above US$5. Among the three new discoveries at Tal, Pariwali and Jhal Magsi, Tal is the most important where POL has 20.5% stake. So far assessment of 1TCF reserves have been made from the first discovery leading to upward revision in gas reserves life by 21.5 years while market/industry sources are speculating the reserves potential to settle in the range of 3-5TCF. It is estimated that with every 1TCF addition in reserves from Tal, POL gas reserves life would go up by 21 years while its EV/reserves would decline by US$ 1.5 making asset-based valuation more attractive.



During 1HFY05 Maple Leaf's net sales increased by 27%, to slightly more than Rs2 billion due to higher dispatches and increase in net retention price. The company witnessed 20% increase in its grey cement dispatches, which was recorded at 652,000 tonnes during the period. Maple Leaf also sold 18,000 tonnes of white cement during the period. Maple Cement had spent Rs 500 million on machinery in FY04 for white cement process conversion. The planned additional capacity of 500tpd of white cement will come online in the next two months. This will bring the total white cement capacity of the company to 600tpd. Next in line stands the optimization of its existing dry process line of grey cement which will increase its capacity from 3300tpd to 4000tpd. This de-bottlenecking is also expected to come online by the end of current fiscal year and its impact would be felt in FY06. In addition to these two projects, the company has also plans to increase its capacity by 6700tpd by installation of new plant and machinery. The project will be financed by both debt and equity. The company issued right and preference shares recently to generate around Rs2.1 billion, Rs1.620 billion from right issue and Rs540 million from the preference issue. Half yearly financial statements show that a loan of Rs4.8 billion linked with KIBOR has been syndicated which has not yet been disbursed. It is expected that the loan will be disbursed in August 2005. Repayment of the loan will be made with a grace period of 3 years. Machinery arrival is also expected to start from August 2005 and would take around 18-24 months to arrive completely.

According to these estimates additional financial charges of around Rs 200 million are expected to hit the bottom line in 2HFY06 and Rs 400 million from FY07. Earnings are expected to see a dip due to the financial charges in FY06 and FY07 and will increase as the new capacity comes online sometime in FY08.

Cement prices have been recently increased by Rs 5-10/bag to Rs250/bag, from Rs235/bag at the beginning of the fiscal year. Prices have risen steadily, in what has essentially been a margin maintenance exercise on part of manufacturers. Production costs have been under pressure for some time on the back of rising fuel prices (input cost) and the cartel has done well to pass it on. With the continuing increase in international oil prices (has a bearing on coal quotes), cartel sustainability has become even more essential for the overall profitability of the industry (larger players like DG Khan are less susceptible and will not suffer substantially for a break up). Cement sales in March 2005 increased by 52% to 1.6 million tonnes (up16% YoY), as the industry recovered from an extended spell of rains that saw a dip in off-take for the larger part of January and February. Analysts have upgraded demand estimates and believe cement sales should touch 16.4 million tonnes by the close of fiscal. The price hike is a margins maintenance exercise in view of inflationary fuel prices.