BOOMING OIL BUSINESS
Govt an private firms post windfall profits
By AMANULLAH BASHAR
May 09 - 15, 2005
Contrary to the earlier hue and cry raised by the oil marketing companies over what they claimed that Pakistan offers the lowest margin in the region, the financial results betrayed by revealing that they earned probably the highest margin in the region.
Though the oil companies were allowed 3.5 percent margin on the oil business, the phenomenal growth in oil consumption and reportedly some loopholes in the price mechanism, the oil business being carried out by the government-owned and private sector companies has brought windfall profits reflected in their financial results.
Accordingly, Shell Pakistan's financial results for the nine months ended March 31, 2005 showed a phenomenal growth in earnings to Rs1.60 billion as against Rs0.81 billion during the corresponding period of last year.
Sales marked a 27% increase and gross margins improved by 142bps. Shell Pakistan has, however, attributed the improved profitability to better product mix and higher international oil prices. Shell has also stated that the aviation business continues to show a growing trend and volumes in the current quarter show an improvement of 20% from the same period last year. This is mainly the consequence of higher exports during the current quarter.
Shell's profitability during 9 months of the current financial year has received a considerable uplift on the back of the approximately 23% increase in petroleum prices since December 2004. An increment in petroleum prices leads to inventory gains and translates into higher rupee margins. After freezing oil prices for almost seven months, the government finally decided to lift the cap in mid-December in order to recoup its budgetary losses. International crude prices have considerably mounted on the back of global demand-supply imbalances with the price outlook going forward extremely upbeat.
PSO's nine months (July-March 2005) earnings depicted a 43% increase to Rs4.31 billion as compared to Rs3.02 billion during the corresponding period of last year. The company has announced Rs5/share dividend taking the cumulative cash payout to Rs16/share. The rise in profitability is attributable to the combined effect of higher petroleum prices, rebound in fuel oil demand and higher market share in white oil products.
PSO has succeeded in increasing its sales volume by 37% over the same period last year. The gross margins improved by 47bps on the back of rising POL prices during the quarter. The sales volume of White Oil increased by 4% and Black Oil by 69% compared to last year. Mogas and HSD volumes grew by 9% and 5% respectively as more customers were attracted towards Fleet and Corporate Cards.
Presently, PSO is focusing on retail automation, which is progressing very well. During the nine months of the current fiscal year, PSO added over 100 New Vision outlets bringing the total to around 1100. Furthermore, CNG facility was installed at 25 new outlets, taking the aggregate to 130 CNG stations owned by the PSO.
OGDCL's July-March 2005 earnings were in the region of Rs25.38 billion, 53% higher as compared to Rs16.59 billion last year. The earnings growth is to result from the dual impact of higher oil prices and increased energy output. During first half of the current fiscal, OGDCL's earnings were up 62% to Rs15.78 billion as against Rs9.73 billion last year. The company claims that production from the Qadirpur field has boosted OGDCL's gas output. The increase in the company's oil production has mainly resulted from the Chanda and Bobi fields. OGDCL's ongoing exploration activities depicted by enhanced crude oil and gas production and development of new fields is to bring significant fruit to the company. Petroleum prices during most of the last two years have maintained a rising trend ensuing from OPEC production cuts, low US inventories, turmoil in the Middle East and speculative interest by hedge funds. At the same time, the upward trend in gas well-head prices (that follow the international crude trend) is to enormously contribute to the profitability surge.
Going forward, OGDCL's earnings growth prospects are to be fuelled on the momentum of new discoveries. Enhanced production during FY05 will also result from the completion of Dhodak Plant Enhancement and Dakhni Expansion Projects.
Pakistan Petroleum Limited's July-March 2005 earnings estimated around at Rs6.32 billion which is to mark a considerable YoY growth. PPL's profitability growth is to result from the combined effect of surge in gas production and higher gas prices. The gas prices for PPL's two main fields, Sui and Kandhkot are revised every six months and follow the crude oil price trend. Gas well-head prices have mounted ensuing from the buoyant global oil price trend.
PPL's gas production during FY05 has been boosted on the back of higher output from the company's joint venture gas fields. During the half-year ended December 2004, the company's sales volume of natural gas was up approx. 7% to 155,662MMcf.
PPL's earnings for the half-year ended December 2004 amounted to Rs4.05 billion, 47% higher. The company has also announced Rs2.5/share interim cash dividend.
Regarding PPL's exploration activities, the company is a working interest owner in 14 exploration blocs of which 8 (including 2 offshore blocs) are company operated and the remaining 6 are partner operated.