OIL MARKETING COMPANIES (OMCS) IN PAKISTAN

HAMADULLAH ABRO
Research Analyst
, PAGE
Mar 31 - Apr 06, 2008

MACRO AND INDUSTRY ANALYSIS

The global economy has been witnessing unprecedented growth for a quite few years. Robust global economic growth continues to pushing up oil products demand, which registered an increase of 4.5% inline with the GDP growth of 4.9% during FY2007, on the back of increasing demand stemmed from emerging markets i.e. China and India posting GDP growth at 10% and 9% respectively, to fuel their increasing economic activity.

Pakistan was too not an exception. On an average, PakistanÝs economy has been growing at 7% annually for the last five years and recognized as third fastest growing economy of Asia. The country witnessed this impressive performance owing to effective implementation of economic policies and banking reforms. Consequently, the requirement of energy in the country has increased tremendously and petroleum sector has been identified as an engine of growth.

The main drivers behind the unprecedented demand for POL (Petroleum, oil lubricants) products in Pakistan are robust GDP growth, particularly sectoral growth in Power sector due to increase in demand for electricity and growth in Auto sector.

SECTORAL POL SALES

(IN METRIC TONS)

SECTOR

2006-07

2005-06

CHANGE%

Domestic

106,148

128,651

-17%

Industry

1,595,981

1,681,517

-5%

Agriculture

97,232

81,896

19%

Transport

7,981,893

8,156,831

-2%

Power

6,740,559

4,218,982

60%

Others

325,318

358,807

-9%

Total

16,847,131

14,626,684

15%

Source: OCAC

Oil and gas form the bulk of primary commercial energy supply mix of Pakistan, contributing 79.0% (oil: 30.0%, gas: 48.5%, LPG: 0.5 %). The other sources include; coal: 7.3%, hydro electricity: 12.6% and nuclear and imported electricity: 1.0%. (Pakistan Energy Yearbook, 2007).

Pakistan Import and exports both crude oil and petroleum products. Imports include crude oil and petroleum products namely HSD, High Sulphur Furnace Oil and Low Sulphur Furnace Oil. Exports includes crude oil and petroleum products namely Naphtha, HSD, Kerosene, JP-1 and furnace Oil.

IMPORT AND EXPORTS

(IN TONNES)

IMPORT

EXPORTS

 

2006-07

2005-06

CHANGE%

2006-07

2005-06

CHANGE%

Crude Oil

8226032

8600570

(4.35)

-

-

-

Petroleum Products

8329859

6009401

38.61

1343109

1251235

7.34

Source: Energy Book 2006-07

During the past few years be it OMC or Exploration or refinery, all have become darling of stock exchange due to remarkable financial performance for last few years and growth projections in the sector, since demand for Oil has been increasing Y-0-Y due to above stated drivers.

OMC SECTOR

Currently there are twelve oil marketing and distribution companies operating in industry. Shell, PSO and Attock Petroleum Ltd (APL) only are listed on stock exchange. Amongst all OMCs, PSO and SHELL have prominent position in market and represent the OMC sector. Oil and Gas Regulatory Authority (OGRA) has been pursuing liberalized policy to attract investment in the sector. New OMC licenses have been issued by OGRA but these companies are least likely to capture the market share of the oil giants.

MARKET SHARE

COMPANIES

PSO

SHELL

ATTOCK

PARCO

OTHERS

Market Share

70%

22%

2%

2%

4%

Source: BOI Pakistan

The product mix of OMCs includes White Oil and Black Oil. White Oil constitutes of Motor gasoline, Diesel, Kerosene and Jet fuel while Black Oil comprises of Furnace oil.

BLACK AND WHITE OIL MARKET SHARE:

COMPANIES

PSO

SHELL

OTHERS

White Oil

61%

30%

9%

Black Oil

82%

-

-

Source: PSO &The News

It is Projected that demand for POL products will increase in years to come. Demand slightly dipped in FY 07-06 due to growth robust in services sector. In FY07-08. Government has taken steps to increase productivity of agriculture sector and large scale in manufacturing sectors which will result in more demand for POL products

LONG TERM POL DEMAND PROJECTIONS

IN 000 TONS

FY08

FY09

FY10

White Oil

10350

10625

10907

Black Oil

5556

5658

5694

Source: PPS

FINANCIAL PERFORMANCE

Financial performance of OMC sector has been remarkable for last five years owing to increasing sales volume due to increasing demand for POL products and Capital gains on inventory amid soaring crude oil prices. PSO remained the major beneficiary of soaring oil prices because PSO has approximately 80% of total countryÝs storage capacity.

In the beginning of FY07 international oil prices were lower, Government changed pricing formula and high finance cost due to outstanding receivables from government was the main reasons of relatively weak financial performance. Situation reversed after rise in international oil prices, OMCs started earning handsome profits but price differentials claims outstanding to government have been growing and is major challenge OMCs are facing.

PSO was able to sell over 6.2 million tons of POL products, translating into an all time high sales (net) turnover of Rs. 211.3 billion in 1H-08 - an increase of 25% over prior year. The all time high profit before tax of Rs. 8.2 billion and profit after tax of Rs. 5.5 billion was achieved owing to 13% higher sales volume as well as due to inventory gains during the period on account of rising international oil prices.

Shell Pakistan has posted sales (net) turnover of Rs 61.6bn in 1H-08 against 57.9bn in the corresponding period last year, showing an increase of 6.4%. It earned profit before tax of Rs 2.3bn in 1H-08 against loss of Rs .3bn same period last year. PAT of Rs1.7bn has been achieved in 1H-08 which translate into EPs of Rs 30.38 against Rs (7.19) same period last year.

Higher international oil prices, improved product mix and effective inventory management resulted in increase in AttockÝs net sales revenue by 3% to Rs 22.73bn during 1H-FY08 against Rs 22.06bn in the corresponding period last year.

The increased revenues resulted in net profit of Rs 1.08bn against Rs 0.814bn in 1H-FY07 and earnings per share of Rs 22.58 for the 1H-FY08 against Rs 16.97 in the same period last year.

(AMT IN RS 000)

PSO

SHELL

ATTOCK

FINANCIAL PERFORMANCE

1H-08

1H-07

1H-08

1H-07

1H-08

1H-07

Sales-Net

211,340,566

169,193,935

61,594,543

57,897,395

22,728,235

22,061,400

COPS

200,428,160

165,288,376

55,844,714

55,670,875

21,549,566

21,070,006

Gross Profit

10,912,406

3,905,559

5,749,829

2,226,520

1,178,669

991,394

Operating Costs

3,361,004

2,639,974

2,916,754

2,586,230

144,327

136,579

Profit from operations

8,477,131

2,228,238

2,706,442

(291,603)

1,404,005

1,026,985

Finance cost

419,650

606,270

465,969

498,762

-

-

PBT

8,215,227

1,769,408

2,342,550

(786,137)

1,526,624

1,129,457

PAT

5,487,962

1,135,739

1,689,043

(393,693)

1,083,624

814,457

EPS-Rs

32

6.62

30.83

(7.19)

22.58

16.97

Source: PSO, Shell & Attock financial Reports

CHALLENGE

Cash inflow is the major challenge for all OMCs which has lurched almost all OMCs into liquidity crunch. Burgeoning receivables outstanding from Government due to subsidy on petroleum products through Price Differential Claim (PDC). Consequently OMCs have to resort short term working finance from banks which is major of cause of high financial cost.

FUTURE OUTLOOK

It is likely that OMC at the end FY08 will post unprecedented profits due to revised POL prices, Volumetric sales growth due to increase in POL domestic demand on account of agricultural and manufacturing sectors growth, and huge inventory gains amid soaring international Oil Prices.

DEMAND- SUPPLY PROJECTIONS OF POL PRODUCTS.

(IN MILLION TONS)

2003-2004

2004-05

2010-11

2017-18

Demand of Petroleum Products

14.3

15

17

19

Production from Local Refineries

10.3

12

11.3

11.8

Motor gasoline available for exports

1.3

1.3

0.8

0.8

Deficit

5

5

6.5

8.2

Source: BOI