Ayesha Mudassar

Oil and Gas Development Company Limited (OGDCL), Pakistan’s largest exploration and production company, reported a substantial decline in its quarterly profit, which adversely impacted the overall performance of the exploration sector, according to WealthPK.

Key companies within the sector include OGDCL, Pakistan Petroleum Limited (PPL), Mari Petroleum Company Limited (MARI), and Pakistan Oilfields Limited (POL). According to the results available with the Pakistan Stock Exchange (PSX), the country’s oil and gas exploration sector experienced significant declines in financial performance during 1QFY25. The sector posted net sales of Rs232.9 billion compared to Rs262.4 billion in 1QFY24. The sector’s sales decline was mainly due to a decrease in the average crude oil basket price, driven by a combination of weakened demand from China, strategic geopolitical manoeuvres, and sluggish economic activity in major economies.

Additionally, sales were affected by a drop in the average realised gas price accompanied by an appreciation of the rupee against the dollar. The sector continues to face structural challenges, including depleting reserves, declining production flows, and small discoveries. Furthermore, policy inconsistency and the accumulation of circular debt have contributed to the sector’s sluggishness. As a result of these ongoing issues, several international players like British Petroleum, ExxonMobil and Eni have exited the Pakistan oil and gas market. OGDC, the country’s leading state-owned oil and gas company, posted a 12% decline in revenue, a 16% drop in net profit, and a 16% decrease in earnings per share during 1QFY25 compared to the same period in the previous fiscal year.

The company’s net profit fell to Rs41 billion from Rs49 billion in 1QFY24. This decline in earnings was primarily due to higher transportation charges and increased exploration and prospecting expenditures. PPL, the country’s key gas supplier, reported a 20% decline in net profit for 1QFY25, primarily due to reduced sales, increased operating and administrative expenses, and higher finance costs. The company’s net sales for the period declined to Rs66.1 billion from Rs77.4 billion in the same period of the previous year. During 1QFY25, the POL achieved a profit-after-tax of Rs2.5 billion, significantly lower than Rs9.7 billion during the same period last year. This profit translates into earnings per share of Rs9.05 compared to Rs34.2 per share in the corresponding period of FY24.

The lower profit is attributed to numerous factors, including lower sales, higher operating costs, and increased exploration charges. In the first quarter of FY25, MARI’s net profit slightly increased 0.3%, reaching Rs19.2 billion compared to Rs19.1 billion in 1QFY24. Despite a 6% reduction in revenue to Rs45.2 billion, the company maintained its profitability, bolstered by substantial growth in net finance income. The sector's performance in 1QFY25 highlights persistent operational and macroeconomic challenges. The continued decline in profitability and the exit of international players underline the need for structural reforms and policy consistency to revitalise Pakistan's oil and gas industry.

Credit: INP-WealthPk