Pakistan Oilfields Ltd – Decent 3Q, eventful 4Q, stronger FY12-13 growth

3QFY11 earnings met expectations: POL’s 3QFY11 EPS at PKR11.15, up 16% YoY was marginally below our estimates (PKR11.25), as impact of stronger than expected top line was offset by higher than expected tax rate. 9MFY11 EPS reached PKR33.14 and forms 72% of our FY11 EPS estimate for POL.

Maramzai kicks in; Makori East shows strong promise: While Maramzai recommenced production at 40mmcfd gas / 1,600 bpd oil on May 10th, and news flow on final flows from Makori East -01 and Tolanj X-1 is expected in the next two weeks. While testing on Makori- East -01 is still under way, our channel checks suggest Makori East well could be Pakistan’s largest oil producer. We expect Makori East -01 to yield 6,200 bpd oil and 20 mmcfd gas.

Recent discoveries would jack up FY12-13 volume growth: Sizeable recent successes from Tal block imply 1) stellar volume and earnings growth for FY12-13 as well as recent discoveries enter EWT phase and 3) stronger likelihood of development and appraisal upside. Our base case estimates indicate FY12-13 volume growth of 13%, up 2pp from previous estimates.

FY12-14 EPS revised up 5-12%; PT upped 11%: Incorporating revised estimates for hydro carbon flows from Makori East-01 legs up our FY12-14 EPS estimates by 5-12%. We have also rolled forward our Price Target (PT) horizon by six months to Jun-12. We have thus raised our PT for POL by 11% to PKR410/share. POL trades at FY12 PER of 6.5x and offers FY12 dividend yield of 12%. The scrip offers an upside of 25% to our Jun-12 PT of PKR410/share. BUY!

3QFY11 earnings met expectations

POL’s 3QFY11 EPS at PKR11.15, up 16% YoY was marginally below our estimates (PKR11.25), as impact of stronger than expected top line was offset by higher than expected tax rate. 3QFY11 volumes were largely in line with expectations, however, net selling price (NSP) of oil was USD4/bbl ahead of estimates at USD91/bbl, which pushed 3Q revenues 3% higher than our expectation. NSP for gas was inline with our estimates. 9MFY11 EPS reached PKR33.14, up 40% YoY, and forms 72% of our FY11 EPS estimate for POL.

Maramzai kicks in; Makori East shows strong promise

Our channel checks suggest that production from Maramzai-01 well recommenced on May 10th, with production flows of 40mmcfd gas / 1,600 bpd oil. While further testing on Makori East -01 and Tolanj X-1 is still under way, we expect news flow on final test results from both wells within the next two weeks. Tolanj X-01 produced 16.3 mmcfd gas during the initial test results, however, it was Makori East well that showed stronger promise.  Makori East – 01 produced 3,209 bpd oil and 10 mmcfd gas from initial testing of the lockhart formation in the upper most portion of the reservoir back in Aug-10, while the operator continued drilling to test the remaining four formations of the reservoir. Our channel checks suggest Makori East – 01 has produced promising results and the well could be Pakistan’s largest oil producer. We expect Makori East -01 to yield 6,200 bpd oil and 20 mmcfd gas while we expect Tolanj X-01 to produce 16 mmcfd gas.

Recent discoveries would jack up FY12-13 volume growth

Sizeable recent successes from Tal block has two major implications for Tal block and subsequently for POL. Firstly, EWT (extended well testing) of Makori East -01 and Tolanj X – 01, shall result in stellar volume and earnings growth for FY12-13. Even the conservative assumption of the two wells entering EWT phase from Jan-12 yields FY12-13 average volume growth of 13%, up 2pp from the previous estimate. Secondly, recent discoveries significantly add to the appraisal and development potential of Tal block. While there have been discoveries on five different fields on Tal block, only Manzalai and Makori has entered the development phase.

FY12-14 EPS revised up 5-12%; PT upped 11%

Incorporating revised estimates for hydro carbon flows from Makori East-01 legs up our FY12-14 EPS estimates by 5-12%. We have incorporated estimated reserves of Makori East – 01 and Tolanj X – 01, assuming a 15 year reserve life at the initial flow rates. We have also rolled forward our Price Target (PT) horizon by six months to Jun-12. We have thus raised our PT for POL by 11% to PKR410/share. POL trades at FY12 PER of 6.5x and offers FY12 dividend yield of 12%. The scrip offers an upside of 25% to our Jun-12 PT of PKR410/share. BUY!

Economic & Political News

Pakistan start talks with IMF on targets and reforms in coming budget

Pakistani officials began talks with the International Monetary Fund yesterday, aimed at getting agreement on reforms in the coming budget to restart the suspended IMF program. The talks are expected to last until May 17, and the budget is due to be unveiled on May 28. In August 2010, the IMF stopped releasing funds because of Pakistan’s patchy implementation of fiscal reforms the government promised to carry out.

Local cars production and sales decline in April

The problem in supply of parts and kits from tsunami-hit Japan and other sources has resulted in decline in production of locally assembled cars in April 2011 to 11,427 units as compared to 14,946 units in March 2011. Pakistan’s auto sales dipped 10.36% YoY to 12,172 units in April-11.
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