Pakistan Petroleum Ltd – 1HFY11 EPS expected at PKR13.55

1HFY11 earnings to rise 66% YoY: PPL’s board meeting for announcement of 1HFY11 result is scheduled on January 24, 2011. We expect the company to post EPS of PKR7.03 for 2QFY11, up 76% YoY, taking 1HFY11 EPS to PKR13.55 (up 66% YoY). We also expect the company to announce DPS of PKR5.0.

2QFY11 volumes up 6.5% – realized prices up 38%: Encouraging volume performance came on the back of 5% growth in gas volumes and 65% growth in oil production. Higher share of oil in revenue mix (22% in 2QFY11 as opposed to 17% in 2QFY10) was a key contributor to higher realized price, besides 30% YoY increase in gas wellhead prices.

Flattish field expenditure; other income to rise 56% YoY: We expect field expenditure to rise 2% YoY while likely 56% YoY increase in other income would provide further support to bottom line.

Earnings and PT revision: Incorporating our revised FY11 and long term oil price assumption of USD80/bbl (from USD75/bbl; FY11-13EPS revised up by 5-6%), 14% risk free rate and rolling forward our PT horizon to Dec-11, we have revised our PT for PPL to PKR215/share. HOLD!

2QFY11 volumes up 6.5% – realized prices up 38%

Encouraging volume performance came on the back of 5% growth in gas volumes and 65% growth in oil production. YoY decline in key gas assets – Sui (-3%), Adhi (-9.3%), was offset by strong production from Kandhkot (+2.8%), Manzalai (+106%) and Sawan (+10%) where as higher oil flows from Hala and Manzalai contributed to growth in oil with the small base largely behind a large YoY growth number. Average realized price for PPL shall be up 38% YoY in 2QFY11 as gas wellhead prices would likely be up 30% YoY.  Share of oil in revenue mix would likely have increased from 17% in 2QFY10 to 22% in 2QFY11, further supporting growth in average realized price.

Flattish field expenditure; other income to rise 56% YoY

We expect field expenditure to rise 2% on both YoY and QoQ basis. While there were no dry wells in 2QFY11, PPL shot 1210 line km of 2D seismic. 2QFY11 other income will likely be up 56% YoY (+10% QoQ) on the back of rising cash balances, which, after falling to PKR17bn in 3QFY10, were up 84% to PKR31bn in 1QFY11.

Earnings and PT revision

Incorporating our revised FY11 and long term oil price assumption of USD80/bbl (+USD5 from previous USD75/bbl; FY11-13 EPS revised up 5-6%), 14% risk free rate and rolling forward our PT horizon to Dec-11, we have revised our PT for PPL to PKR215/share. At yesterday’s closing, PPL trades at a 5% premium to our PT, offers FY11 PER of 8.4x and FY11 dividend yield of 5.8%. HOLD!

Economic & Political News

C/A surplus of USD26m in 1HFY11

Driven by USD601mn surplus in Dec-10, 1HFY11 ccurrent account posted a surplus of USD26mn as opposed to a deficit of USD2.57bn during 1HFY10. Trade deficit for 1HFY11 was recrded at USD5.6bn, compared to USD5.86bn during same period last year. Service sector deficit stood at USD495mn in 1HFY11 as opposed to a deficit of USD1.53bn last year. Similarly, income deficit declined to USD1.49bn.
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