POL: Strong earnings, mixed production
Pakistan Oilfields Limited (PSX: POL) started FY27 on a strong note, reporting a 51 percent year-on-year increase in profitability during 1QFY27. The improvement was supported by higher oil prices, stronger gas production, lower exploration expenses and increased other income. However, the performance was not without its weaknesses, as oil production declined and operating costs continued to…
Pakistan Oilfields Limited (PSX: POL) kicked off FY27 with a robust start, posting a 51% year-on-year surge in profitability during Q1. This impressive performance was fueled by higher oil prices, robust gas production, decreased exploration costs, and increased other income. Nonetheless, there were some caveats to the strong start, as oil output fell and operating expenses kept rising.
POL reported a net profit of Rs8.19 billion in Q1FY27, compared to Rs5.43 billion in the equivalent period last year. Sales skyrocketed by nearly 26% year-on-year to Rs16.5 billion in Q1FY27. The surge was primarily driven by price appreciation, with Arab Light crude prices climbing around 26% year-on-year to approximately $90 per barrel. Furthermore, higher wellhead gas prices following periodic revisions also bolstered revenues.
Production-wise, the story was a mixed bag. POL's daily crude oil output declined by about 8% year-on-year, primarily due to lower yields. However, gas production per day saw a significant 28% increase, driven by enhanced output from joint venture fields and new developments. This helped offset some of the oil volume weakness.
The revenue increase didn't yield a proportional boost in gross profitability. Operating costs climbed by around 30%, while royalty and extra wellhead charges rose by nearly 29% year-on-year. Consequently, gross profit rose by 24%, while the gross margin dipped slightly from 64.9% to 64.1%.
A key driver behind the bottom line improvement was the sharp reduction in exploration expenses. These dropped by 83% year-on-year to Rs193 million from Rs1.13 billion in Q1FY26, thanks to subdued exploration activity and the absence of dry-well costs during the quarter. However, this significant earning relief might not bode well for long-term production growth.
Other income also gave a substantial push, rising by 58% year-on-year in Q1FY27, mainly due to higher investment income. Meanwhile, finance costs declined by 59%. These factors helped lift profit before tax by 49%.
Looking ahead, POL's earnings will continue to hinge on international oil prices, wellhead gas pricing, and its capacity to maintain production from existing fields. While the recovery in gas volumes is promising, declining oil output and rising operating costs remain areas of concern. Ongoing drilling and development activity could provide some production support. However, POL's dependence on a relatively concentrated portfolio of producing fields underscores the significance of exploration and new discoveries.
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