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Morning Shout released by KASB Securities Limited and Economics Research

Karachi, October 04, 2012 (PPI-OT): POL: +ve news on appraisal drilling continues

According to KASB Securities Limited,

• With successful drilling on Mamikhel, smooth operations at Maramzai and likely other development triggers, the sweet phase for POL appears set to continue. KASB Securities Limited believes the case for further re-rating in its stock price even after the 7% performance since FY12 results remains strong.

• Assuming reported numbers on Mamikhel II and production flows on Maramzai I as benchmark (40mmcfd), KASB Securities Limited estimates cumulative EPS upside of PRs4.8-6 (8- 10%) in FY13.

• Following insipid growth last year, FY13 promises to deliver strong volume growth of 11% for POL, mainly driven by oil. Capacity constraints in Tal block may delay volume/earnings upside from appraisal drilling upto FY14.

• With final volume data yet to be released, KASB Securities Limited has estimated preliminary 1Q EPS range of PRs11.9-12.5. 1Q results may lack excitement due to absence of cash payout. Meanwhile, market may look for indications of possible stock payout in 1Q.

Positive news on appraisal drilling continues; Reiterate Buy
With successful drilling on Mamikhel, smooth operations at Maramzai and likely other development triggers, the sweet phase for Pakistan Oilfields appears set to continue. In KASB Securities Limited’s view, the case for further re-rating in its stock price even after the 7% performance since FY12 results remains strong given – (1) strong fundamentals, (2) double-digit dividend yield at a time when yields on alternate instruments have declined and (3) possible earnings and volume upside via appraising drillings. KASB Securities Limited fines tune estimates in light of detailed FY12 accounts and reiterate Buy.

Cumulative EPS upside of 8-10% seen
As per latest POL’s report, Mamikhel II has produced 1021bpd of liquid and 26mmcfd of gas from two formations. Results on the third formation are yet to firm up. Just to highlight, the discovery well in Mamikhel produced only from one formation. On another appraisal drilling at Maramzai II, the latest industry update also suggests there are no hiccups with drilling. KASB Securities Limited sees this as a positive, possibly leading to early completion of scheduled DST. Assuming reported numbers on Mamikhel II and production flows on Maramzai I as a benchmark (40mmcfd), KASB Securities Limited estimates cumulative EPS upside of PRs4.8‐6 (8‐10%) in FY13.

Capacity constraints to restrict near‐term volume growth
Following an insipid growth last year, FY13 promises to deliver strong volume growth of 11% for POL, mainly driven by oil. Likely ramp‐up of production on Makori East (by end‐October), tie‐in of Manzalai‐IX well (4Q, production potential of 25mmcfd) and higher volumes from already producing field at Bela should support company’s volume growth in FY13. Given capacity constraints in the Tal block, production upside from appraisal drillings on both wells may not materialize before FY14 when new Gas Processing Facility at Makori field (150mmcfd of gas, 20kbpd of oil) is scheduled to come online. KASB Securities Limited’s base‐case estimates do not reflect production from Mamikhel II and Maramzai II as production potential of both wells is yet to be firmed up.

1Q results ‐ Can POL surprise on payout?
With final volume data yet to be released, KASB Securities Limited has estimated preliminary 1Q EPS range of PRs11.9‐12.5. QoQ, KASB Securities Limited estimates top‐line sales to grow by 7%. The benefits of devaluation of Pak Rupee by 4% in late 4Q and recovery in oil prices will emerge as key growth drivers in 1Q as expected volume is yet to kick in. Results may lack excitement due to absence of cash payout. Meanwhile, market may look for indications of possible stock payout in 1Q, in KASB Securities Limited’s view.

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