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Morning Call about Pakistan Oilfields Limited- Arif Habib Limited

Karachi: The Stock has more to offer!

©Outperforming the Index by 11.7% since the start of FY12
The Stock of Pakistan Oilfields Limited (POL) has outperformed the benchmark KSE-100 Index by 11.7% since the start of FY12. This resilience shown by the stock price has mainly attributable to the strong fundamentals like downwards sticky crude oil price, healthy growth in the production flows and prospective discoveries as number of exploratory and appraisal wells are under drilling.

Arif Habib Limited believes that despite this strong outperformance, the stock of POL has still more to offer with June-12 target price of PKR 450/share, translating into an upside potential of 28% from yesterday’s closing price of PKR 353.2/share. The company’s earnings are expected to depict a rise of 19.2% to reach PKR 13,302mn (EPS: PKR 56.23) in FY12. The stock offers an attractive dividend yield of 11.8% with an expected FY12 payout of PKR 40/share and is trading at P/E of 6.0x. The company pays out dividend with its half yearly and full year results.

Manzalai XI discovery is likely to contribute PKR 2.66/share
POL recently announced discovery in development well of Manzalai XI. This field, as per initial estimates, is likely to produce 1,296 bbls of oil (Lockhard & Lumshiwal formation 580bbls and Samanasuk formation 716bbls) and gas of 30mmcdf from both formations. This discovery will result in EPS impact of PKR 2.66/share on POL as it has 21.1% working interest in the Block.

Makori East-1 would further prop up the earnings from 2HFY12
The production flows from Makori East 1, which was discovered in August 2010, is expected to commence from 2HFY12. The Makori East-1 is anticipated to enhance company’s oil and gas production by 3,000bopd and 10mmcfd respectively. This resultantly will increase oil share in company’s revenue mix, hence subsequently leading to higher sensitivity to the crude (Arab Light) prices.

More Triggers in the pipeline

• Domial-2 drilling has achieved its target depth and is under completion. Positive development from this appraisal well could be a potential price trigger for the company.

• Makori East 2 (appraisal well) and Dhulian Deep-01 (exploratory well) is close to achieving its target drilling depth, any positive news flows from these highly prospective areas could provide potential trigger for Pakistan Oilfields. However, Arif Habib Limited believes, any productions flows from Makori East-2 will be dependent on completion Makori Gas Processing Facility

• Oil Prices in FY12 To-date has averaged at USD 108.6/bbl compared to last year’s average of USD 93.3/bbl. Since approximately 48% of the revenue is generated from oil, sustainability of crude prices at elevated levels would augment company’s earnings further.

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