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The Bell about Oil & Gas – Elixir Securities Limited

Karachi: PPL: Growth in wellhead prices to continue in 2HFY12

Higher oil prices during 1HFY12 → strong 2H wellhead prices
Arab Light has so far averaged USD108/bbl during 2QFY12, taking Jun‐11 to Nov‐11 average to USD109/bbl, 5% higher than the six months preceding it. Since wellhead prices in Pakistan are fixed semi annually, based on average oil prices that prevailed during the first six months of the preceding seven months, Jun‐11 to Nov‐11 oil prices would determine wellhead prices for 2HFY12.

Elixir Securities Limited expects 2HFY12 wellhead prices for PPL to rise 4% HoH, which follows a strong 12% HoH increase during 1HFY12. As a result 2HFY12 wellhead prices for PPL would rise 17% YoY.

Elixir Securities Limited’s estimates remain conservative due to lower oil price assumption
Elixir Securities Limited has remained conservative in Elixir Securities Limited’s oil price assumption, factoring in average Arab Light price of USD90/bbl for 2HFY12 and USD93/bbl for FY13. Despite sequentially lower oil price assumption, Elixir Securities Limited’s 2HFY12 EPS would still form 51% of full year estimates. While Elixir Securities Limited expects FY13 EPS growth at 9% YoY, driven by 5% volume growth, Elixir Securities Limited’s FY12/13 estimates would be subject to upside in case oil price sustains current levels.

News flow on partner operated blocks to provide impetus ahead
Elixir Securities Limited expects strong news flow for PPL during 2HFY12 which should keep the scrip in limelight. Already announced initial flows from Nashpa‐02 were encouraging at 3,370bpd oil and 11mmcfd of gas from Datta Sandstone, which was the first of the six targeted formations. Elixir Securities Limited initially expected Nashpa‐02 to yield 4,000 bpd oil and 13mmcfd gas, however, strong flows from the first formation raise likelihood of better yield from the well.

Nashpa‐03 is likely to be completed during FY12 as the well has almost reached its target depth. An exploratory well, Lundo‐01, in OMV operated Gambat block (PPL stake: 24%), is also approaching completion. Commencement of Makori East ‐ 01 from 2HFY12 and further drillings in Tal block (completion of Makori East – 02 and Manzalai ‐ 09 and commencement of drilling in Maramzai ‐ 02 and Mamikhel – 02) would also be closely tracked by investors.

Recent correction provides an ideal entry opportunity
Against a 4% decline in KSE‐100 index, PPL has corrected by 11% in 2QFY12 to‐date, on fears of supply increase post planned secondary public offering of 33mn shares by GoP. Recent media reports indicated that PPL’s offering would be completed by Jan‐12 which should ease concerns of investors regarding offer price undercutting existing share price.

Elixir Securities Limited sees little likelihood of a significant discount to current market price as PPL offering shall have a negligible fiscal impact. Recent underperformance provides an ideal entry opportunity in Elixir Securities Limited’s view, given that PPL trades at cheapest FY12 PER of 5.6x amongst the listed E&Ps, in comparison to 7.98x for OGDC and 6.21x for POL. Elixir Securities Limited’s Jun‐12 PT of PKR235/share offers an upside of 39%. BUY

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