Oil prices likely to go up

KARACHI - In line with our crude oil price assumption, crude oil prices (Arab Light) are expected to average $75/bbl in the second Half Financial Year 2010, which will be up 4 percent Half on Half. This alongside 5 percent The Rupees deprecation against the dollar, lead to a hike of 4 percent HoH in Sui and Kandkhot field wellhead gas prices for 1st Half Financial Year 2011, whereas Qadirpur prices are expected to increase by 5 percent HoH. This will bode well for PPLs and OGDCs earnings going forward. According to the notification, prices for different fields have been raised by around 3.3 percent to 66.7 percent HoH (on USD equivalent terms) depending upon the fields price calculation mechanism. These gas prices are determined on the basis of international crude oil/HSFO prices prevalent over past six months (1HFY09, in this case), and rupee parity against the dollar. Amongst the individual fields, Sui and Kandhkot (PPL) prices were increased by 24.3 percent HoH and 19.1 percent HoH respectively, a slight deviation of +1.1pps and +1.0pps. Another minor deviation of +0.5pps points was recorded in Sawan and Minao wellhead gas prices (up by 19.4 percent HoH to USD3.50/MMBTU), while Adhi revised prices depicted no variation from the expectations (up 3.7 percent HoH to Rs124.03/mmbtu). Nauman Khan, a market analyst, said these fields will account for 87 percent in PPLs FY10 gas production, and therefore, the positive variance from our expectations has increased our FY10 earning forecast by Rs0.10/share to Rs27.14/share, with no change in our Jun-10 TP. Furthermore, Pindori and Pariwali fields prices recorded an increase of 19.4 percent HoH, depicting a variance of +0.5 percent from our expectation. These fields coupled with Adhi are expected to contribute 30 percent to POLs gas production in FY10. Therefore the notification has a minimal impact on POLs FY10 earning forcast, revising downwards by Re0.04/share to Rs31.13/share, with no change in Jun-10 TP. The only wellhead gas price significantly different from the expectations was of Bhit field, depicting a deviation of -29pps. Bhit wellhead gas prices increased by 19.4 percent HoH and it is expected to contribute 8 percent to OGDCs FY10 gas production.