lahore

The fiscal year 2014-15 remained excellent year for the Pakistan E&P sector as crude oil flows surged by 24% to 96,000bpd on the back of enhanced flows from Nashpa, Makori East, Adhi, Ghauri, Rajian, Aassu (BP), Murid (BP), Mehar (Petronas).

In fiscal year 2015-16, the energy experts have projected the production to rise further by 10% due to incremental flows of 7.1k bpd of oil (up 7.2%), 180mmcfd of gas (up 4%) and 875MT/d of LPG (up 1.8x). Flows from KPD-TAY (expected to come online by Dec 2015) will be the primary contributor (4k bpd oil, 130mmcfd gas and 410MT/d LPG) towards additional flows of OGDC. Furthermore, incremental flows from Adhi will be the major contributor towards production accretion of PPL and POL.

Though crude oil price is hovering around USD60/bbl, experts foresee settling crude oil prices as i) global economic recovery would bring some demand back, ii) peaking U.S. oil inventories would normalize after falling Shale production and rigs count while iii) threats of further supply from Libya and Iraq are unlikely to materialize owing to prevailing civil unrest and disruptions. Experts have kept our crude oil assumption at USD60 and USD65 per barrel for FY16 and FY17, respectively while their longer term crude oil price estimation remains intact at USD75/bbl.

After the lackluster FY15, experts foresee gradual recovery in international crude oil prices in addition to production growth for Pakistan E&P companies in years to come.

Furthermore, lower probability of any significant dry well along with other factors would bring profit growth of 8%. Pakistan E&P sector has underperformed in FY15TD after steep fall crude oil prices. However, the price correction wave is now offering undemanding valuations after the change in crude oil prices outlook.