January 23, 2020 (PPI-OT)

Oil and Gas Exploration Companies - MARI: PKR depreciation and higher well head gas price for Mari field to lift 2QFY20 EPS by +8%YoY

Mari Petroleum Company Limited's (MARI) board meeting is scheduled on 24th Jan-20 to announce financial result for 2QFY20, where we expect the company to post earnings of PKR 6.37bn (EPS PKR 47.71), up by +8%YoY,

We estimate incline in earnings on the back a) 16%YoY depreciation of PKR against greenback despite 5%YoY drop in oil prices, b) higher wellhead gas price for Mari field and, c) higher other income on account of increased income on bank deposit and short term investments,

On quarterly basis, earnings are expected to drop by 15%QoQ on the back of 21%QoQ drop in revenues led by 11%QoQ drop in Mari gas field production,

We recommend a 'BUY" stance on MARI with our Dec-20 target price of PKR 1,774.9/share offering 22% upside from last close. The company is currently trading at FY20 P/E of 6.1x.

Earnings to clock in at PKR 47.71/share for 2QFY20, up by +8%YoY

Mari Petroleum Company Limited's (MARI) board meeting is scheduled on 24th Jan-20 to announce financial result for 2QFY20, where we expect the company to post earnings of PKR 6.37bn (EPS PKR 47.71), up by +8%YoY, compared to PKR 5.92bn (EPS PKR 44.35) in the same period last year. We estimate incline in earnings on the back a) 16%YoY depreciation of PKR against greenback despite 5%YoY drop in oil prices, b) higher wellhead gas price for Mari field reaching 100% of the applicable price and, c) higher other income on account of increased income on bank deposit and short term investments. However exploration cost is likely to remain high due to increased prospecting expense in Bannu West, Kalchas and Block-28 blocks which is expected to limit earnings growth during 2QFY20. To note, MARI did not incur any dry well cost during the quarter.

Mari gas field production down substantially during 2QFY20

Total gas production for the Company fell down by 13%YoY on the back of nearly 13%YoY drop in flows from Mari gas field. This was primarily on the back of planned shut-down of FFC plant, lower offtake from FPDCL and reduced requirement from WAPDA. Although during planned shutdown of customer plant, Mari field benchmark production for Petroleum Policy 2012 (PP12) pricing is lower, but substantial drop in production is likely to reduce incremental production entitled for PP12 by 41%YoY (44%QoQ).

Lower gas production to drag earnings down on quarterly basis

On a quarterly basis, earnings are expected to drop by 15%QoQ on the back of 21%QoQ drop in revenues led by 11%QoQ drop in Mari gas field production. Oil production declined by 2%QoQ on the back of lower flows from Mari, Sujal and Dharian.

Recommendation

We recommend a 'BUY' stance on MARI with our Dec-20 target price of PKR 1,774.9/share offering 22% upside from last close. The company is currently trading at FY20 P/E of 6.1x.

© Pakistan Press International, source Asianet-Pakistan