The Exploration Sector exhibited a mixed performance during the fiscal year FY24, marked by both growth and operational challenges. The sector’s profitability increased by 21% year-over-year (YoY), despite encountering challenges such as market volatility and rising operational costs. Several major players in the sector, including OGDC, PPL, POL, and MARI, showed resilience in this turbulent period.
Profit and Tax Adjustments Leading to Growth
One of the significant highlights was the improvement in the Profit After Tax (PAT), which grew by 21% YoY, even though Profit Before Tax (PBT) dropped by 9.9% YoY. This indicates that the sector managed to optimize costs, implement better tax efficiencies, and leverage non-recurring income to maintain profitability. Effective cost management has played a key role in stabilizing the bottom line, even as exploration activities saw a decline in income.
The effective tax rate saw a notable reduction, dropping from 82% in 4QFY23 to 59% in 4QFY24, and further declining from 73% to 63% for the full fiscal year. This sharp drop in tax burden was instrumental in improving the net profit margins, which rose by 2.2 percentage points to 23% for FY24.
Sales and Revenue Dynamics
The sector’s net sales recorded a 9.6% YoY growth in FY24, buoyed by improved wellhead prices and production. However, on a quarterly basis, the numbers showed some contraction, with sales decreasing by 3.8% YoY and 7.0% quarter-over-quarter (QoQ) in 4QFY24. Royalty payments remained stable, showing a 7.7% YoY increase for the full year, but a slight dip in the latest quarter highlighted some short-term revenue pressures.
Operating and Exploration Costs
The sector has been grappling with rising costs, as operating costs surged by 25.5% YoY in FY24. This increase signals inflationary pressures that have significantly affected the sector’s profitability. In 4QFY24 alone, operating costs jumped by 23.2% QoQ, further straining margins. On the exploration side, there was a sharp decline of 27.1% YoY in FY24, primarily driven by a 76.8% reduction in costs in 4QFY24. This drop is attributed to reduced seismic and drilling activities and the reversal of impairments from previous quarters.
Other income sources were also affected, plummeting by 62.3% YoY, with a steep 93.5% decline in 4QFY24. This reflects lower gains from non-core activities, further affecting the financial performance of exploration companies.
Company-wise Performance: A Closer Look
- Oil & Gas Development Company Ltd (OGDC): OGDC reported net sales of PKR 463.7bn for FY24, up 12% YoY, driven by higher wellhead prices. However, OGDC’s crude oil prices fell slightly, and production saw modest growth. Despite this, the company’s PBT dropped by 59% YoY in 4QFY24, though it remained profitable, with a PAT of PKR 37.9bn.
- Mari Petroleum Company Ltd (MPCL): MPCL’s FY24 results were solid, with EPS rising 82% YoY to PKR 192 in 4QFY24. MPCL declared a dividend of PKR 134, contributing to its robust bottom line. Despite a contraction in sales, the company’s profit surged, supported by lower exploration costs and a sharp reduction in taxes.
- Pakistan Oilfields Ltd (POL): POL posted a net profit of PKR 9.2bn for 4QFY24, reflecting a 57% YoY increase. Lower effective tax rates and reduced exchange losses contributed to this growth. While revenues declined due to reduced oil volumes, other income streams rose significantly, boosting overall performance.
- Pakistan Petroleum Ltd (PPL): PPL reported a PAT of PKR 17.9bn for 4QFY24, up 11% YoY but down 35% QoQ. The company declared a final dividend, but it faced headwinds in revenue growth due to increased seismic exploration costs.
Margin and Profitability Outlook
Despite pressures on profitability, the PAT margins improved, reaching 23% in FY24, up from 21% in FY23. This improvement was driven by strong tax management, despite the 13.4% contraction in PBT margins YoY. The overall net margins for the year saw only a modest improvement, rising from 21% in FY23 to 23% in FY24.
Conclusion
In conclusion, the Exploration Sector has faced a year of challenges but managed to sustain its profitability through cost management, better tax efficiencies, and some non-core income streams. While exploration activity has slowed and costs have risen, the sector has shown resilience, especially with key players like OGDC, MPCL, POL, and PPL adapting to the evolving economic conditions.