Mari Petroleum Company downgraded

One of Pakistan’s leading brokerage houses, Intermarket Securities has downgraded its stance on Mari Petroleum Company (MARI) from Neutral to Sell. The recent rally of 169% in FYTD has more than priced in the potential upside from new fields and production growth.

Recent discovery in the much-hyped Waziristan block (Bannu West) is likely to commence production by the end of FY25. While the market has high hopes from the block, the brokerage house has assumed initial production of 70mmcfd which could rise to 250mmcfd by FY28.

Following the rally of 91% over the past two months, the stock seems overvalued. MARI has more than priced in the positives while the market has disregarded that near-term earnings will decline due to additional royalty on Mari D&P.

The updated earnings estimates for FY25and FY26 stand at PKR57.00 and PKR62.07, respectively. The Sell stance reflects the view that the recent rally appears to have overestimated the positives, in particular the potential of its recent discoveries.

The recent rally seems to have been partly driven by speculation surrounding potential heavy mineral resource discoveries and the company’s rebranding to "MARI Energy," though no concrete developments have yet materialized. Furthermore, high expectations around Bannu West remain unrealized, adding to the downside risk.

MARI, in partnership with OGDC and another E&P (OPL), has made a significant discovery in the Waziristan block (Bannu West), reporting a cumulative find of 70mmcfd from two exploratory wells, Shewa-1 and Shewa-2. A third exploratory-cum-appraisal well is currently in the drilling phase.

While market expectations for the block remain elevated, the brokerage house estimates production to commence by the end of FY25 with initial flows of 70mmcfd, gradually peaking at 250mmcfd by FY28. However, the market’s exuberance appears overdone: the present stock price of PKR729/ share would be justified by production of 600mmcfd from Bannu West—almost similar to the Mari field. This disconnect between expectations and realistic production forecasts underpins the Sell call on the stock.  

 

Pakistan: Mari Petroleum declares PKR85/share interim dividend

Strong 1HFY23 marks a phenomenal period for the Mari Petroleum Company (MPCL) with weakening exchange rate alongside rising Arab light prices, providing a much needed impetus to the overall sector in face of lackluster production (flood damages, annual fertilizer plant turnarounds).

The US$ appreciated by 31%YoY over the 1HFY23, lending a boost to the Company in the form of: 1) higher price translations in PKR, and 2) exchange gains on foreign currency assets.

Furthermore, Arab light prices were higher by 28%YoY during the period as well, averaging US$98.4/bbl during the 1HFY23. MPCL Net sales rose by 44%YoY during the period to PKR61.0 billion. To note, company’s hydrocarbon production fell by 5%YoY during 1HFY23, clocking in at 17.5 million BOE as against 18.33 million BOE for the same period last year.

The said decline is mainly attributable to the torrential rainfall and flash flooding that happened over the period, rendering muted offtakes from several fields including Bolan East and Zurghan South etc alongside annual turnaround of fertilizer plants during November and December 2022.

Along with the result, MPCL also paid out routine half yearly DPS of PKR85/share as compared to PKR62/share for the same period last year.

According to the latest PPIS reserves data, MPCL’s 2P reserves stood at 870MMBOE as of June 2022. Reserves of its largest asset—Mari field—are estimated to stand at 4.84TCF of gas. Assuming throughput from the field at 750MMCFD going forward, the field could continue production for another 18 years, despite 58% depletion.

Furthermore, the company has been actively engaged in production enhancing activities, including higher exploration activity and enhancement at legacy wells, such as the Mari Revitalization program aimed to increase the pressure and production levels of the Mari reservoir.

Furthermore, projects such as 1) Sachal gas processing facility ­- potentially +47.5mmcfd gas supply to SNGPL post commissioning , 2) Mari-122H in HRL Reservoir of Mari Field at 21mmcfd of low pressure gas, 3) signing of a framework agreement with fertilizer customers for installation of pressure enhancement facilities at Mari field, and 4) drilling of Banu West-1 well, production to commence in FY24 at 50mmcfd gas, 300bpd oil, are expected to enhance the company’s hydrocarbon resource and provide impetus to operational sustainability going forward. Shielded from circular debt:

As the Company supplies most of its gas production to the fertilizer sector (90% in FY22 at 662mmcfd), it is shielded from circular debt related receivable buildups. To note, MPSL’s trade debts stood at 19.4% of Total Assets as of December 2022, with company’s average NPAT to CFO conversion standing the strongest in the sector (5-year average of 105%). Consequently, at the quarter end, the company held PKR47.7 billion or PKR358/share in cash and short term investments.

Pakistan awards exploration blocks to state-run Exploration & Production companies

Reportedly, the Government of Pakistan has awarded six petroleum exploration blocks in Sindh, Baluchistan and Punjab to state-run oil and gas exploration and production companies.

The exploration licences (ELs) and petroleum concession agreements (PCAs) were signed by Petroleum Secretary and Director General of Petroleum Concessions on behalf of the GoP and Managing Directors of Oil and Gas Development Company (OGDCL), Mari Petroleum Company (MPCL) and Pakistan Petroleum at a ceremony witnessed by newly appointed Minister for Energy.

These included Block No. 3068-6 (Killa Saifullah) and Block No. 3067-7 (Sharan) in Baluchistan with OGDCL and MPCL; Block No. 3069-9 (Suleiman-Balochistan) with OGDCL and PPL; and Block No. 2467-17 (Sujawal South) in Sindh, Block No. 3273-5 (Jhelum) and Block No. 3272-16 (Lilla) with OGDCL.

Director General, Petroleum Conces­sion reported that minimum firm work commitment for these blocks was US$24.68 million for a period of three years. The companies are obligated to spend a minimum of US$30,000 per year in each block on social welfare schemes. Annual social welfare obligation in respect of these six blocks is US$180,000.

The Killa Saifullah block covering an area of 2421.96 sq-km is located in Killa Saifullah district, while the Sharan block covering an area of 2497.89 sq-km is situated in Killa Saifullah and Zhob districts. The Suleiman block covering an area of 2172.89 sq-km is located in Musakhel, Zhob, Killa Saifullah and Loralai districts. The Sujawal South block covering an area of 1914.1 sq-km is located in Sujawal district of Sindh. The Jhelum block covering an area of 1524.65 sq-km is located in districts of Jhelum, Gujrat and Mandi Bahauddin, while the Lilla block covering an area of 2361.12 sq-km is situated in Chakwal, Jhelum and Khushab districts.

OGDCL is a public limited company engaged in exploration and production (E&P) activities in the country for the last four decades. The Company holds the largest share of 41% in oil and 36% in gas out the total reserves in the country. Its percentage share of total oil and gas production in Pakistan is 47% and 29%, respectively. OGDCL is the operator of 41 exploration licences and working interest owner in six other exploration blocks operated by various E&P companies. OGDCL is currently produces 35,805 barrel oil per day (bopd) oil, 1,012 million cubic feet per day (mmcfd) gas, 761 tons LPG and 53 tons of sulphur per day.

PPL is also a public limited company engaged in exploration and production activities in the country. It is Pakistan’s oldest and largest E&P Company incorporated in 1950. Its percentage share of total oil and gas production in Pakistan is 13% and 19%, respectively. PPL is the operator in 26 exploration licences and working interest owner in 17 other exploration blocks operated by various E&P companies. PPL currently produces 10,076 bopd Oil, 673mmcfd gas and 238 million tons LPG.

Mari Petroleum is an integrated exploration and production company currently managing and operating Pakistan’s largest gas reservoir at Mari gas field in Daharki, Sindh. MPCL is the second largest gas producer in the country with 753mmcfd gas and 1,722bopd oil. MPCL is the operator in six development and production leases, 11 exploration licences and working interest owner in seven other exploration blocks operated by various E&P companies.

The Energy Minister expressed the hope that licences would benefit the country in the form of additional hydrocarbon reserves over the next few years. He said the execution of ELs and PCAs would not only enhance investment in the petroleum sector but also contribute to bridging the gap between demand and supply of energy in the country.