Petroleum:- PAKISTAN PETROLEUM LIMITED - Analysis of Financial Statements

Financial Year 2002 - 2003 Q Financial Year 2008

OVERVIEW (July 29 2008): Recent results 3Q'08PPL posted a sales revenue of Rs
33,126 million for 9M'07 compared to Rs 28,034 million in the same period
last year, depicting an increase of 18.2%. Profit after tax of the company grew
to Rs 14,971 million during the nine months ended March 31, 2008 compared
to Rs 13,105 million during the corresponding period of previous year,
representing an increase of 14.2%.

The increase in PAT is due to rising world oil prices, which offset the decline in
production from Sui gas fields. Also contributing to increase in
profitability was an increase in gas production from Kandhkot, Adhi, Qadirpur,
Sawan and Tal fields which more than offset the decline in production
from Sui and Miano fields, commencement of gas/crude oil production from Nashpa
field and phased increase in Sui and Kandhkot gas prices under the 2002
Gas Price Agreement, with the last such increase becoming effective from January
01, 2007.

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=========
Unit Quarter ended Quarter ended Nine months
Nine months
March 31, March 31, ended March 31, ended
March 31,
2008 2007 2008
2008
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=========
Natural Gas MMcf 82,922 84,708 248,019
244,413
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---------
Crude Oil / Natural
Gas Liquids (NGL) /
Condensate Barrels 348,069 393,339 1,100,830
689,902
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---------
Liquehed Petroleum
Gas (LPG) Tonnes 5,069 4,183 13,285
9,963
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=========

As is evident from the chart, the sales of natural gas have gone up slightly,
while the crude oil, NGL sales have shown better improvement over the same
period last year.

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E&P Sector's Profitability
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=============
PAT (Rs m) EPS (Rs )
DPS (Rs)
9 mths' 08 9 mths' 07 9 mths' 08 9 mths' 07 Chg.(%) 9 mths'
08 9 mths' 07
----------------------------------------------------------------------------------
-------------
1.OGDC 36,246 34,627 8.43 8.05 4.7% 6.00
5.50
2.PPL 14,971 13,105 19.85 17.37 14.2% 5.00
4.09
3.POL 5,422 4,561 27.51 23.14 18.9% -
-
4.MARI 1,469 460 39.97 12.51 219.5% 2.24
-
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Sub Total 58,106 52,752 10.2%
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=============

As can be observed above, the E&P sector has shown an increase in its profits, due
to rising international oil prices and an increase in gas wellhead prices
. The productivity of both crude and gas has been higher compared to the
corresponding period of FY07.

============================================================
Total Oil & Gas Production Statiatics (Daily Average)
============================================================
9 mths' 08 9 mths' 07 Chg (%)
============================================================
Oil (bpd) 70,165 66,243 5.9%
Natural Gas (mmcf/d) 3,964 3,675 2.3%
============================================================

Pakistan's GDP has grown at an average of 5.8% for the last five years. The rapid
growth in the industrial sector has triggered a surge in demand for energy
products. The country's gas consumption has been rising at a rapid rate, a five-
year CAGR of 5.4%.

The cumulative profitability of the listed E&P companies grown phenomenally over
the last few years. The top line of these companies grew at a five-year
CAGR of 24.8% mainly due to significant growth in the volumetric sales and
significant surge in crude oil prices. Moreover, for the same period, the bottom
line increased at a 5-year CAGR of 28.42%. For FY07, the profitability of E&P
sector increased by a 4.9%. Oil production, however, grew only by 2.8% during
the year to 67,415 bpd in FY07 compared to 65,577 bpd in FY06 and gas production
increased negligibly by 0.9% to 3,872 mmcfd from 3,836 mmcfd in FY06.

PPL is one of the oldest and largest E&P company in the country. It was
incorporated in 1950 subsequent to the promulgation of the Pakistan Petroleum
Production Rules, 1949. The primary activities of the company involve exploration,
development and production of Pakistan's natural reserves of oil and gas.
PPL inherited all the assets and liabilities of its parent, the Burmah Oil
Company (Pakistan Concessions) Limited and commenced business on 1st July 1952.

The company remained under the management control of its parent, Burmah Castrol,
UK until 1997 when the government purchased the entire equity interest of
Burmah Castrol PLC, formerly Burmah Oil Company. The government owns 78.4% stake
of PPL, the International Finance Corporation (IFC) owns 6.1% and the rest
15% are free-float available in the equity markets of the country.

PPL is the second largest Exploration and Production (E&P) company both, in terms
of production and reserves. The company's contribution to oil and gas
production in the country is illustrated in the chart.

PPL accounts for 26.8% of country's total oil and gas production and 23.9% of
total oil and gas reserves. It is also one of the market leaders in terms
of its holdings of exploration area. Out of 242,714 sq.kms area under exploration
in Pakistan, PPL holds the second largest share, more than 22% in joint
venture with partners.

PPL has working interest in 24 exploration blocks, of which eight are PPL operated
and the other 14, including 4 off-shore are partner operated. Sui and
Kandhkot gas fields are two of the major PPL operated fields where PPL has 100%
ownership. Sui caters to about one-fifth of the total gas demand in the
country.

In FY06, Sui contributed 67% of total gas sales of the company, higher than FY05.
This increase however was due to less than 100% capacity utilization in
FY05. Later, the production from this field has declined due to its gradual
depletion. As a result, the contribution of the field is likely to decline
in the future.

In first nine months of FY07, Kandhkot and Sui fields contributed about 80% of the
company's total sales. This was due to the unique pricing formula for
the two fields. Both, the Sui and Kandhkot are the backbone of PPL.

Mazarani and Adhi are other major fields operated by PPL where the company has
87.5% and 39% stakes respectively. Among the partner-operated fields, Miano,
Sawan, Tal and Qadirpur are more prominent. The figure above shows the
contribution of each field to the total gas production of PPL.

In order to meet the growing energy demands of the country, PPL has enhanced its
exploration efforts. This includes the acquisition of new areas and working
interests. As various agreements are finalized, the working interests of the
company will increase to 24 areas, 19 onshore and 5 offshore. PPL has the
second largest exploration programme in the industry. One of the major oil and gas
discoveries since FY02 has been in the Nashpa block. The Tal block is
another major find.

Among the activities undertaken during FY07, the Sarang X-1 well in Kot Sarang
block was abandoned in the third quarter of FY07 as the dry hole. However,
the seismic survey in Hala and Tajpur blocks has been completed. Besides this,
activities also took place in PPL non-operated areas. Moreover, initial
phase of drilling of the Adhi well was completed in FY06 and development of Sawan-
6 and Sawan-10 was also completed.

The exploration efforts during FY07 reaped benefits in the form of three
discoveries of oil and gas out of 10 exploratory wells drilled during the year.
First, an oil discovery of 20.4 mmcfd was made in Tajjal 1 of Gambat block in
second half of the current fiscal year.

PPL holds 23.68% shares in this joint venture. Besides this, one oil and gas
discovery was made at Mela-1 (Nashpa Block) and a gas discovery was made at
Latif-1 (Latif Block). Lastly, PPL has recently made a gas condensate discovery
in Hala Block at Adam X-1 well in Sindh. A successful drill test system
was carried out which flowed at a rate of 1,301 bpd of condensate and 27.4 mmcfd
of gas. PPL has 65% stake in this discovery. The testing for other
prospective zones has been completed in this area and encouraging results have
been produced.
Moreover, testing of one exploratory well drilled in PPL operated Hala Block (Adam
X-1) has been completed and the results are encouraging. Another
exploratory well in partner operated Tal Block (MamiKhel-1) has also shown
encouraging results and is being tested for potential reservoir zones.

In addition, two more exploratory wells ie Qadirpur Deep and Kahi Deep-X1 in Tal
Block were suspended for further evaluation. The remaining three
exploratory wells in S.W. Miano II, Tal (Sumari Deep-X1) and Kot Sarang blocks
were plugged and abandoned due to discouraging results.

In addition to oil and gas discoveries, PPL has completed three major expansion
projects during FY07. These include commissioning of the second LPG/NGL
Plant at Adhi. Following commissioning, the performance test was carried out which
has confirmed the design capacity of the plant.

The completion of this project has more than doubled the field production
capacity. Phase II of the SUL Compression at Sui and the revamping of Sui power
supply system were the other two major projects completed during the year. At the
same time, the Kandhkot Wellhead Gas Compression Project has been
initiated to maintain the contractual delivery pressure of gas sales while
maximizing the reserves recovery.

PPL is also evaluating international business opportunities, both for venture

exploration as well as acquisition of developed and undeveloped reserves.
The company's efforts in International Exploration have paid off with its
successful bid for a block in Yemen in a 50:50 joint venture with OMV as operator.

Currently, Product Sharing Agreement (PSA) negotiations are underway with the
Government of Yemen for the Block. In addition, a three-member
technical/commercial team has visited Morocco, Tunisia and Mauritania for
evaluation of exploration opportunities in these countries. Evaluation of
exploration investment opportunities in other North African and Central Asian
countries has also started.

During FY07 the average oil production grew significantly by 58.2% to 2,830bpd
from 1,789bpd in FY06. This growth can be attributed mainly to an improvement
in production from Adhi field, Tal Block and additional production of 213.2bd
from Mela field. The production from Adhi field increased especially after
the commissioning of Adhi LPG/NGL Plant II.

The FY07 saw a 301.2mmcfd reduction in average gas production from the Sui field,
thus depressing gas production of the company. However, increase in
production from Sawan in Nashpa Block, Tal Block and Adhi field, managed to
partially offset the decline from Sui. As a result, the total gas production
declined by 1.8% to 991 mmcfd in FY07, as compared to 1,009mmcfd in FY06.

The sales revenue grew by 21% in FY07 to 38.4 billion. A number of factors
contributed to this growth in sales. The higher international crude oil prices
during FY07, together with the phased price increase under the Sui and Kandhkot
Gas Price Agreement 2002 contributed to the growth in sales.

Moreover, the increase in production, especially from the Adhi field, Tal Sawan
and commencement of Extended Well Test Production from Mela-1 discovery at
Nashpa Block, also contributed significantly to the sales growth.

The growth in sales and production generated an all time high profit figure for
PPL in FY07. The profit after tax for FY07 stood at Rs 16.8 billion,
depicting a 25% growth over FY06, the highest among the three market leaders in
the E&P sector.

Sales revenue increased by 36% in FY06 as compared to FY05. The phased increase in
prices under the Sui and Kandhkot Gas Price Agreement 2002 was prominent
factor behind the rising sales and profits. The higher international oil prices
backed the trend. The rising gas supplies particularly from the Qadirpur,
Tal and Kandhkot fields contributed to higher sales revenue. As a result, profit
after taxation increased by a massive 55% in FY06 compared to FY05.

The profit margin for PPL continued with its positive trend in the FY06 and FY07.
The company soars above the industry with respect to the profit margins.
The ROA has shown improvement during FY07 but the ROE has declined nominally.

The company has benefited from a 63% growth in other income, one of the highest in
the industry. This mainly came from higher financial income from deposits
and other sources. Field expenditure increased by 18% in FY06 and 13.4% in FY07
largely due to heightened exploration activities since the company had
working interest in 19 blocks in the FY07. The revision in wellhead gas prices of
Sui and Kandhkot fields also contributed positively to the company's
profitability.

PPL has performed well in terms of asset management, exhibiting a positive trend
for inventory turnover and DSO. The company's efficiency in inventory
management has resulted in its operating cycle being shorter than the industry
average. FY07 saw a further increase in the collection period of receivables
for PPL and the trade debts continued to mount. Although high DSO is an industry
wide trend in the E&P sector but a reduction in the period will improve
the company's efficiency and have a positive impact on the company's financial
strength.

The total assets turnover and sales/equity have also fared better than the average
industry for all years, once again depicting the company's strength in
asset management. The total assets turnover rose slightly in FY06 whereas the
sales to equity ratio fell marginally during the same year. This indicates
a better utilization of the company's assets than the industry.

PPL has the lowest level of leverage among the major players in the E&P sector.
This is evident in the lower debt ratios of the company compared to the
other companies. The debt ratios are low and have been steadily declining over the
last few years, indicating that the company is largely equity financed.

PPL has not undertaken any long term loans during the past few years. This shows
that the company does not rely on loans or other such instruments to
finance its growing exploration activities. This trend reflects upon the financial
strength of PPL compared to its peers.

Despite the equity financed nature of the company, the financial charges have been
mounting and the TIE ratio of PPL has shown a negative trend since the
FY06. This may be attributed partly to the increase in assets subject to financial
lease in the last one and a half years. However despite the decline,
the TIE remains substantially strong. In the FY07, a large portion of the finance
cost accrued to the unwinding of discount on decommissioning cost.

The liquidity management of PPL has improved greatly since the FY03 as illustrated
in the figure. The liquid funds generated from operating activities
contributed to the improvement in the ratio. In FY07, the company managed to catch
up with and supersede the industry, thus breaking the trend of lower
than average current ratio. During FY07, PPL has increased its investments in
short term instruments, contributing to the improvement in current ratio.

Additionally, the company as maintained a lower level of inventory than the other
major players in the sector. This reflects company's strength in asset
management as well as the liquidity of its asset portfolio. The large amount of
cash balances and short term investments maintained by the company will
also help PPL in financing future exploration activities.

EPS has shown a positive trend for the last few years and the high net profit
during FY07 translated into a 25% growth in EPS, bringing it to Rs 24.5 per
share. The DPS has shown similar growth as EPS. The company declared a dividend
of Rs 11 per share for FY07.

Future outlookPPL has shown impressive performance in the third quarter of FY08,
both in terms of profitability as well as production. The Sui and Kandhkot
Gas Price Agreement provides the company with an edge over the other players, and
will continue to add to the profitability of the company.

The life of its reserves is around 20 years, thus promising a smooth flow of oil
and gas for the next couple of decades. Even though the production from
one of the backbone fields, Sui, is expected to decline in the future due to its
depletion but the company has still been able to maintain a 100% reserve
replacement ratio. However, the company is making efforts to extend the reservoir
life and optimize gas recovery of the Sui Upper Limestone (SUL) reservoir.

Moreover, the increased production from Tal Block, Adhi, Sawan and Qadirpur blocks
is expected to cover up for the decreased production from Sui.
The commissioning of the Additional Processing Facilities, Phase II at Adhi has
increased the production capacity of the field. This is likely to enhance
production of the company in the coming years.

PPL has the advantage of holding a good resource base in terms of existing
resources. Moreover, the company also enjoys additional reserves potential in
some of its existing producing areas like Adhi, Qadirpur etc. This bodes well for
the future production potential of the company.

In addition, the success rate of PPL exploration activities stands around 25%
which is remarkable compared to the 10% international rate. Thus even though,
the exploration involves a very high risk of drilling the dry holes, the
company's success rate had partially reduced this risk. Furthermore, to revamp its
exploration activities, the company has employed modern technology, including
computer applications, remote sensing and communications techniques and other
devices. This will further improve the success rate for the company.

The approval of the Petroleum Policy 2007 by the ECC (Economic Coordination
Committee) bodes well for the E&P companies, especially those focusing on
exploration activities. Being the largest and oldest gas exploration company, PPL
therefore, will be one of the major beneficiaries of the policy.

Under the petroleum policy 2007, oil and gas process are now indexed with the
reference crude oil price, equal to C&F price of the Arabian/Persian Gulf
crude oils, with proper adjustments for the quality differential for calculation
of crude oil prices (providing 100% linkage with the international prices).
The $36 per barrel cap has also been removed. As a result of this, formula, the
gas price per unit will grow by a significant 38.5%. Hence the new policy
will provide a positive change, especially to PPL and OGDC, the two companies more
aggressive in their exploration activities.

An oil discovery of 20.4 mmcfd was made in the Tajjal-1 of Gambat block in second
half of the current fiscal year. PPL holds 23.68% shares in this joint
venture. The discovery is expected to increase PPL's EPS by 0.18 in the coming
fiscal year. Besides this, the discovery in the Hala Block where PPL holds
65% share will also augment production in future.

The new gas pricing formula will enable the company to benefit from the
international oil and gas pricing tends unlike the former policy whereby they were
offered a 30% ROE in addition to costs. Under the new Agreement, the pricing from
both fields was to improve semi annually to reach, by 2007, 50% of
international oil prices less applicable discounts under the Petroleum Policy
2001. The phased price increases from the Kandhkot and Sui fields, it is
believed, will continue to accentuate profits for the company, especially in the
face of the rising international crude oil prices.

In addition, the government in July 2007 announced new five-year energy policy.
The new policy provides a 6-8% increase in oil and gas production prices
on new discoveries the petroleum exploration and development companies would make
in future. Secondly, under this policy, gas producers are required to
pay 50% of the difference to the government in case the gas is sold to a third
party.

Previously, the companies could only sell their produce to the government or its
entities. However, the existing oil and gas producers will continue to
follow the existing policy, hence their rates will remain unchanged. On the other
hand, the companies currently under exploration phase or those which
have applied for the concession license under the old policy will be allowed to
switch to the new policy but would have to offer a price at 0.2 GPG.

Lastly, the producers will also have to pay a marine research fee and coastal area
development fee of $50,000 per year until the first discovery and the
amount would double thereafter, until the declaration of commerciality. The fees
would go up during the development phase and reach $500,000 during the
production phase. These developments in the policy will also have significant
impact on PPL which is the second largest company in the sector.

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PAKISTAN PETROLEUM LIMITED-KEY FINANCIAL DATA
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INCOME STATEMENT (Rs '000) 2003 2004 2005 2006
2007
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--------------
Total Revenue 12,181,320 17,667,508 23,294,169 31,756,712
38,382,645
Field, prospecting and 5,944,870 6,260,909 6,951,772 8,171,060
9,264,776
development expenditure
Royalties 1,297,787 1,953,576 2,673,146 3,744,822
4,576,591
Other Income 303,608 169,507 546,772 1,484,946
2,417,390
Operating Profit (EBIT) 4,936,763 9,451,273 13,669,251 19,840,830
24,541,278
Financial Charges 76,197 18,254 19,219 30,096
49,424
Other Charges 355,521 566,689 751,076 1,127,195
2,600,106
Net Income Before Taxes 4,839,355 9,063,468 13,474,991 20,189,533
24,356,770
Net Income After Taxes 4,190,445 6,617,399 8,623,152 13,401,001
16,767,774
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BALANCE SHEET (Rs '000) 2003 2004 2005 2006
2007
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--------------
Stores & Spares 992,856 1,128,514 1,291,177 1,273,261
1,474,655
Trade Debts 2,644,521 3,842,754 4,582,580 6,941,736
9,002,094
Cash & Bank Balances 4,467,405 6,638,233 10,665,554 17,326,903
-
Total Current Assets 8,798,337 12,629,739 18,039,558 27,053,297
33,592,403
Total Non Current Assets 8,546,189 9,887,657 11,274,763 12,869,583
16,776,722
Total Assets 20,451,034 25,340,061 31,791,802 41,066,097
50,369,125
Total Current Liabilities 5,593,538 5,562,709 7,217,129 8,332,205
7,715,040
Long Term Liabilities 2,680,089 3,725,896 3,329,229 2,545,345
2,556,034
Total Liabilities 8,273,627 9,288,605 10,546,358 10,877,550
10,271,074
Share Capital 6,858,376 6,858,376 6,858,376 6,858,376
6,858,376
Total Equity 12,177,407 16,051,456 21,245,444 30,188,547
40,098,051
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--------------
LIQUIDITY RATIO 2003 2004 2005 2006
2007
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--------------
Current Ratio 1.57 2.27 2.50 3.25
4.35
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--------------
ASSET MANAGEMENT 2003 2004 2005 2006
2007
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--------------
Inventory Turnover(Days) 29.34 23.00 19.95 14.43
6.92
Day Sales Outstanding (Days) 78.15 78.30 70.82 78.69
84.43
Operating Cycle (Days) 107.50 101.30 90.78 93.13
91.35
Total Asset turnover 0.60 0.70 0.73 0.77
0.76
Sales/Equity 1.00 1.10 1.10 1.05
0.96
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DEBT MANAGEMENT 2003 2004 2005 2006
2007
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--------------
Debt to Asset(%) 40.46% 36.66% 33.17% 26.49%
20.39%
Debt/Equity (%) 67.94% 57.87% 49.64% 36.03%
25.61%
Times Interest Earned (Times) 69.18 528.56 741.21 709.29
493.81
Long Term Debt to Equity(%) 22.01% 23.21% 15.67% 8.43%
6.37%
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PROFITABILITY (%) 2003 2004 2005 2006
2007
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--------------
Net Profit Margin 34.40% 37.46% 37.02% 42.20%
33.29%
Return on Asset 20.49% 26.11% 27.12% 32.63%
41.82%
Return on Common Equity 34.41% 41.23% 40.59% 44.39%
43.69%
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PER SHARE 2003 2004 2005 2006
2007
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--------------
Earning per share 6.11 9.65 12.57 19.54
24.45
Price earning ratio 8.21 14.06 17.11 10.84
10.73
Dividend per share 3.00 4.50 5.50 9.00
11.00
Book value 17.76 23.40 30.98 44.02
58.47
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