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4-Traders Homepage  >  Equities  >  KARACHI STOCK EXCHANGE (GUARANTEE) LIMITED, THE  >  Pakistan State Oil Company Limited    PSO   PK0022501016

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Pakistan State Oil : Tapping Pakistans wealth of oil and gas

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10/19/2016 | 06:20pm CEST

Energy has long been Pakistans curse. This is a country whose large and rising population (the country had 195 million people as of October 2016, according to government data, making it the worlds sixth most populous country) has long presented its government with a complex challenge: to tap new sources of hugely valuable energy where little, if any, had historically existed.

There is carbon here in spades. Pakistan boasts 754 billion cubic metres worth of gas, placing it 28th in the list of the worlds largest sovereign producers of natural gas. It has rather less oil, at least in comparison to other countries in the region, placing it 52th on the global list.

Coal, though, is another matter. A recent find in the desert district of Tharparkar, hard by the border with the Indian province of Rajasthan, may ultimately generate up to 185 billion tonnes of anthracite and lignite coal. If that find yields anything near its earliest estimates, it would vault Pakistan overnight from a resource-poor nation into the energy-producing major leagues.

Coal would help diversify the countrys energy mix. Pakistan is heavily reliant on natural gas and oil to meet its primary energy requirements. The countrys gas deficit currently runs at between 2 billion and 4 billion cubic feet per day, depending on the season and the time of day. Total local crude oil production, meanwhile, has long lagged: Pakistan currently has to import around 87% of its oil needs, mostly from the United Arab Emirates and Saudi Arabia.

In recent years, the pressures surrounding this energy deficit have eased, thanks largely to the medium-term decline in oil prices, which remain below $50 as of early October. In July 2016, the State Bank of Pakistan estimated that the countrys oil import bill fell to $7.67bn in the 12 months to end-June 2016, against $12.17bn over the same period a year ago, and $14.8bn the year before that, when oil prices were still trading at north of $100 a barrel.

Foreign investment push

But oil prices will return eventually to normality, again eating into Pakistans budget. And that is one of the main reasons why the current government, under Prime Minister Nawaz Sharif, is so keen to encourage foreign corporates to invest in the countrys energy network: laying new oil and gas pipelines, digging new coal mines, fleshing out the national transmission and distribution grid, finalising new renewable energy projects and digging for more oil and gas.

The latter focus will be key to its energy future. Pakistan is looking for new ways to transport oil and gas into and out of the country. One of the biggest projects is the TurkmenistanAfghanistanPakistanIndia Pipeline, a vast conduit for natural gas that is being partly financed by the Asian Development Bank. It will, when completed, pump gas overland from the Caspian Sea to India, via northern Pakistan, when it becomes operational in 2020. Another major gas pipeline running from Iran to Pakistan is also under construction. Pakistans government is also preparing the groundwork for a new oil pipeline stretching from the growing port city of Gwadar, on the Indian Ocean coast, to western China.

In September 2016, Finance Minister Ishaq Dar said that three south-north pipelines, stretching from Gwadar to western China, were under construction, with the first set for completion by the end of 2016. The second, the finance minister added, would be a parallel north-south pipeline built [with] Russian investment, while the third pipeline is planned between the towns of Gwadar and Nawabshah in the easterly province of Sindh.

Exploration investment

But perhaps the biggest step-change one that will reverse the countrys energy fortunes involves the states determination to transform Pakistan into a major focus for oil and gas-related exploration investment. Already in 2016, Pakistans Ministry of Petroleum and Natural Resources has announced plans to offer 32 exploration blocks to oil and gas companies operating in the country. That augments the list of 46 new blocks that have already been sold to oil exploration firms. A host of supplemental agreements 70 in all, covering 94 leases have been handed to smaller oil explorers, with the aim of boosting localised onshore production.

In September 2016, Shahid Khaqan Abbasi, Minister of Petroleum and Natural Resources, told Pakistans National Assembly that the oil and gas sector had received investments totaling $15.3bn since the start of 2013, adding that the country had made 82 oil and gas discoveries over the same period.

Analysts are impressed by what they are seeing. Lucrative policies on gas pricing, stability resulting from improving law and order, and vast arrays of unexplored territory, have created attractive propositions for exploration and production companies, who are well positioned to deploy the excess cash on their books, notes Farrukh Sabzwaria, director of regional equities sales at Credit Suisse in Singapore. Oil & gas exploration has made up 30%-40% of foreign direct investment over the past few years and four multinationals are firmly entrenched, and should continue to bring in FDI for exploration and development activities. In other words, Pakistan, once a minnow in the fields of energy production and exploration, is well on its way to becoming a major player in the field, thanks to far-sighted government policy.

Producer and conduit

A host of major infrastructure projects completed or in the final throes of completion, will also boost the countrys ability to act as both a conduit for oil and gas passing through its territory, and as a major producer of energy in its myriad forms. The countrys first-ever liquefied natural gas terminal, able to handle up to 400 million cubic feet of LNG a day, was completed in March 2015 in Port Qasim, east of Karachi. Another four LNG terminals are set to be completed, enabling Pakistan to import up to 2 billion cubic feet of gas a day, by the end of June 2018, while LNG processing facilities are also being targeted for completion by end-2016 and July 2017 in the Balochistan district of Sui. Those two projects will boost the countrys LNG processing capacity by 1.8 billion cubic feet of gas per day.

And In July 2016, the government in Islamabad said it would revive the vast $6bn Khalifa Coastal Refinery in Balochistasn, which was shelved by its co-investor and co-owner, the Emirate of Abu Dhahi, under the previous Pakistani government. Pak-Arab Refinery, one of the countrys largest corporations, and a joint venture between the Pakistani government and Abu Dhabi, which owns 40% of the project, will aim to produce 250,000 barrels of oil a day, once the refinery is working at full capacity.

Then there are the pipelines, which will further boost the countrys ability to process and conduit oil and gas and to make it far easier to channel much-needed power to domestic businesses. If all goes well, the countrys perennial energy deficit, and the problem of regular blackouts and brownouts, which hamper the economy and crimp companies ability to operate at maximum efficiency levels, will become a thing of the past.

Major foreign players

In recent years, the Pakistan government has signed deals with a host of foreign oil and gas explorers, producers, consultancies and commodity traders, with the aim of increasingly professionalising its energy sector. In December 2015, Pakistan State Oil (PSO) handed a five year contract to Shell and Geneva-based global commodity trader Gunvor, to supply it with LNG, running to the end of 2020. Another, 15 year contract with Doha-based Qatargas will see PSO import 3.75 million tonnes of gas a year from the Gulf state.

A host of oil and gas majors are also working to tap new oil reserves in the country, or boost their presence in Pakistans burgeoning energy services sector. Major foreign players operating onshore include Hungarys MOL Group, Vienna-based OMV, and Italys Eni, along with oil field services specialists Schlumberger, Halliburton and Baker Hughes.

Local players also becoming increasingly powerful, diversified, and international, most notably Oil and Gas Development Company Limited, which boasts a primary listing on the Pakistan Stock Exchange, and a secondary listing on the London Stock Exchange, and domestic oil exploration pioneer Pakistan Petroleum.

Huge untapped reserves

Then there are the countrys untapped reserves of carbon. In November 2015, petroleum ministry advisor Zahid Muzaffar said Pakistans total oil and gas reserves, including unexplored offshore wells and fields, were greater than all Central Asian states combined. If true and given that Central Asia includes one major gas producer, in Turkmenistan, and one major oil produce, in Kazakhstan it would place Pakistans energy sector and the wider economy in a highly promising position.

Pakistan has a huge and still largely underexplored offshore basin, which many believe to be as carbon-rich as the Niger and Nile deltas in Africa, and the Mahakam delta in Indonesia. The country also claims to possess major reserves of explorable shale gas, another rich and economically viable source of both energy and future wealth. Energy was once Pakistans curse. Now, it may well turn out to be its blessing.

(c) International 2006-2016, SANA Provided by SyndiGate Media Inc. (Syndigate.info)., source Middle East & North African Newspapers

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Financials ( PKR)
Sales 2017 730 282 M
EBIT 2017 30 000 M
Net income 2017 15 100 M
Debt 2017 -
Yield 2017 3,26%
P/E ratio 2017 7,17
P/E ratio 2018 6,71
Capi. / Sales 2017 0,15x
Capi. / Sales 2018 0,12x
Capitalization 113 049 M
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Mean consensus OUTPERFORM
Number of Analysts 11
Average target price 470  PKR
Spread / Average Target 13%
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Imran ul-Haque Chief Executive Officer & Managing Director
Mujahid Eshai Chairman
Yacoob Suttar Chief Financial Officer
Mohammad Naeem Malik Non-Executive Director
Umar Azim Daudpota Non-Executive Director
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