Exploration, production companies profits boost

Topline of the E&P Sector experienced impressive escalation of 25% YoY, this is mainly down to following reasons.1- 4.4% YoY depreciation of Pak Rupee (PKR) against the Greenback (USD).2- Handsome increase of 21% YoY in the price of crude oil (Arab Light).3- Rise in the well head price of major gas producing fields (Qadirpur up 3% YoY and Sui up by massive 24% YoY).Despite the uptick (12% YoY) in the operating cost coupled with 28% YoY increase in the royalty during the period under consideration the gross margins of the sector experienced minor expansion of 2pps (majorly supported by the mentioned increase in the net sales of the sector).Exploration costs of the sector were dampened by 40% during FY12, highlighting the passive exploration policies that were followed by the companies in our sample (PPL, POL & OGDCL) for the majority of the year.Mammoth increase of 150% YoY experienced under the other income head (primarily due to the increase of astounding 161% YoY felt by PPL in the other income due to reversal of provision for workers welfare fund amounting to Rs4.4bn) was the prime driver in swelling the sectors net margins by 5.5pps during FY12. As a result the sectors bottomline felt robust growth of 41% YoY during FY12.