Mari: Earnings for 3QFY17 Estimated at PKR25.5/sh: Mari Petroleum Limited (MARI) is estimated to report 3QFY17 EPS of PKR25.5/sh (53%YoY/+53%QoQ) taking 9MFY17 EPS to PKR67.4 (+91%YoY). Sequential improvement in 3QFY17 earnings is attributable to 29% growth in topline primarily led by gas-based revenues (+23.7% QoQ). Increase in gas revenues would be delivered by improved pricing on account of:
i) unwinding of discounts for Mari, and
ii) increase in incremental flows from Mari field that fetch 2012 Petroleum Policy pricing i.e. ~4x higher gas prices (US4.2/mmbtu vs. US1.0/mmbtu under previous gas pricing agreement).
Moreover we expect exploration cost to remain elevated during the quarter where the company encountered a dry well (Sujawal X-1), relative to none in the previous quarter. We opine that the recent correction following announcement of the SPO (-5% since announcement) for ~18% stake, offers an opportunity where the stock apart from offering the highest earnings growth (3-year CAGR of 57%) in Elixir E&P Universe, also has chalked out aggressive exploration plans that are likely to be scaled-up further with the ceiling on payouts in place. Our Dec-17 PT of PKR2,009/sh offers 34.2% upside, which could be further augmented by increase in volumes from its core asset. BUY!
Mari Petroleum Limited (MARI) posted 9MFY17 EPS of PKR57.21 (+62% YoY). While 3QFY17 EPS declined by 8%YoY to PKR15.37, pre-tax earnings registered growth of 17% YoY.
Variation in earnings emanated from (i) lower topline, and (ii) higher than estimated exploration and prospecting expenditure. Where the former is likely attributable to lower than estimated flows fetching higher pricing (i.e. 2012PP pricing).
Exploration expenditure jumped 3x QoQ on account of 1 drywell (Sujawal Deep-1) encountered during the quarter.
We maintain our preference for MARI as our top pick in the E&P space with premium 3 years earnings CAGR of 57% over FY16-19, with our Dec-17 PT of PKR2009/sh offering 26% upside. Moreover possible removal of ceiling on dividend (in the run up to a SPO) could act as a major price catalyst for the stock.
Mari Petroleum Company Limited (MARI) announced its 3QFY17 earnings of PKR 1,695 million (EPS: PKR 15.37), which was below our expectations.
The company’s topline grew by 17% QoQ to PKR 6,806 million, owing to higher oil and gas production and surge in oil prices. As per our discussion with the management, the company has been charging price applied on Petroleum policy 2012 on the incremental flows of Mari field from February, 2016 onwards. Other than that, the company recorded higher exploratory and prospecting expenditure as it drilled four wells, three exploratory and one development wells.
The topline of the company recorded a growth of 17% YoY, which was significantly below our expectations. The deviation in earnings might have come from lower than expected gas revenue as it constitutes about 97% of the overall revenue. As per our discussion with the management, the company has been charging price applied on Petroleum policy 2012 on the incremental flows of Mari field from February, 2016 onwards.
While the company had acquired no data for seismic activity, it drilled three exploratory wells (Shahbaz-1, Shaheen-1 and Aqeeq-1) and one development well (Bhitai-2) during the period. Also, one of the exploratory wells (Sujawal Deep 1) was abandoned during the period. The exploratory expenditure was above our expectations, as the company might have factored in the cost of transfer of operatorship and acquisition of additional working interest of 25% in Bannu west field.
MARI: 3Q FY2017 earnings clocked in at PKR15.4/share - Below expectations
Tuesday, 25 April 2017
By: Insight Securities (Private) Limited
Mari has announced 3Q 2017 results, where the company has posted PAT of PKR1.7b (EPS PKR15.4), taking 9M FY2017 profits to PKR6.3b (EPS PKR57.2). The result is below expectations, mainly due to higher than expected exploration costs and losses from drilling unit.
On Sequential basis, net sales of the company rose 17% QoQ to PKR6.8b, owing to 10% increase in crude oil prices and 4% rise in production from Mari field. However, higher exploration costs (up 2.9x to PKR1.7b), which includes cost of dry well (Sujawal Deep-1), weighed on the bottom-line.
Further, 2.2x increase in other expenses, likely due to losses from drilling and seismic units also hampered profits, while lower tax expense supported the bottom-line.
MARI: Earnings reported at PKR 15.37/share in 3QFY17, down by 8%YoY.
Mari Petroleum Company Limited (MARI) announced financial results for 3QFY17 with earnings clocking in at PKR 1.69bn (EPS PKR 15.37) down by 8%YoY as compared to PKR 1.84bn (EPS PKR 16.66) in the same period last year.
Cumulative earnings for 9MFY17 stand at PKR 6.31bn (EPS PKR 57.21) as compared to PKR 3.89bn (EPS PKR 35.29) in the corresponding period last year.
Revenues for 3QFY17 increased by +17%YoY to PKR 6.81bn as compared to PKR 5.82bn in the same period last year, likely on the back of higher production from Mari field and unwinding of discount on wellhead gas price for Mari field.
Operating cost increased by +12%YoY to PKR 1.62bn in 3QFY17 as compared to PKR 1.45bn recorded the corresponding period last year.
Exploration cost declined by 7%YoY to PKR 1.67bn during 3QFY17, however on quarterly basis increased by +3.9xQoQ likely owing to dry well cost incurred at Sujawal Deep-1.
The company booked in other expense of PKR 302mn during 3QFY17 as compared to other income of PKR 333mn in the same period last year likely in the absence of income from Mari Seismic Unit.
Effective tax rate stood at 17.4% in 3QFY17 as compared to a tax benefit availed (5% of profit before tax) in the same period last year.
We maintain our “BUY” call on MARI with our Dec-17 target price of PKR 2,118/share, offering +32% upside from its last closing. The company is currently trading at a FY17E P/E of 17.7x.
Target Price Revised; ‘Buy’ Re-iterated
We marginally revise down our Dec’17 TP of Mari Petroleum Limited to PKR 2,012.9/share (upside of 18.9%) from PKR 2,068.2/share earlier. Revision in the company’s target price stems from earnings estimates during 9MFY17 falling short of our expectations. Our revised earnings for FY17 and FY18 are set at PKR 77.86/share (earlier estimation of PKR 88.5/share) and PKR 164.15/share (down from PKR 171.7 projected previously). Despite a downwards revision in target price, we reiterate our liking for the scrip based on i) a 4Yr (FY16 to FY20) earnings CAGR of 41.5% amid unwinding of entitlement factor resulting in gradual increase in Mari gas price, and ii) significant upwards revision in 2P (Proven, Probable) reserves of the company.
OGRA Revises Gas Price for Mari Gas Field
In-line with revised Mari gas price formula, OGRA has declared the gas price for Mari gas field for 2HFY17. In the midst of unwinding entitlement factor and higher benchmark Arab Light prices, the gas prices has been increased to USD 1.01/mmbtu compared USD 0.84/mmbtu in 1HFY17, up significantly by 20.3% HoH. To recall, the entitlement factor for the said gas field has increased to 73.2% in 2HFY17 from 66.5% in 1HFY17. With a delay in announcement of gas prices, E&Ps had recorded gas revenue in 3QFY17 as per last announced wellhead prices (1HFY17); in light of the above we expect a revenue adjustment to be realized in 4QFY17. The company produced 58,126 mmcf (~646mmcfd) of gas from Mari gas field in 3QFY17. An adjustment for gas price could result in an after tax impact of ~PKR 364mn (per share impact of ~PKR 3.30) in 4QFY17.
Seismic Activity, Three Discoveries in FY17
The company has planned to drill six exploratory wells and three appraisal/development wells in FY17. The company drilled and tested for four exploration wells in FY17TD namely Shahbaz X-1, Shaheen X-1, Sujawal Deep-1 and Aqeeq-1, where only Sujawal Deep-1 was plugged and abandoned while all others resulted in hydrocarbon discoveries, resulting in a success ratio of 3:4. The company has also drilled two appraisal/development wells namely Zarghun South-3 and Bhittai-2 whereas the drilling process in ongoing in Bhittai-3.
Oil down by 5.4% to USD 45.72/bb
Following the weekly announcement of oil inventory position by US Energy Information Administration (EIA) yesterday, WTI prices plunged by 5.4% DoD to USD 45.72/bbl, lowest in last thirty days. It was revealed in the report that US crude oil stocks augmented to 513mn barrels, up by 3.3mn barrels against expectations of a drop in inventory levels by ~3mn barrels. Pertinently, growing US oil inventory undercuts the efforts made by OPEC members to subside global inventories and rebalance the global oil demand/supply. Going forward we see oil prices to be range bound given the ongoing political rift in the Middle East in addition to growing oil production and inventory levels in US.
MARI: Incentivized pricing, trigger behind escalating production; Initiate with BUY
We initiate our coverage on MARI petroleum company limited (MARI) with a “BUY” recommendation, based on Dec-17 Price Target (PT) of PKR 2,107/share, implying potential upside of 28% along with dividend yield of 0.5%.
Our liking for this scrip is based on i) Production enhancement from MARI field to 704.3/700.0 mmcfd during FY18/19 ii) Incentivized pricing as per PP12 on production above 575 mmcfd iii) Newly discovered fields to be priced on PP12 policy iv) Exploration plan to diversify reserve base and v) Stepping ahead in risky zones by using in-house drilling and seismic technology.
We estimate FY18 EPS to grow by 109% YoY to PKR 176.87, primarily due to improved well head prices of MARI field during the year (1HFY18E: USD 1.22/mmbtu, 2HFY18E: USD 1.32/mmbtu) against 0.84/1.01 in 1H/2HFY17.
MARI is currently trading at EV/reserves of USD 2.56x as against average of ~7.3x for its peers. EPS of the company is likely to clock in at PKR 166.8/194.2/ 203.0 during FY18/19/20.