Exploration & production sector profit falls 12% in FY26's first half

Pakistan’s oil and gas exploration sector posted a 12% year-on-year decline in profitability to PKR 153.5 billion in the first half of fiscal year 2026, weighed by lower revenues, higher operating and royalty expenses, and a sharp drop in other income, brokerage house Arif Habib Ltd. said on Tuesday.

In a research note, Arif Habib Limited said the earnings contraction was primarily driven by reduced gas output and softer realized prices, alongside higher royalty expenses — particularly at Mari Petroleum Company Limited — and diminished finance income.

Net revenue for the exploration and production (E&P) sector fell 5% from a year earlier to PKR 428.6 billion in 1HFY26.

Pakistan Oilfields Limited led the decline with a 9% drop in revenue, followed by Oil and Gas Development Company Limited and Pakistan Petroleum Limited, each down 7%. Mari Petroleum posted a modest 4% year-on-year increase in revenue.

Arif Habib Ltd. attributed the weaker top line to a 12.2% fall in average international crude oil prices to $68.4 per barrel during the period.

Oil and gas production

Sector-wide gas production declined 6.6% year-on-year to 2,748 million cubic feet per day, while oil output fell 2.3% to 63,153 barrels per day. OGDC reported lower gas production but higher oil output, a trend mirrored by PPL.

Mari Petroleum recorded a 9% increase in oil production to 1,334 barrels per day, while its gas output remained stable.

Exploration expenses fell 29% overall in the first half, reflecting a mixed trend across companies. Mari Petroleum’s exploration costs declined 39% year-on-year to PKR 4.0 billion due to lower prospecting activity. PPL’s expenses dropped 71% to PKR 1.9 billion, mainly due to the absence of a dry well charge booked last year.

In contrast, OGDC’s exploration costs rose 51% to PKR 11.8 billion following the plug and abandonment of two wells in the second quarter.

Other income for the sector plunged 46% to PKR 37.7 billion, largely due to lower finance income, the brokerage said.

Despite the earnings decline, the sector announced higher payouts in 1HFY26.

OGDC declared a dividend of PKR 7.75 per share, up from PKR 7.05 per share in the same period last year, while Mari Petroleum announced a dividend of PKR 8.3 per share compared with no payout a year earlier.

The sector’s effective tax rate stood at 34.2% in 1HFY26, below the combined statutory corporate tax rate of 29% plus a 10% super tax.

On the receivables front, PPL maintained a 93% recovery ratio in the second quarter, with trade receivables edging up to PKR 599.9 billion from PKR 595.4 billion in the preceding quarter.

OGDC posted a 130% recovery ratio, reducing trade receivables to PKR 583.8 billion from PKR 612.8 billion. Meanwhile, Mari Petroleum’s trade receivables rose to PKR 88,765 million from PKR 86,581 million in June last year, according to Arif Habib Ltd.