Pakistan Petroleum proposes one-time bond to resolve circular debt

Pakistan Petroleum Limited (PPL) has proposed a one-time bond issuance to resolve the circular debt issue, a method successfully used in the past to reduce debt and provide companies with financial stability for capacity expansion.

During an analyst meeting, PPL management provided updates on their overseas block operations. For Abu Dhabi's Offshore Block 5, they have submitted a Field Development Plan (FDP) for three initial fields to ADNOC, expecting approval by December 2024.

Two of these fields were previously discovered by ADNOC, with appraisal wells confirming volume and reserve estimates. The third field is exploratory and scheduled for drilling.

PPL reported a profit after tax (PAT) of PKR 114.3 billion for FY24, up from PKR 97.9 billion in FY23.

This increase was driven by positive price variance due to domestic currency devaluation, partially offset by lower sales volumes and a one-off reversal of income tax provision on depletion allowance for the prior year.

The feasibility study for the Reko Diq project is progressing as planned, with completion expected by December 2024. For the BLZ Project, the operating agreement has been approved by the Government of Balochistan, though the financing agreement is still pending.

The board has approved PPL to fund 50% of the equity share for the Balochistan government, expecting swift resolution. The project, estimated at $150 million, is anticipated to deliver high returns.

PPL's substantial cash reserves are earmarked for significant liabilities, including a lease extension payment to SUI of approximately PKR 45-48 billion and PKR 6 billion in CSR, training, and production bonuses, totaling around 60 billion for the year. The cash will also fund the current year’s work program and support expenditures related to the Reko Diq project.

At the Kandhkot field, daily production ranges between 90-95 mmcfd, with the potential to increase by 50 mmcfd if GENCO II increases its offtake. Despite an agreement for GENCO II to offtake 150 mmcfd, actual offtake remains below this level, limiting production.

PPL's production decreased by 13% year-on-year, compared to an average decline of 2% over the past three years. This decline is mainly due to natural declines in major fields, worsened by forced gas curtailments due to SNGP pipeline bottlenecks, and lower production at Kandhkot amid reduced demand by GENCO-II.

During the year, PPL made one discovery at the Jhim East X-1 well in the Shah Bandar block. After the year-end, four additional discoveries were announced in partner-operated Tal and Latif blocks.

However, the discovery in Margand could not be developed due to security concerns and lack of infrastructure. PPL plans to drill eight exploration wells and two development wells, with a capex outlay of approximately PKR 38 billion.

The company expects production for FY25 to remain flat at 0.7bcfd, supported by active workovers in major fields to arrest their natural decline.