Elixir Securities Limited – Elixir Insight

Karachi, February 09, 2018 (PPI-OT): Mari Petroleum Company Limited – 2QFY18 EPS Expected at PKR31.25

We expect Mari Petroleum (MARI) to post earnings of PKR3.44bn (EPS: PKR31.25) in 2QFY18, growing by 86%YoY. The earnings growth is to be mainly led by jump in revenues on account of unwinding of entitlement factor on Mari Field gas pricing.

Sequentially, we expect earnings to drop by 5%QoQ owing to 5%QoQ dip in hydrocarbon production mainly from Mari Field.

This is expected to drive 1HFY18 earnings to PKR7.06bn (EPS: PKR64.02), up 53%YoY. Besides the result, we expect MARI to announce an interim DPS of PKR3 same as last year.

We have slightly revised down our FY18F/FY19F production estimate by 4%/2% mainly due to lower production from Mari Field resulting in 13%/9% lower FY18F/FY19F EPS of PKR157/PKR216. As a result, our Dec-18 PT comes down by 7% to PKR2,040/share, offering capital upside of 30% from last close. Buy.

2QFY18 Result Preview: Mari Petroleum’s (MARI) earnings are expected to surge by 87%YoY to PKR3.4bn (EPS: PKR31.2) in 2QFY18 from PKRPKR1.8bn (EPS: PKR16.7) in 2QFY17. The growth in earnings is expected to be led by higher revenues resulting from 1) unwinding of entitlement factor (80% in 2HFY18 vs. 67% in 2HFY17) of Mari field gas pricing raising it to USD1.16/mmbtu in 1HFY18 from USD0.85/mmbtu in 1HFY17, 2) higher gas production from Mari Field (632mmcfd in 2QFY18 vs. 614mmcfd in 2QFY17) resulting in scaled up revenues due to incentive pricing on production above benchmark (USD4.6/mmbtu; 3.9x of pricing on base production), and 3) higher average oil prices.

Sequentially, earnings are expected to decline by 5%QoQ from PKR3.6bn (PKR32.8) in 2QFY18, owing to 5%QoQ decline in hydrocarbon production to 8.09mmboe from 8.51mmboe.

On cumulative basis, earnings are expected to grow by 53%YoY to PKR7.06bn (EPS: PKR64.02) in 1HFY18 from PKR4.61bn (EPS: PKR41.83) in 1HFY17 led by 1) 32%YoY increase in average hydrocarbon price to USD10.23/boe in 1HFY18 due to increase in oil prices and unwinding of entitlement factor, and 2) 3%YoY growth in production to 16.61mmboe in 1HFY18. Along with the result, we expect MARI to announce interim DPS of PKR3, same as last year.

Earnings Growth to Remain Impressive: MARI’s earnings are expected to grow remarkably led by improved oil price outlook (average oil price assumption of USD60/bbl), unwinding of entitlement factor on Mari Field gas pricing and incentive gas pricing applicable on Mari’s production above its benchmark.

However, we have slightly reduced our production estimates by 4%/2% to 34.6mmboe/36.3mmboe owing to lower production from Mari Field resulting in 13%/9% lower FY18F/FY19F EPS of PKR156.99/PKR215.55 – much larger than the decline in production due to lower gas volumes fetching incentive pricing (above benchmark production). Though we maintain Buy stance on MARI, we have revised down our Dec-18 PT by 7% to PKR2,040/share, which offers capital upside of 30% from last close.

Moreover, we would like to highlight its significant upside potential of hydrocarbon discoveries due to its small production base. In this regard, recent hydrocarbon discovery in Tipu-1 Exploratory Well of Mari field flowing 21.4mmcfd is expected to raise annual earnings by PKR12.6/share (based on average oil price assumption of USD60/bbl).

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