Pakistan Petroleum Ltd.

PAKISTAN PETROLEUM LTD COMP COMPAN ANY Y ANAL ANALYS YSIS IS,, INDU INDUST STR RIAL IAL ANAL NALYSIS YSIS,, ECONO ECONOMI MIC C ANAL ANALYS YSIS IS,, ANAL ANALYS YSIS IS OF FINAN FINANCI CIAL AL STATEMENTS, PROJECTIONS AND CALCULATION OF   THE THE EXPE EXPECT CTED ED RETU RETURN RN,, MARK MARKET ET RISK RISK OF THE THE SECURITY AND CAPM.

Submitted to: PROF. HAFIZ TAUSEEF Submitted By:

ZEESHAN KAUSAR M. RAMZAN

(L1R06MBBF2024)

(L1F07MBBF2010)

SYED AHSAN ASHFAQ (L1S07MBBF2012) AJMAL AFTAB

(L1S08MBBF2034)

DATE: 29/01/2010

CONTENTS PREFACE ACKNOWLEDGEMENT EXECUTIVE SUMMARY  INTRODUCTION ECONOMIC ANALYSIS PAKISTAN’S ECONOMIC ANALYSIS INDUSTRY ANALYSIS COMPANY ANALYSIS o

DEBT MANAGEMENT

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ASSET MANAGEMENT

o

LIQUIDITY 

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FUTURE OUTLOOK 

RATIO ANALYSIS o

LIQUIDITY  RATIOS

o

SOLVENCY  RATIOS

o

PROFITABILITY  MEASURES

PROJECTIONS 2010-2012 RECOMMENDATIONS BIBLIOGRAPHY 

PREFACE We are students of Banking & Finance and this was the first time we have got a chance to explore our financial knowledge and skills that we have learnt so far in our University. Although this was a practical work, so we faced many difficulties and confusions at many stages of this project. We worked with cooperation and we were keen to make this project the best in term of material and quality. Although we are not professionals but we have given our best efforts to present this project as much professional as we can. We have learnt a lot from this effort, we have got a chance to work on MS Excel and we have learnt a lot using Excel. We explored Excel deeply and got many new things to learn. Thanks to the Almighty Allah who enabled us to complete this project successfully. This project is a complete complete guideline for financial financial analysis. analysis. This includes company’s company’s income, expenses, expenses, future  projections, future values, investment decisions and budgeting. This project is done by applying the best financial manner using our financial skills and knowledge. In this project, we have deeply analyzed Pakistan Petroleum Ltd and projected its future income and expenses. We have also calculated the company’s Beta, Alpha, Expected Return and CAPM. We also analyzed the financial statements of Pakistan Petroleum Ltd e-g Ratios. We have deeply analyzed the Company, the Industry and the market in this project. We have also discussed the situation of Petroleum industry in the Economy and its contribution in GDP and GNP.

ACKNOWLEDGEMENT We thank to the Almighty Almighty Allah who provided provided us with this opportunity opportunity and gave us the courage and ability to accomplish this task successfully. We have used our best efforts and abilities. We would like to express   profound gratitude to our advisor, PROF. HAFIZ TAUSEEF , for his invaluable support, encouragement, supervision and useful suggestions throughout this research work. His moral support and continuous guidance enabled us to complete our task successfully. We are thankful to our parents for financially assisting us in this Project. This project has been challenging for us but it provided us knowledge and better techniques for the future projects.

EXECUTIVE SUMMARY The project assigned to us was on Pakistan Petroleum Ltd. in which we had to discuss the industry and company condition as affected by the country’s political and economic conditions. At the beginning of our project we started the content of project with writing preface containing experience we have been through in making of the  project and the expectations of performance of this project. It also contains our actual doings in this project along with difficulties faced. It is then followed by the acknowledgment after which there is introduction congaing history of firm and there is little about the industry and social-economic environment relevant to automobile industry. The main idea was that whether the investment in company’s stocks was feasible or not. Since we have work-out on this project and we have had done analysis of Petroleum industry and company analysis through different dimensions. This project on Pakistan Petroleum contains various aspects and position of company from production to market conditions. We analyzed our economic conditions in relation with investment in Indus motor company’s stocks and consider some of the Macro economic indicators to determine the future future course course of our economy. economy. Other Other than than that that we have done the compre comprehens hensive ive econom economic ic analys analysis is containing GDP, GNP, Employment growth rate, inflation rate and some of the governmental policies. Than majorly brief but adequate industry and company analysis for financial statements were important parts of our    proje project. ct. In this this we have done horizo horizonta ntal, l, vertic vertical al and ratio ratio analysi analysiss along along with with Beta, Beta, Alpha Alpha and CAPM CAPM calculation. Importantly three year projections of company’s financials were significant part of our project. Last  but not the least this project is concluded with recommendations about whether the investment in company’s stocks is advisable or not. The project of Pakistan Petroleum Ltd Also contains the contents in ordinal format and the bibliography having links concerned to this project.

Introduction

The pioneer of the natural gas industry in the country, Pakistan Petroleum Limited (PPL) has been a key player  in the energy sector since the 1950s.The company has managed to sustain its positioning due to its robust  business programme and persistent efforts to optimize production from existing fields and new discoveries, currently contributing about 25 percent of the country’s total natural gas supplies in addition to crude oil,  Natural Gas Liquid and Liquefied Petroleum Gas. PPL’s history can be traced back to the establishment of a public limited company in June 1950, the majority shares of which were held by Burmah Oil Company (BOC) of the United Kingdom. In September 1997, BOC disinveste disinvested d from the E&P sector worldwide worldwide and sold its equity in PPL to the Government Government of Pakistan. Pakistan. In July 2004, the government, in turn, sold 15 percent of its holding in PPL to the general public through an Initial Public Offer, reducing its share to 78.4 percent. The remaining equity is divided between International Finance Corporation and private investors, holding 1.3 percent and 20.3 percent respectively. The company operates five producing fields across the country at Sui (Pakistan’s largest gas field), Adhi, Kandkhot, Chachar and Mazarani and holds working interest in seven partner-operated producing fields. These are Qadirpur, the second largest gas field, Miano, Sawan, Block 22 (Hasan, Sadiq and Khanpur) and Tal Block  (Manzalai). As a major stakeholder in securing a safe energy future for the country, PPL pursues a dynamic exploration agenda aimed at enhancing enhancing hydrocarbon hydrocarbon reserves. reserves. In Pakistan, Pakistan, the company’s exploration exploration portfolio portfolio comprises 22 explor explorati ation on blocks blocks.. Of these, these, PPL operat operates es seven seven through through joint joint venture venturess with with other other Explora Explorati tion on and Production (E&P) companies and has working interest in 15 more exploration areas, including three off-shore  blocks, as non-operating partner. PPL is also among the first local E&P companies to extend its operations  beyond national borders and has an interest in an exploration licence in Yemen Ye men in a joint venture with OMV. Over the years, PPL has developed a reliable foundation and infrastructure for providing clean, safe energy through sustainable exploitation of indigenous natural resources while adhering to the highest standards of  health and safety and constraining the ecological footprint of its operations. As a result, Monitoring and Inspection and Design & Construction departments, Mazarani and Kandhkot gas fields, Adhi field, Sui Field Gas Compressor Station, Sui Production, Sui Field Engineering and Purification Plant were certified for ISO 9001:2000 Quality Management System. As such, the company believes in value addition for all its stakeholders and remains committed to a transparent financial and corporate regime. This factor has been recognized by the prestigious Management Association of  Pakistan that selected PPL as the recipient of its 25th and 26th Corporate Excellence Awards. At PPL, the health and safety of employees and sustainable use of natural resources are key requirements of  operational excellence. Every effort is made to enhance Health, Safety and Environment awareness among staff  and other stakeholders. This commitment is evident from the landmark certification of Mazarani Gas Field, Sui Production, Sui Field Gas Compressor Station and Adhi Field for ISO 14001 and OHSAS 18001 certification. Besides, PPL was also awarded the Annual Environmental Excellence Award in 2006, 2008 and 2009 by the  National Forum for Environment and Health.

PPL has played a significant role as a responsible corporate citizen since the inception of its commercial activities in Sui by establishing Model School Sui in 1957 for children of workers and local communities. Over  time, the outreach of PPL’s Corporate Social Responsibility (CSR) portfolio has gone well beyond obligatory requirements. In 2001, PPL Welfare Trust was founded to provide geographical and thematic diversity within its CSR initiatives, which include education, health, infrastructure development and socio-economic uplift of  disadvantaged communities, particularly those living in and around its operating areas. In recognition of these efforts, PPL has won the Corporate Philanthropy Award for four consecutive years from 2004 to 2007 for its commitment to social development.

ECONOMIC ANALYSIS Economy of Pakistan

1 Pakistani Rupee (PKR) Rs. = 100 Paisa

Currency Fiscal year

 July 1–June 30

Trade

ECO, SAFTA, SAFTA, ASEAN, ASEAN, WIPO and WTO

organizations Statistics GDP

$431.2 billion (PPP) (2008)

GDP growth

2.0% (2009 est.)

GDP per

$9,600 (PPP) (2008)

capita GDP by

agriculture: 19.6%, industry: 26.8%, services: 53.7% (2007)

sector CPI) 11.17% 11.17% (2009-20 (2009-2010) 10) Inflation (CPI) Population

23% ((2007))

below poverty line Labor force

99.18 million (2006 est.)

Unemployme 7.5% (2007 est.) nt Main

textiles, textiles , chemicals, chemicals, food processing, processing, steel, transport equipment, equipment, automotives, automotives ,

industries

machinery, machinery, beverages, beverages, construction , materials, materials , clothing, clothing, paper products External

Exports

$17.78 billion (2008 est.)

garments, bed linen, cotton cloths, and yarn), yarn), rice, rice, leather goods, Export goods textile goods (garments, sports goods, chemicals manufactures, carpets and rugs Main export

United States 22.4%, UAE 8.3%,UK  8.3%,UK 6%, 6%, China 15.4%, Germany 4.7% (2006 est.)

partners Imports

$30.99 billion f.o.b. (2007 est.)

Import goods Petroleum, Petroleum products, Machinery, Plastics, Transportation Transportation equipment, Edible oils, Paper and paperboard, Iron and steel, Tea 8.7%, Japan 6.5%, United States 5.3%, Main import China 14.7%, Saudi Arabia 10.1%, UAE 8.7%, Japan

partners

Germany 5%, Kuwait 4.9% (2006 est.) Public finances

Public debt

$45 billion (2007)

Revenues

$127.5 billion (2006 est.)

Expenses

$135 billion (2006 est.)

The economy of Pakistan is the 27th largest economy in the world in terms of  purchasing   purchasing power , and the 48th largest in absolu absolute te dollar dollar terms. terms. Pakista Pakistan n has a semisemi-ind indust ustria rializ lized ed economy economy,, which which mainly mainly encomp encompass asses es textiles, textiles, chemicals, chemicals, food processing, agriculture and other industries industries.. Growth Growth poles of Pakistan's Pakistan's economy are situated along the Indus River, diversified economies of Karachi and Punjab's urban centers; coexist with lesser  developed areas in other parts of the country. The economy has suffered in the past from decades of internal of  internal  political disput disputes, es, a fast fast growin growing g pop popula ulati tion, on, mixed mixed levels levels of foreig foreign n invest investmen ment, t, and a costl costly, y, ong ongoin oing g confrontat confrontation ion with neighboring neighboring India. India. However, IMF-appro IMF-approved ved government government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy. GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. Due to economic reforms in the year 2000 by the Musharraf government. Musharraf government. In 2005, the World Bank named Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of  chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable. Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan has reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.

In the period of these 8 (2001-2008) years the poverty levels decreased and unemployment levels faced a decline as well inflation remained between 6-8% ranges. The services sector grew at a rapid pace. Specially the  banking and telecommunication sectors saw rapid success and increased interest of investors to invest in these sectors. During this period of great macro-economic activity, Pakistan economy faced growth of about 5.8% constantly in the GDP. Budget deficit and raising inflation rates have always been a concern for Pakistan’s economy. Pakistan’s imports are of huge values mainly due to its ever increasing oil imports. This also effects on the prices of   petroleum in Pakistan. The above mentioned period also saw an increase in the spending of people. Rupee was a bit stable up till  November 2007 against Dollar but it has deteriorated dramatically now due to the political instability in the country and due to increased capital flight. The stock market in the country also performed well during this period of increased economic activity. Through the markets were extremely volatile and responded rapidly and adversely to political situations in country at times, and KSE 100 index came to marks of above 15000 points in 2008 and became one of the best performing and fastest growing markets in ASIA. But after the occurrence of these incidents the KSE 100 index declines to 5000 points in the mid of 2008 these factors are such as       

Law in Order Situation October-2008 Karachi Incident 12-May-2007 Benazir Assassination Elections 2008 Musharraf Resignation Long March Bomb Blasting

The chart given below shows some of the sectors that grew during these 8 years or experienced enhanced activity.     

Banking Automobile Manufacturing Telecommunication Electronic Media/ news Channels Oil Marketing Companies

 

Investment & Market Funds Real Estate

In 2008, the political instability and in-competency of the Government to take measures to regain the trust of  foreign foreign investors and controlling controlling inflation. inflation. Pakistani economy is at an all time low level and is expected to go further down-road. Despite the fact that prices of commodities such as oil and gold are falling internationally. Pakistan is not benefiting from the situation properly mainly due to the constant depreciation of Pak-Rupee in comparison with U.S. Dollar. Pak Rupee which traded in the range of 60-70 rupees against a single dollar  during the last couple of years depreciated heavily during the year 2009 to Rs. 80 against U.S. Dollar. Currently it is trading at Rs.83 against Dollar. As imports are rapidly increase in Pakistan economy it increased to the level of $ 3.54 billion alone for the month of July 2008. Our exports have decreased constantly during 2008 mainly because of low output of Textile sector that contributed heavily to our exports. Our export bill for July 2008 was $ 1.9 billion b illion which resulted in a trade deficit of $ 1.64 billion in July 2008. The Average Consumer Price Index reached 26% during the financial year 2008-09 as compared to almost 12% during June 08. This increase is mainly due to increased commodity prices both locally and globally. The increased commodity prices and decreasing foreign reserves have caused the inflation. The foreign Direct Investment in Pakistan has fallen by almost 11% during the financial year 2008-09. The total direct foreign investment in Pakistan is $ 4.6 billion in 2009.

Some facts and figures related to Pakistan economy eco nomy are as follows

Economic Comparison of Pakistan 19992009 GDP

1999 $ 75 billion

2007 $ 160 billion

2008 $ 170 billion

2009 $ 185 billion

GDP Purc urchasing sing Power Parity (PPP) GDP per Capita Income Revenue collection

$ 270 billion

$ 475.5 billion

$ 504.3 billion

$450 Rs. 305 billion

$925 Rs. 708 billion

$1,085 Rs. 990 billion

Foreign reserves Exports

$ 700 million $ 7.5 billion

$ 16.4 billion $ 18.5 billion

$ 10 billion $ 19.22 billion

Textile Exports KHII stock KH stock exch exchang angee (100(100Index) Foreign Direct Investment Debt servicing Poverty level Literacy rate Development programs

$ 5.5 billion $ 5 billion at 700  points $ 1 billion 65% of GDP 34% 45% Rs. 80 billion

$ 11.2 billion $ 75 billion 14,000 points $ 8.4 billion 26% of GDP 24% 53% Rs. 520 billion

$ 580.6  billion $1,250 Rs. 1.05 trillion $ 14 billion $ 18.45  billion -

at $ 56 billion at 9,000 points $ 5.19 billion $ 4.6 billion Rs. 549.7 billion Rs. 88 0  billion

Paki Pakist stan' an'ss indu indust stri rial al sect sector or acco account untss for for about about 24% of GDP. GDP. Cott Cotton on text textil ilee produ product ctio ion n and and appar apparel el manufacturing are Pakistan's largest industries, accounting for about 66% of the merchandise exports and almost almost 40% of the employed labour force. force. Other major industries industries include cement, cement, fertilize fertilizer, r, edible edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing. The government is privatizing large-scale parastatal units, and the public sector accounts for a shrinking   proportion of industrial output, while growth in overall industrial output (including the private sector) has accelerated. Government policies aim to diversify the country's industrial base and bolster export industries.

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Industries: Automobile, textiles (8.5% of the GDP), fertilizer , cement cement,, oil refineries, refineries, products, food  processing, beverages  processing, beverages,, construction materials, clothing, paper  clothing, paper products, products, shrimp Industrial production growth rate: 6% (2005) Large-scale manufacturing growth rate: 19.9% (2005)

Pakistan is an emerging market for automobiles and automotive parts offers immense business and investment opportunities. The total contribution of Auto industry to GDP in 2007 is 2.8% which is likely to increase up to 5.6% in the next 5 years. Auto sector presently, contributes 16% to the manufacturing sector which also is expected to increase 25% in the next 7 years. The new Government is working quite efficiently but so far it hasn’t been successful in solving and finding solutions to the various economic and defense related issues faced by the country. As soon as the political situation of the country becomes stable the confidence of local and foreign investors will be regained and can be further strengthened if the Government introduces measures & policies to facilitate sectors of economy that have suffered in the recent bad phase of economic instability.

INDUSTRY ANALYSIS Historically the demand of petroleum products has been increasing at an average rate of 7.5 percent per year  (last 4 years 4.25 %). The long term growth estimates have been forecast to range between at 4.5 to 5%. The maxim aximum um grow growth th of 9% has has been been for forecas ecastt in oil oil and and gas gas cons consum umpt ptio ion n in the trans ranspo port rt sect sector or.. The consumption of furnace oil however, is expected to double itself mainly in power generation. There are several refinery projects in different stages of development which when reach maturity shall considerable increase the country’s refining capacity. The recent overhauling of Pakistan Refinery Limited (PRL) and ParkArab Refinery Limited (PARCO) production units have enhanced production of HSD & FO during Jul-Oct 2007, which was up by 21 percent and 26 percent as against corresponding months of last year respectively. But, these are deficit products as their local production meets only 47 percent and 45 percent of the local demand for HSD and FO, respectively. Hence, in the meantime the growing needs for petroleum products will have to be met from additional imports of refined products as well as increase crude imports for the new refineries. The existing infrastructure in the country is not adequate to bear the burden of the large volumes which are envisaged at the term of this millennium. For storage, transportation and distribution of the additional quantities of oil, additional facilities on the continuing basis need to be introduced before the existing facilities become so incapable that the consumers bear the cost of Shortages & non-availability in the market. In addition to the injection of adequate and modern facilities, the consumer will look for innovative marketing techniques and safe and friendly products to satisfy their sophisticated demands & concern about pollution and ecological

imbalance. The petroleum industry must prepare itself to meet the challenges of free market and discerning consumers of the new era. Based on the various factors, such as GDP growth, sustainable agricultural activities, increase in the vehicle   popula populati tion on leadin leading g to increa increased sed petrol petroleum eum trade trade activi activity ty,, and therma thermall power power genera generati tion on etc., etc., the POL requirement of the country are on constant increase. As per OCAC’s long term demand estimates the POL demands, in the next 5 years i.e. up to 2005-10 is expected to increase by about 33% to a volume of 22,345 million tons as compared to 1998-99 actual of 16,805 million tons. Currently the demand is met by importing refined products mainly HSD and HSFO to the tune of 63% and the bal balance 37% demand is met by pro processing import orted and as well as the indig digenou nous crude. In developing counties the demand for middle distillates and furnace oil grows at a fast rate. At present the demand for gas oil & furnace oil constitutes about 84% of the fuel. The four domestic refineries cannot meet such demand and since the refining capacity has been left far behind these two products are being and shall continue to be imported in large quantities in future. In 1998-99 nearly 5026 million tons of gas oil and 5.32 million tons of furnace oil was imported. At the time kerosene, gasoline and JP-1 were also imported to meet t he small shortfalls in t he supply from the local refineries. The cost of current and next year’s petroleum imports are expected to be close to $7billion, which is higher than  previous years import and about $1.2billion higher than current year’s revised estimates of $ 6.6billion. The oil import bill for the year 2007-2008 has been reported as approximately $9.00 billion. The anticipated total consumption of crude oil for the next year has been estimated at 73.3million tons out of  which the consumption of HSD High Speed Diesel and furnace oil, which recorded at 7.4 million tons and 7.3 million tons in the previous fiscal year, have hav e been increasing substantially during the current year and it is being estimated estimated that their demand will increase increase to 9.1 million million tons and 8.1 million million this year. year. The cumulative cumulative cost of  Diesel and Furnace Oil has been projected at $2.25billion for the next year against $2.7billion during the current year. For the current year, an amount of $6.4billion had been estimated for the import of about 64.75million tons of  crude, 4.6million tons of diesel, 2million tons of furnace oil.

COMPANY ANALYSIS Pakistan Petroleum Limited is one of the oldest and largest E&P companies in the country. The primary activities of the company involve exploration, development and production of Pakistan's natural reserves of oil and gas. It was incorporated on 5th June 1950 after the promulgation of the Pakistan Petroleum Production Rules in 1949. PPL inherited all the assets and liabilities of its parent company, the Burmah Oil Company (Pakistan Concessions) Limited and commenced business on 1st July 1952. The compan company y remain remained ed under under the manage managemen mentt contro controll of Burmah Burmah Castrol, Castrol, UK till till 199 1997. 7. After After that that the government purchased the entire equity interest of Burmah Castrol PLC, formerly Burmah Oil Company. After 

June 2004, the Government of Pakistan disinvested around 15% of its equity in the company through an Initial Public Offering (IPO). The Government of Pakistan intends to privatize PPL and IPO was a significant step towards achieving this objective. As at June 2008, the government of Pakistan owned 78.4% stake of PPL, the Intern Internati ational onal Finance Finance Corpor Corporati ation on (IFC) (IFC) had 3.43% 3.43% of shareh sharehold olding ing and the rest rest 18.17% 18.17% is free-f free-floa loat. t. PPL is the second largest Exploration and Production (E&P) companies, both, in terms of production and reserves. PPL has been playing a crucial role in augmenting hydrocarbon resources since 1955. Presently PPL contributes around 25% of the country's total natural gas g as production. It is also one of the market leaders in terms of its holdings of exploration area. Out of 242,714 sq.kms area under exploration in Pakistan, PPL holds the second largest share, more than 22% in joint venture with partners. PPL is aggressive in exploration but at the same time conservative in selecting drilling sites. It has discovered eight gas and three oil fields. PPL has working interest in 24 exploration blocks, of which eight are PPL operated and the other 14, including 4 off-shore are partner operated. Sui and Kandhkot gas fields are two of the major PPL operated fields where PPL has 100% ownership. In 1952 the company discovered the largest gas reserves at Sui. Within three years (1955) the supply of natural gas to Karachi for industrial and domestic use began through pipelines. Sui caters to about one-fifth of the total gas demand in the country. In 1959, vital discoveries at Kandhkot gas field and Mazarani field were made. Crude oil was discovered at Adhi field in 1978 and in 1 98 0 commercial production started at Adhi. In 1990, the Liquefied Petroleum Gas (LPG) and Natural Gas Liquid (NGL) Plan was installed and the  production of LPG, NGL and gas from Adhi commenced. In the year 2007, PPL made oil and gas discovery at Mela-1 well (Nashpa Block) and two gas discoveries at Latif-1 (Latif Block) and Tajjal-1 (Gambat Block). In the same year, the first exploratory well Mela-1 at Nashpa Block was completed as oil and gas producer and the Extended Well Test production commenced. Bolan Mining Enterprises (BME) is a joint venture between PPL and the Government of Baluchistan for the development, mining, grinding and marketing of barites mineral deposits found near Khuzdar and other minerals in the province of Baluchistan. The Company operates a Baryte mine in the Baluchistan province.

Profits for the 9 months ending March 2009 were Rs 20.970Billion which is 40% higher than same period last year. This translated into earnings of Rs 25.27 per share (9M 2008: Rs 18.04per share). This profit started from 37% higher sales this year of Rs 45.337Billion (9M 2008: Rs 33.126Billion). Main contributors to high profits this year are rupee depreciation against US dollar and delayed effect of the high international Oil prices. Other  operating income has been high contributor in total profits, 3.344Billion, which comes directly from deposits in bank accounts, Musharika certificates, Pakistan Investment Bonds and TFCs. On a closer look we get to see that along with high profits Finance cost has also went up by 38%. Similarly, other operating expenses have also increased by 46%. During the year on the operating front, Gas production from Sui and Sawan fields declined while production started from Gambat and Latif along with increases in  production from Kandhkot and Nashpa. New business acquisitions included 75% working interest in Tullow Pakistan (Development) Limited in Chachar Development and Production lease, along with operatorship of the area area in March arch 2009 2009.. Th Thee cur current rent prod produc ucttion ion of the fiel ield is arou around nd 10 MMcf Mcfd of natu naturral gas. gas.

The exploration activities are done on local and international horizons. On local front, company has 22 operated exploration fields out of which 7 are exclusively PPL owned while others are partnered. Internationally, deals are going with Yemen and in future PPL is legible to participate in bidding of exploration and development of  areas in Iraq. Besides this other working interests are in North, West and East Africa as well as Middle East And central Asian State countries. The Exploration and Production (E&P) companies would be offered $4.08 per mmbtu in as per 2009 petroleum  policy, which was $3.65 per mmbtu in 2007 and $2.99 per mmbtu in 2001. The increase in the gas rates would  bode positively positively for the E&P companies, companies, and the sector sector is expected expected to show better better results in the coming times.

RESERVES: The total oil & gas reserves of Pakistan fell by 3.6% during the first half of  FY'08. The country's oil and gas reserves reserves declined from 5.95b barrels of oil equivalent equivalent at the end of Jun'07 to 5.74b barrels of oil equivalent (boe) by end of Dec'07. Overall oil reserves stood at 340m barrels at December  FY'08, as against 353m bbl at Jun'07, showing a decline of 3.8%. The only increase in oil reserves were noted in Naspha block (increase of 7.15m bbl) and in Tando Allah North (oil reserves revised up by 0.20m bbl to 0.37m bbl). The total gas reserves of Pakistan decreased by 3.4% (from 32.38tcf in Jun'07 to 31.27tcf in Dec'07). Mela and Uch were the two fields that showed significant upward revision in gas reserves. The gas reserves of Mela field were revised upward by 32.47bcf to 78.86bcf at the end of Dec'07 from 46.40bcf earlier at the end of Jun'07. The reserves of Uch field were up by 54.75bcf to 4.49tcf at the end of Dec'07. Thus the total reserve life of the country fell to 22.2 years during the first half of FY'08 from 23.1 years at the end of Jun'07. PPL has around 19% of total oil and gas reserves in Pakistan and it is second to OGDC in this regard. There has been a net addition of 1.36m barrels in PPL's oil reserves while the reserves of other major companies such as OGDCL and POL declined by 6.9 m barrels and 1.02 m barrels respectively. However, PPL's gas reserves fell by 0.01 TCF. The gas reserves of OGDC and POL also declined by 0.36 TCF and 0.24 TCF respectively.

DRILLING: E&P sector missed drilling target in FY'08 as the companies could spud in 72 oil and gas drills as against the target of 87 oil drills. The sector missed its target mainly due to deteriorating law and order situation situation in Balochista Balochistan n and NWFP. Also the target was burdensome burdensome because because the drilling drilling target target for  FY'08 included the target of outgoing fiscal year. Pakistan Petroleum Limited (PPL) announced only one gas discovery during last fiscal year at Adam-X well in Hala Block. In addition, the company is also a JV partner in oil and gas discovery at Mamikhel in Tal Block. PPL has set its target 10 wells average drilling target for a year. Overall the E&P sector of Pakistan made 11 oil, gas well discoveries, and 23 exploratory and drilled 49 development wells. The new oil and gas discoveries have resulted in a success ratio of 1: 2.1 wells (47 percent), significantly higher than country's historical average of 1: 3.4 wells (29 percent).

PRODUCTION: Pakistan's oil and gas production during FY'08 stood at 703,000 boepd

(barrels of oil equivalent per day) depicting a growth of 2% as compared to FY'07. Oil production alone stood at 698,000 bpd (thousand barrels per day) versus 674,000 bpd depicting a growth of 4%. Similarly, gas  production also increased by 1.9 percent to 3.9bcfd (billion cubic feet per day). Pakistan Petroleum Limited (PPL) is primarily primarily a gas producing company, company, however however with increased increased production production of crude from Tal block and Adhi fields as well as additional production from Mela field, the production of crude oil increased during FY'08. This was in line with the sector trend. The total production of crude oil and gas in the E&P sector improved during the first 11 months of FY'08. Crude oil production grew 4.0% to 69,565bpd during 11mths'08 as against 66,900bpd in the corresponding   perio period d of FY'07. FY'07. Natura Naturall gas producti production on during during the same same period period stood stood at 3,910m 3,910mmcf mcfd d as compar compared ed to 3,841mmcfd in 11mths'07, showing a nominal rise of 1.8%. PPL showed considerable increase in crude   production supported by additional production from Mela 1 during the period Jun'07 to May'08. Crude oil   production by the company stood at 4,031bpd in 11mths FY'08 as against 2,726bpd in the same period in FY'08. Along with this, the production from Tal block also showed an impressive growth of 37.4% and contributed 17.1% of total oil production of t he company. Gas production declined nominally to 989mmcfd during 11mths'08 as compared to 993mmcfd in 11mths'07. Sui and Kandhkot field are the main contributors to the company's gas production. The Sui Sui gas field still remains an important source of gas supply meeting a substantial part of gas demand of the country. The volume of gas sales during FY'08 from the field was 202,771 million cubic feet as against 207,746 million cubic feet in FY'07. The volume of gas sales from Kandhkot field during FY'08 was 52,594 million cubic feet as against 48,370 million cubic feet in FY'07. PPL registered a growth of 1% in total oil and gas production in FY'08. Oil production of PPL registered a growth of 50% and stood at 43, 000 bpd, while in contrast, gas production remained stagnant at 982mmcfd. This was due to decline in gas production from Sui field, which offset the impact of increased production from newer fields. As shown by the field wise contribution of gas and oil, PPL holds the most attractive exploration  p por ortf tfol olio io and and its its grow growth th prof profil ilee is ther theref efor oree more more impr impres essi sive ve than than other other comp compan anie iess in the the sect sector or..

REVENUE The net sales revenue of PPL increased by around 19% during FY'08 as the total :

revenue increased from Rs 38.4 billion earned in FY'07 to Rs 45.7 billion in FY'08. This increase in revenue was mainly helped by higher production from Kandhkot, Adhi, Qadirpur, Sawan and Tal fields which more than offset the decline in production of gas from Sui, Mazarani and Miano fields and commencement of  production of gas and crude oil from Mela-1 and Mela-2 wells in Nashpa Block. Also, higher sales sales volume volume of all of PPL's product categories categories and better better well head gas prices prices caused the rise in revenue in FY'08. The well head gas prices improved due to phased increase in pricing under 2002 pricing agreement. The last such increase in pricing became effective from January 2007. The company is less vulnerable to oil price movements because of a greater share of natural gas in the total  production. The table shows that natural gas has made a higher contribution to total revenue over the years and in FY'08 natural gas contributed to 81.57% of revenue.

PROFITABILITY Pakistan Petroleum Limited posted a profit after taxation of Rs 19.7 billion for the period FY'08 as compared to Rs 16.77 billion earned during FY'07, showing an increase of almost 18%. The company's operating profit increased from Rs 24.5 billion in FY'07 to Rs 29.5 billion. This 20% increase in the company's operating profit resulted despite 15% increase in field expenditure mainly due to extensive exploration activities carried out and 20.5% increase in royalties during the period. The reason for increased operating profit in FY'08 was the rise in sales revenue earned. The company registered an increase of 19% in the sales revenue in FY'08. The sales revenue increased from Rs 38.4 billion in FY'07 to Rs 45.7 billion in FY'08. This improved sales performance was largely due to the growth in the overall production and increase in sales volume across all product categories. The increase increase in gas production production was mainly on the back of rise in production production from Kandhkot, Kandhkot, Sawan and Adhi fields. Total oil production by the company rose impressively by 82.3% during the first half of FY'08 due to addition by Mela and increase in production from Adhi field and Tal block. During the 3Q FY'08, there was increased gas production from Kandhkot, Adhi, Qadirpur, Sawan and Tal fields and additional production from Nashpa. Also, high international prices resulted in higher profits for FY'08. Arab light prices grew almost by 40% during 3Q FY'08 as compared to same period in FY'07. The change in  pricing of Sui and Kandhkot field also .boosted the profits for FY'08. The well head gas prices especially that of  Sui and Kandhkot improved due to phased increase in pricing under 2002 pricing agreement with last such increase becoming effective from Jan'07. The gross profit margin of the company has had a declining trend over  the past past year yearss beca becaus usee the the gro gross prof profiit ear earned ned has has fall allen dur during ing all all the prev previo ious us fisca iscall years ears.. In FY'06 the gross profit margin had increased by 36% while in FY'07 the increase in gross profit was only by 21%. During FY'08 the gross profit grew by 19% as compared to FY'07. This has been because over the years the royalties have grown more in proportion to the sales revenue of the company. During FY'08 the sales revenue increases by 19% while the royalties payment increased by 21%. The company was able to almost maintain its profit margin during FY'08. Over the past years the company has had an increasing trend in its profit margin because profit after taxation grew more in proportion to sales. PPL's profits were boosted by other sources apart from sales revenue. The share of profit in Bolan Enterprises increased by 17% to reach Rs 55.8 million in FY'08. Other operating income rose to an impressive Rs 3.0   billion, an increase of 26% over FY'07, mainly due to effective fund management policy followed by the company. Income on loans bank deposits and term deposits increased. There were substantial increases in the income on long term held to maturity investments and rental income on assets increased from Rs 2 million in FY'07 to Rs 45 million in FY'08. Similarly the exchange gain on foreign currency amounted to Rs 246 million during FY'08 as against Rs 2.77 million in FY'07.

LIQUIDITY: The liquidity management of PPL had been improved greatly since FY03 as illustrated in the figure. The liquid funds generated from operating activities contributed to the improvement in the ratio. In FY07, the company managed to catch up with and supersede the industry, thus breaking the trend of  lower than average current current ratio. ratio. PPL had increased increased its investments investments in short term instruments, instruments, contributing contributing to the improvement in current ratio during FY'07. Also, the company has maintained a lower level of inventory than t he other major players in the sector. This reflects company's strength in asset management as well as the liquidity of its asset portfolio. The large amount of cash balances and short term investments maintained by the company will also help PPL in financing future exploration activities. The liquidity position of the company deteriorated during FY'08 after a better  liquidity position in FY'07. This has been due to a 76% increase in the current liabilities of the company while current assets increased only by 12.7%. The company's trade payables and other payables increased during FY'08. Taxation liability also showed an increase. However, the claims to have a comfortable liquidity position since an amount of Rs 21.6 billion was generated from operating operating activities activities of the company. This amount was used to meet the expenditures expenditures on capital capital projects, operational requirements, payment of dividends to the shareholders and investments (short and long-term). At the end of FY'08, the company had cash / bank balances and short-term investments amounting to Rs 22.1  billion. Thus, the company is comfortably placed to meet its existing short-term and long-term commitments and financing requirements of future exploration and development expansion plans.

ASSET MANAGEMENT:

PPL PPL has has perf perfor orme med d well well in term termss of asse assett

management, exhibiting a positive trend for inventory turnover and DSO over the years since FY'03. The company's efficiency in inventory management has resulted in its operating cycle being shorter than the industry average. FY08 saw a further increase in the collection period of receivables for PPL and the trade debts continued to mount. Although high DSO is an industry wide trend in the E&P sector but a reduction in the period will improve the company's efficiency and have a positive impact on the company's financial strength. The turnover of all the company's assets improved during FY'08 due to a 21% increase in assets relative to a 19% increase in sales. This shows that the total asset turnover ratio has increase in FY'08 due to increase in the increa increase se in invest investmen mentt and product production ion capaci capacity ty.. Althou Although gh less less sales sales were were genera generated ted relati relative ve to the increase in total asset investment, the company can be expected to improve sales and asset management in the future future.. The sales sales to equity equity ratio increa increased sed indica indicatin ting g that that the compan company's y's asset asset manage management ment has been satisfactory.

DEBT MANAGEM MANAGEMENT ENT: PPL has the lowest level of leverage among the major   players in the E&P sector. This is evident in the lower debt ratios of the company compared to the other  companies. The debt ratios are low and have been steadily declining over the last few years, indicating that the company is largely equity financed. PPL has not undertaken any long term loans during the past few years. This shows that the company does not rely on loans or other such instruments to finance its growing exploration activit vities. This trend reflects upon the finan nancial strengt ngth of PPL compared to its pee peers. Despite the equity financed nature of the company, the financial charges have been mounting and the TIE ratio of PPL has shown a negative trend since the FY06. This may be attributed partly to the increase in assets subject to financial lease in the last one and a half years. However despite the decline, the TIE remains substantially strong. In the FY07, a large portion of the finance cost accrued to the unwinding of discount on decommissioning cost.

FUTURE OUTL OUTLOOK  OOK : The E&P sector of Pakistan seems to have a positive future outlook as the sector's profit after taxation soared by 55% during the first quarter of FY'09. This shows that the sector has had a promising start of the present fiscal year FY'09. The profitability of the sector is expected to increase despite falling oil prices in the international market. Higher wellhead prices under the new pricing  policy will help increase the sales revenue and future profitability of the sector. The depreciation of the Pakistani rupee will also helped the sector achieve higher profits as the sector's revenues are priced on an international parity basis. Along with rising sales revenue, the increase in other income played a major role in boosting the profits during 1Q FY'09. Other income contributed around 8.5% to PBT in 1Q FY'09 as compared to 6.7% in the same period of FY'08. PPL's other income grew substantially by113% to Rs 1.23 billion as the company has over Rs 23  billion  billion in cash and short-ter short-term m investment investmentss which are principall principally y held in term deposits deposits with banks and mutual mutual funds investments along with long-term investments of over Rs 1.8bn mainly parked in PIBs and TFCs. However, the production for the sector went down during the first quarter of FY'09. Production of oil and gas of  the sector fell by 8.7 percent and one percent respectively during 1Q FY'09. Pakistan Petroleum Limited's (PPL) oil and gas production also fell modestly by 2.6 percent and 0.6 percent respectively. Pakistan Petroleum Limited can be expected to increase production in the future because it is present in major geographical zones of  the country. Production from Nashpa, Adhi and Tal block will be major contributors and will help in offsetting expected decline from Su i field. The oil production of the sector declined due to many factors. Firstly, there were slow down in production, especially at sites such as Pindori and Adhi. Pindori field's production remains a concern as its average  production in the first quarter FY09 fell by a massive 63 percent, averaging just less than 1,400bpd. Secondly

water cuts were experienced in Dhodak and Kal fields. Along with this issues such as annual turn around jobs, delay in completion of development work (at Chanda-3 well) and mechanical problems (at Mela-1 well) slowed down the sector's oil production. Although the falling oil prices present a downside risk to the sector's earnings, the weak Pak rupee against the US Dollar is expected to make up for it as the sector's revenues are priced on an international parity basis. However, the sector's unabated rise in trade debts is a point of concern as they have risen by 33 percent to Rs 77   billi billion on (June (June to Sept-0 Sept-08) 8) mainly mainly due to pendin pending g paymen payments ts from from refine refinerie ries, s, Wapda Wapda and gas distr distribu ibutio tion n companies. OVERVIEW (July 29 2008): Recent results 3Q'08PPL posted a sales revenue of Rs 33,126 million for 9M'07 compared to Rs 28,034 million in the same period last year, depicting an increase of 18.2%. Profit after tax of the company grew to Rs 14,971 million during the nine months ended March 31, 2008 compared to Rs 13,105 13,105 millio million n during during the corres correspon pondin ding g period period of previo previous us year, year, repres represent enting ing an increa increase se of 14.2%. 14.2%. The increase in PAT is due to rising world oil prices, which offset the decline in production from Sui gas fields. Also contributing to increase in profitability was an increase in gas production from Kandhkot, Adhi, Qadirpur, Sawa Sawan n and and Tal Tal fiel fields ds whic which h more more than than offs offset et the the decli decline ne in prod product uctio ion n from from Sui Sui and and Mian Miano o fiel fields ds,, commencement of gas/crude oil production from Nashpa field and phased increase in Sui and Kandhkot gas  prices under the 2002 Gas Price Agreement, with the last such increase becoming effective from January 01, 2007. As can be observed above, the E&P sector has shown an increase in its profits, due to rising international oil prices and an increase in gas wellhead prices. The productivity of both crude and gas has been higher compared to the corresponding period of FY07. Pakistan's GDP has grown at an average of 5.8% for the last five years. The rapid growth in the industrial sector  has triggered a surge in demand for energy products. The country's gas consumption has been rising at a rapid rate, a five-year CAGR of 5.4%. The cumulative profitability of the listed E&P companies grown phenomenally over the last few years. The top line of these companies grew at a five-year CAGR of 24.8% mainly due to significant growth in the volumetric sales and significant surge in crude oil prices. Moreover, for the same   period, the bottom line increased at a 5-year CAGR of 28.42%. For FY07, the profitability of E&P sector  increased by a 4.9%. Oil production, however, grew only by 2.8% during the year to 67,415 bpd in FY07 compared to 65,577 bpd in FY06 and gas production increased negligibly by 0.9% to 3,872 mmcfd from 3,836 mmcfd in FY06. PPL is one of the oldest and largest E&P Company in the country. It was incorporated in 1950 subsequent to the  promulgation of the Pakistan Petroleum Production Rules, 1949. The primary activities of the company involve exploration, development and production of Pakistan's natural reserves of oil and gas. PPL inherited all the assets assets and liabilities liabilities of its parent, the Burmah Oil Company (Pakistan (Pakistan Concessions) Concessions) Limited and commenced commenced business on 1st July The company remained remained under the management control of its parent, Burmah Castrol, UK until 1997 when the

1 95 2

government purchased the entire equity interest of Burmah Castrol PLC, formerly Burmah Oil Company. The government owns 78.4% stake of PPL, the International Finance Corporation (IFC) owns 6.1% and the rest 15% are free-float available in the equity markets of the country. PPL is the second largest Exploration and Production (E&P) companies both, in terms of production and reserves. The company's contribution to oil and gas production in the country is illustrated in the chart. PPL accounts for 26.8% of country's total oil and gas production and 23.9% of total oil and gas reserves. It is also one of the market leaders in terms of its holdings of exploration area. Out of 242,714 sq.kms area under exploration in Pakistan, PPL holds the second largest share, more than 22% in joint venture with partners. PPL has working interest in 24 exploration blocks, of which eight are PPL operated and the other 14, including 4 off-shore are partner operated. Sui and Kandhkot gas fields are two of the major PPL operated fields where PPL PPL has has 100% 100% owne owners rshi hip. p. Sui Sui cate caters rs to abou aboutt oneone-fi fift fth h of the the tota totall gas gas dema demand nd in the the coun countr try. y. In FY06, Sui contributed 67% of total gas sales of the company, higher than FY05. This increase however was due to less than 100% capacity utilization in FY05. Later, the production from this field has declined due to its gradual depletion. As a result, the contribution of the field is likely to decline in the future. In first nine months of FY07, Kandhkot and Sui fields contributed about 80% of the company's total sales. This was due to the unique pricing formula for the two fields. Both, the Sui and Kandhkot are the backbone of PPL. Mazarani and Adhi are other major fields operated by PPL where the company has 87.5% and 39% stakes respectively. Among the partner-operated fields, Miano, Sawan, Tal and Qadirpur are more prominent. The figure above shows the contribution of each field to t he total gas production of PPL. In order to meet the growing energy demands of the country, PPL has enhanced its exploration efforts. This includes includes the acquisition acquisition of new areas and working interests. interests. As various agreements agreements are finalized, finalized, the working interests of the company will increase to 24 areas, 19 onshore and 5 offshore. PPL has the second largest exploration programme in the industry. One of the major oil and gas discoveries since FY02 has been in the  Nashpa block. The Tal block is another major find. Among the activities undertaken during FY07, the Sarang X-1 well in Kot Sarang block was abandoned in the third quarter of FY07 as the dry hole. However, the seismic survey in Hala and Tajpur blocks has been completed. Besides this, activities also took place in PPL non-operated areas. Moreover, initial phase of drilling of the Adhi well was completed in FY06 and development of Sawan-6 and Sawan-10 was also completed. The exploration efforts during FY07 reaped benefits in the form of three discoveries of oil and gas out of 10 exploratory wells drilled during the year. First, an oil discovery of 20.4 mmcfd was made in Tajjal 1 of Gambat block in second half of the current fiscal year. PPL holds 23.68% shares in this joint venture. Besides this, one oil and gas discovery was made at Mela-1 (Nashpa Block) and a gas discovery was made at Latif-1 (Latif Block). Lastly, PPL has recently made a gas condensate discovery in Hala Block at Adam X-1 well in Sindh. A successful drill test system was carried out which flowed at a rate of 1,301 bpd of condensate and 27.4 mmcfd

of gas. PPL has 65% stake in this discovery. The testing for other prospective zones has been completed in this area and encouraging results have been produced. Moreover, testing of one exploratory well drilled in PPL operated Hala Block (Adam X-1) has been completed and the results are encouraging. Another exploratory well in partner operated Tal Block (MamiKhel-1) has also shown encouraging results and is being tested for  potential reservoir In addition, two more exploratory wells ie Qadirpur Deep and Kahi Deep-X1 in Tal Block were suspended for  further evaluation. The remaining three exploratory wells in S.W. Miano II, Tal (Sumari Deep-X1) and Kot Sarang blocks were plugged and abandoned due to discouraging results. In addition to oil and gas discoveries, PPL has completed completed three major expansion expansion projects projects during FY07. These include commissioning commissioning of the second LPG/NGL Plant at Adhi. Following commissioning, the performance test was carried out which has confirmed the design capacity of the plant. The completion of this project has more than doubled the field production capacity. Phase II of the SUL Compre Compressi ssion on at Sui and the revamping revamping of Sui power supply supply system system were the other two major major projec projects ts completed during the year. At the same time, the Kandhkot Wellhead Gas Compression Project has been initiated to maintain the contractual delivery pressure of gas sales while maximizing the reserves recovery. PPL is also evaluating international business opportunities, both for venture exploration as well as acquisition of  developed and undeveloped reserves. The company's efforts in International Exploration have paid off with its successful bid for a block in Yemen in a 50:50 joint venture with OMV as operator. Currently, Product Sharing Agreement (PSA) negotiations are underway with the Government of Yemen for the Block. In addition, a three-member technical/commercial team has visited Morocco, Tunisia and Mauritania for  evaluation of exploration opportunities in these countries. Evaluation of exploration investment opportunities in other North African and Central Asian countries has also started. During FY07 the average oil production grew significantly by 58.2% to 2,830bpd from 1,789bpd in FY06. This growth can be attributed mainly to an improvement improvement in production from Adhi field, field, Tal Block and additional additional production production of 213.2bd from Mela field. The production from Adhi field increased especially after the commissioning of Adhi LPG/NGL Plant II. The FY07 saw a 301.2mmcfd reduction in average gas production from the Sui field, thus depressing gas  production of the company. However, increase in production from Sawan in Nashpa Block, Tal Block and Adhi field, managed to partially offset the decline from Sui. As a result, the total gas production declined by 1.8% to 991 mmcfd in FY07, as compared to 1,009mmcfd in FY06. The sales revenue grew by 21% in FY07 to 38.4  billion. A number of factors contributed to this growth in sales. The higher international crude oil prices during FY07, FY07, togeth together er with with the phased phased price price increa increase se und under er the Sui and Kandhkot Kandhkot Gas Price Price Agreem Agreement ent 2002 contributed to the growth in sales. Moreove Moreover, r, the increa increase se in produc productio tion, n, especi especiall ally y from from the Adhi field, field, Tal Sawan Sawan and commen commencem cement ent of  Extended Extended Well Test Production Production from Mela-1 discovery discovery at Nashpa Nashpa Block, also contributed contributed significan significantly tly to the

sales growth. The growth in sales and production generated an all time high profit figure for PPL in FY07. The  profit after tax for FY07 stood at Rs 16.8 billion, depicting a 25% growth over FY06, the highest among the three market leaders in the E&P sector. Sales revenue increased by 36% in FY06 as compared to FY05. The  phased increase in prices under the Sui and Kandhkot Gas Price Agreement 2002 was prominent factor behind the rising sales and profits. The higher international oil prices backed the trend. The rising gas supplies particularly from the Qadirpur, Tal and Kandhkot fields contributed to higher sales revenue. As a result, profit after taxation increased by a massive 55% in FY06 compared to FY05. The profit margin for PPL continued with its positive trend in the FY06 and FY07. The company soars above the industry with respect to the profit margins. The ROA has shown improvement during FY07 but the ROE has declined nominally. The company has benefited from a 63% growth in other income, one of the highest in the industry. This mainly came from higher financial income from deposits and other sources. Field expenditure increased by 18% in FY06 and 13.4% in FY07 largely due to heightened exploration activities since the company had working interest in 19 blocks in the FY07. The revision in wellhead gas prices of Sui and Kandhkot fields also contributed positively to the company's profitability. PPL has performed well in terms terms of asset asset manage managemen ment, t, exhibi exhibitin ting g a positi positive ve trend trend for invent inventory ory turnov turnover er and DSO. DSO. The company company's 's efficiency in inventory management has resulted in its operating cycle being shorter than the industry average. FY07 saw a further increase in the collection period of receivables for PPL and the trade debts continued to mount. Although high DSO is an industry wide trend in the E&P sector but a reduction in the period will improve the company's efficiency and have a positive impact on the company's financial strength. The total assets turnover  and sales/ sales/equi equity ty have have also also fared fared better better than than the average average indust industry ry for all years, years, once again again depict depicting ing the company's company's strength strength in asset management. The total assets turnover turnover rose slightly slightly in FY06 whereas the sales to equity ratio fell marginally during the same year. This indicates a better utilization of the company's assets than the industry. The liquidity management of PPL has improved greatly since the FY03 as illustrated in the figure. The liquid funds generated from operating activities contributed to the improvement in the ratio. In FY07, the company managed to catch up with and supersede the industry, thus breaking the trend of lower than average current ratio. ratio. During During FY07, FY07, PPL has increa increased sed its its invest investmen ments ts in short short term term instr instrume uments nts,, contrib contributi uting ng to the improvement in current ratio. Additionally, the company as maintained a lower level of inventory than the other major players in the sector. This reflects company's strength in asset management as well as the liquidity of its asset portfolio. The large amount of cash balances and short term investments maintained by the company will also help PPL in financing future exploration activities. EPS has shown a positive trend for the last few years and the high net profit during

FY07 translated into a 25% growth in EPS, bringing it to Rs 24.5 per share. The DPS has shown similar growth as EPS. T he company declared a dividend of Rs 11 per share for FY07.

PPL has shown impressive performance in the third quarter of FY08, both in terms of profitability as well as  production. The Sui and Kandhkot Gas Price Agreement provide the company with an edge over the other   players, and will continue to add to the profitability of the company. The life of its reserves is around 20 years, thus promising a smooth flow of oil and gas for the next couple of decades. Even though the production from one of the backbone fields, Sui, is expected to decline in the future due to its depletion but the company has still  been able to maintain a 100% reserve replacement ratio. However, the company is making efforts to extend the reservoir life and optimize gas recovery of the Sui Upper Limestone (SUL) reservoir. Moreover, the increased production from Tal Block, Adhi, Sawan and Qadirpur blocks is expected to cover up for the decreased production from Sui. The commissioning of the Additional Processing Facilities, Phase II at Adhi has increased the production capacity of the field. This is likely to enhance production of the company in the coming years. PPL has the advantage of holding a good resource base in terms of existing resources. Moreover, the company also enjoys additional reserves potential in some of its existing producing areas like Adhi, Qadir dirpur pur etc. This bodes well for the future production pote otential of the company. In addition, the success rate of PPL exploration activities stands around 25% which is remarkable compared to the 10% international rate. Thus even though, the exploration involves a very high risk of drilling the dry holes, the company's success rate had partially reduced this risk. Furthermore, to revamp its exploration activities, the comp compan any y has has empl employ oyed ed mode modern rn techn technol ology ogy,, incl includi uding ng comput computer er appli applica cati tions ons,, remo remote te sens sensin ing g and and communications techniques and other devices. This will further improve the success rate for the company. The approval of the Petroleum Policy 2007 by the ECC (Economic Coordination Committee) bodes well for the E&P companies, especially those focusing on exploration activities. Being the largest and oldest gas exploration company, PPL therefore, will be one of the major beneficiaries of the policy. Under the petroleum policy 2007, oil oil and and gas gas proc proces esss are are now now inde indexe xed d with with the the refe refere renc ncee crud crudee oil oil pric price, e, equa equall to C&F C&F pric pricee of the the Arabian/Persian Gulf crude oils, with proper adjustments for the quality differential for calculation of crude oil  prices  prices (providing (providing 100% linkage with the internatio international nal prices). The $36 per barrel barrel cap has also been removed. As a result of this, formula, the gas price per unit will grow by a significant 38.5%. Hence the new policy will   provi provide de a positi positive ve change, change, especi especiall ally y to PPL and OGDC, OGDC, the two compani companies es more more aggres aggressi sive ve in their  their  exploration activities. An oil discovery of 20.4 mmcfd was made in the Tajjal-1 of Gambat block in second half  of the current fiscal year. PPL holds 23.68% shares in this joint venture. The discovery is expected to increase PPL's EPS by 0.18 in the coming fiscal year. Besides this, the discovery in the Hala Block where PPL holds 65% share will also augment production in future.

The new gas pricing formula will enable the company to benefit from the international oil and gas pricing tends unlike the former policy whereby they were offered a 30% ROE in addition to costs. Under the new Agreement, the pricing from both fields was to improve semi annually to reach, by 2007, 50% of international oil prices less applicable discounts under the Petroleum Policy 2001. The phased price increases from the Kandhkot and Sui fields, it is believed, will continue to accentuate profits for the company, especially in the face of the rising international crude oil prices. In addition, the government in July 2007 announced new five-year energy policy. The new policy provides a 68% increase in oil and gas production prices on new discoveries the petroleum exploration and development companies would make in future. Secondly, under this policy, gas producers are required to pay 50% of the difference to the government in case the gas is sold to a third party. Previously, the companies could only sell their produce to the government or its entities. However, the existing oil and gas producers will continue to follow the existing policy, hence their rates will remain unchanged. On the other hand, the companies currently under exploration phase or those which have applied for the concession license under the old policy will be allowed to switch to the new policy but would have to offer a  price at 0.2 GPG. Lastly, the producers will also h ave to pay a marine research fee and coastal area development deve lopment fee of $50,000 per year until the first discovery and the amount would double thereafter, until the declaration of  commerciality. The fees would go up during the development phase and reach $500,000 during the production  phase. These developments in the policy will also have significant impact on PPL which is the second largest company in the sector.

CALCULATION OF MARKET CALCULATION MARKET RISK (BETA)

CALCULATION OF BETA FOR PAKISTAN PETROLEUM LTD. JAN 2009 TO DECEMBER 2009 MONTH

DA  Y 

STOCK PRICE

KSE 100 INDEX

 JANUARY 

1

105.65

5751

6

122.29

12

FEB

MAR

APR

MAY 

 JUNE

 JULY 

AUG

SEP

OCT

NOV

DEC

STOCK RETURN (Y)

MARKET RETURN (X)

(X)*(Y)

X²

Y²

6078

15.75

5.69

89.55

32.33

248.07

134.82

6038

10.25

-0.66

-6.74

0.43

104.98

22

139.96

5018

3.81

-16.89

-64.40

285.37

14.54

30

149.37

5367

6.72

6.95

46.76

48.37

45.20

2

142.36

5336

-4.69

-0.58

2.71

0.33

22.02

16

160

5764

12.39

8.02

99.39

64.34

153.54

20

148.34

5961

-7.29

3.42

-24.91

11.68

53.11

27

145.48

5727

-1.93

-3.93

7.57

15.41

3.72

3

141.91

5606

-2.45

-2.11

5.18

4.46

6.02

13

148.92

5750

4.94

2.57

12.69

6.60

24.40

19

168.22

6441

12.96

12.02

155.75

144.42

167.96

31

173.27

6860

3.00

6.51

19.53

42.32

9.01

1

171.05

6948

-1.28

1.28

-1.64

1.65

1.64

10

178.82

7620

4.54

9.67

43.93

93.54

20.63

20

202.68

7902

13.34

3.70

49.38

13.70

178.04

30

171.54

7196

-15.36

-8.93

137.27

79.82

236.06

4

167.47

7061

-2.37

-1.88

4.45

3.52

5.63

12

173.7

7297

3.72

3.34

12.43

11.17

13.84

21

169.22

6969

-2.58

-4.49

11.59

20.21

6.65

29

178.93

7276

5.74

4.41

25.28

19.41

32.93

1

178.67

7198

-0.15

-1.07

0.16

1.15

0.02

10

187.16

7043

4.75

-2.15

-10.23

4.64

22.58

19

186.18

7039

-0.52

-0.06

0.03

0.00

0.27

30

189.54

7169

1.80

1.85

3.33

3.41

3.26

1

191.46

7270

1.01

1.41

1.43

1.98

1.03

13

195.22

7684

1.96

5.69

11.18

32.43

3.86

20

194.25

7703

-0.50

0.25

-0.12

0.06

0.25

31

186.03

7726

-4.23

0.30

-1.26

0.09

17.91

3

186.86

7716

0.45

-0.13

-0.06

0.02

0.20

11

191.77

8056

2.63

4.41

11.58

19.42

6.90

21

191.46

8116

-0.16

0.74

-0.12

0.55

0.03

31

213.07

8675

11.29

6.89

77.74

47.44

127.40

1

209.7

8769

-1.58

1.08

-1.71

1.17

2.50

11

226.72

9053

8.12

3.24

26.29

10.49

65.88

18

194

9436

-14.43

4.23

-61.06

17.90

208.28

30

188.99

9349

-2.58

-0.92

2.38

0.85

6.67

1

187.22

9301

-0.94

-0.51

0.48

0.26

0.88

12

190.26

9642

1.62

3.67

5.95

13.44

2.64

20

184.85

9573

-2.84

-0.72

2.03

0.51

8.09

30

174.56

9151

-5.57

-4.41

24.54

19.43

30.99

2

165.84

8848

-5.00

-3.31

16.54

10.96

24.95

11

172.39

8928

3.95

0.90

3.57

0.82

15.60

20

181.02

9306

5.01

4.23

21.20

17.93

25.06

26

182.36

9206

0.74

-1.07

-0.80

1.15

0.55

1

177.8

9019

-2.50

-2.03

5.08

4.13

6.25

10

177.7

8999

-0.06

-0.22

0.01

0.05

0.00

Expected Return Rs=ᾳ + β(Rm) = (0.67 + 0.66(20.30) = 14.07%

where Rs= Required Return ᾳ = 0.67 β= 0.66 Rm is assumed to be 20.30

CALCULATION OF CAPM Rs

=

Rf + Bs (Rm - Rf)

Where; Rs= Required Return on Pakistan Petroleum Ltd Rf= Risk Free rate of Return which is assumed to be 12.25% Bs= Beta of Pakistan Petroleum stock which was calculated to be 0.66 Rm= Market Rate of Return is assumed to be 20.30

Rs = Rf + Bs (Rm – Rf) Rs = 12.25 + 0.66(20.30 – 12.25) = 17.60 %

RATIO ANALYSIS

RATIO ANALYSIS OF PAKISTAN PETROLEUM LTD.

LIQUIDITY RATIOS

2007

2008

2009

Current Ratio

Current Assets Current Liabilities

4.35

2.79

3.10

Quick Ratio

Quick Assets Current Liabilities

4.16

2.67

2.96

Cash Ratio

Cash Current Liabilities

0.10

0.08

0.09

Fixed Asset Turn Over Ratio

Sales Avg. Net Fixed Assets

2.72

2.48

2.19

Net Working Capital to Total Assets

Net Working Capital Avg. Total Assets

0.56

0.44

0.43

Total Debt Ratio

 Total assets - Total equity Avg. Total Assets

0.22

0.31

0.28

Times interest earned ratio

Earnings before Interest & Tax Interest

494  Times

458  Times

448  Times

LONG TERM SOLVENCY  MEASURES

ASSET MANAGEMENT, OR TUROVER, MEASURES Inventory Turnover

Cost of Goods sold Avg. Inventory

10.07

10.53

11.87

Days sales in inventory

365 days inventory turnover

36

35

31

Receivables Turnover

Sales

4.8

4.11

3

Avg. Accounts receivable Days' sales in receivables

365 days Receivables turnover

76

89

122

ASSET TURNOVER RATIOS Fixed Asset Turn Over Ratio

Sales Avg. Net Fixed Assets

2.72

2.49

2.19

 Total Assets Turnover

Sales Avg Total Assets

0.84

0.82

0.86

PROFITABILITY MEASURES Profit Margin

Net Income Sales

43.68%

43.10%

45%

Return on Assets

Net Income Avg Total assets

36.67%

35.38%

38.49%

Return on equity

Net income  Total Equity

41.82%

45.14%

44%

Basic Earning Power Ratio

Earnings before Interest & Tax Avg Total Assets

0.53

0.54

0.58

 The interpretation interpretation of these calculated Ratios Ra tios is as follows: Liquidity Ratios: Current Ratio:

Current Assets Current Liabilities

2007:

= 4.35

2008:

= 2.79

2009:

= 3.10

This ratio shows that how much current assets a company as against current liabilities. And how efficiently company uses its current assets to generate more profit and higher ratio shows better performance. The latest current ratio of PPL is 3.10 which shows that PPL has current assets of Rs. 3.10 against liabilities of Rs.1. Current Ratio more than 1 is considered good, it means PPL is doing very good.

Quick Ratio:

Quick Assets Current Liabilities

2007:

= 4.16

2008:

= 2.67

2009:

= 2.96

Quick ratio or liquid ratio measures the ability of a company to use its n ear cash or quick assets to immediately extinguish its current liabilities. Quick assets include those current assets that presumably can be quickly converted into cash at close to their book values. Such items are cash, marketable securities and some accounts receivable. This ratio indicates a firm’s capacity to maintain operations as usual with current cash or near cash reserves in bad periods. Quick ratio of  PPL was 4.16 in 2007 then it dropped dropped to 2.67 and now 2.96. Still it is very good and showing good performance performance of the Company.

Cash Ratio:

Cash Current Liabilities

2007:

= 0.10

2008:

= .08

2009:

= .09

The cash ratio ratio measures measures the extent to which a corporation corporation or other entity can quickly liquidate liquidate assets and cover shortterm liabilities, and therefore is of interest to short-term creditors. Cash ratio was 0.10 in 2007,.08 in 2008 and .09 in year  2009. It means PPL has Rs .09 against short term liability of Rs 1

Asset Management: Inventory Turn over Ratio:

Cost Of Goods sold Average inventory 2007:

= 10.07

2008:

= 10.53

2009:

= 11.87

Inventory turnover mean, the number of times the company will completes its operating cycle. Its mean greater the inventory turnover ratio, more will be the operating cycles. Which is favorable for the company’s position and as well as the inventory turn ratio is also increased in the past three years.

Fixed Asset Turn Over Ratio: Sales Net Fixed Assets

2007:

= 2.72

2008:

= 2.48

2009:

= 2.19

This ratio shows that how company is utilizing its fixed assets efficiently for generating sales and higher the ratio better the company performance. PPL’s latest fixed assets turnover ratio is 2.19 which means PPL is utilizing fixed assets of Rs 1 to generate sales of Rs 2.19

Total Asset Turnover Ratio:

Sales Avg. Total Assets 2007:

= 0.84

2008:

= 0.82

2009:

= 0.86

This ratio shows how company is utilizing its total assets efficiently for generating sales and more the ratio better the company’s performance. Total assets turnover ratio of PPL is 0.86 in 2009 which is quite good, means PPL is utilizing Rs 1 Total assets to generate sales of Rs 0.86

Day Sales Outstanding: Receivable turnover Sales A/C Receivable

2007:

= 4.8

2008:

= 4.11

2009:

=3

Receivable turnover means how quickly company’s receivable is converted into cash. It must be higher. The PPL receivable turnover is 3 in 2009 which means it collects its debts 3 times in a year. No. of Days = 365/4.8 = 76 days (2007) = 365/4.11 = 89 days (2008) = 365/3

= 122 days (2009)

It is the debt collection collection period. period. This ratio describes describes that how quickly a company company collect its outstandi outstanding ng receivable. receivable. PPL debt collection period is 122 days in 2009 which means PPL is collecting cash from receivables in 122 days. This ratio is high and PPL should collect its debts earlier in order to maintain performance.

Debt Management: Debt to Total Assets:

Total Debt Total Assets

2007:

= 0.20

2008:

= 0.28

2009:

= 0.24

In the debt to total asset ratio, which shows the comparison of the debt and total assets of the company. In the past few years, it is observed that the debt of the company is decreasing from the previous year in relation to the total assets of the company. This is favorable for company

Times Interest Earned:

EBIT Interest

2007:

=494 times

2008:

= 458 times

2009:

= 448 times

Times interest earned ratio means how many number of times the company is earning its profit over its interest expenses. PPL’s Times interest earned ratio is very high which means it can pay its interest 448 times. Shows that the debt is low compared to the equity.

Profitability Ratios: Profit margin on sale:

Net Profit Sales

*

2007:

= 43.68 %

2008:

= 43.10 %

2009:

= 45 %

100

Net profit ratio refers to a measure of profitability and shows that a company earns how much profit after deducting all expenses. The profit of PPL is 45 % is 2009 and increasing from the previous year. PPL is getting 45% profit on sales after deducting all expenses.

Basic Earning Power Ratio:

EBIT Total Assets

*

10 0

2007:

= 0.53

2008:

= 0.54

2009:

= 0.58

The basic earning power ratio shows that how the total assets of the company affect the profit of the company and it also shows how the earnings are affected by the total assets of the company. Return on Equity: 2007:

= 42 %

2008:

= 45 %

2009:

= 44 %

It is the ratio of net income to total equity. It means PPL has got a return of 44% in 2009 on its total equity. The return on equity in the previous year is averaged 44% which is very good and showing good performance of the company.

Price Earnings Ratio: 2007:

= 12.99

2008:

= 10.36

2009:

= 5.68

The P/E ratio (price-to-earnings ratio ) of a stock (also stock (also called its "P/E", "PER", "earnings multiple," or simply "multiple") is a measure of the price paid for a share relative to the annual net income or  profit  profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio. PPL’s P/E ratio as reduced highly compared to the previous year’s which means now investors are paying less for each unit of net income, showing a healthy sign of the company’s performance.

Dividend Yield: 2007:

= 4.19 %

2008:

= 6.30 %

2009:

= 6.86 %

The dividend yield or the dividend-price dividend-price ratio on a company stock  is the company's annual dividend   payments divided by its market cap, cap, or the dividend per share divided by the price per share. It is often expressed as a percentage. Its reciprocal is the Price/Dividend ratio.PPL has given 6.86% yield per unit in the year 2009. Return on Capital Employed: 2007:

= 57 &

2008:

= 64%

2009:

= 62 %

Return on Capital Employed (ROCE) is used as a measure of the returns that a company is realizing from its capital employed. employed. It is commonly used as a measure for comparing the performance between businesses and for  assessing whether a business generates enough returns to pay for its cost of capital.

PROJECTED FINANCIAL STATEMENTS OF

PAKISTAN PETROLEUM LTD. (FROM 2010-2012)

PROFIT AND LOSS ACCOUNT

PROJECTIONS BEFORE ADJUSTMENT

Net sales Cost of sales Gross profit Other operating Income Other operating expenses Profit before Interest & taxation Finance costs Profit before taxation

Taxation Profit after taxation

2007

2008

2009

(Rs 000)

(Rs 000)

(Rs 000)

38,38 2,645

45,71 6,789

61,58 0,072

13,841,3 67 24,54 1,278

16,210,3 85 29,50 6,404

20,624,4 86 40,95 5,586

2,465,0 22

3,092,1 42

4,149,7 32

2,600,1 06 24,40 6,194 49,4 24 24,35 6,770

2,085,3 67 30,51 3,179 66,6 24 30,44 6,555

3,103,2 70 41,90 8,420 93,6 28 41,90 8,420

7,588,9 96 16,76 7,774

10,739,1 57 19,70 7,398

14,205,6 29 27,70 2,791

2010 (Rs 000) 76,975, 090 25,780, 608 51,194 ,483 5,187,1 65 3,879,0 88 52,502 ,560 93,6 28 52,408 ,932

2011 (Rs 000)

2012 (Rs 000)

96,2 18,863 32,2 25,759

120,27 3,578 40,28 2,199

63,993 ,103

79,991 ,379

6,4 83,956 4,8 48,859 65,6 28,200

8,1 04,945 6,0 61,074

8 65,534 ,572

82,035 ,250 93,62 8 81,941 ,622

18,343, 126

22,937, 100

28,679, 568

34,06 5,806

42,5 97,472

53,2 62,054

93,62

PROFIT AND LOSS ACCOUNT PROJECTIONS AFTER ADJUSTMENT

Net sales Cost of sales Gross profit Other operating Income Other operating expenses Profit before Interest & taxation Finance costs Profit before taxation

Taxation

Profit after taxation

2007

2008

2009

(Rs 000)

(Rs 000)

(Rs 000)

38,382,6 45

45,716,7 89

61,580,0 72

13, 13,841, 841,36 367 7

16,21 6,210, 0,3 385

20,6 20,624 24,,486 486

24,541,2 78

29,506,4 04

40,955,5 86

2,465,022

3,092,142

4,149,732

2,600,106

2,085,367

3,103,270

24,406,1 94

30,513,1 79

41,908,4 20

49,424 24,356,7 70

66,624 30,446,5 55

93,628 41,908,4 20

7,588,9 8,996

10,739 739,157

16,767,7 74

19,707,3 98

2010 (Rs 000) 76,975,0 90 25,780,6 08 51,194,4 83 5,187,16 5 3,879,08 8 52,502,5 60

2011 (Rs 000)

2012 (Rs 000)

96,218, 863 32,225,7 59

120,273, 578 40,282,19 9

63,993,1 03

79,991,37 9

337,748

6,483,95 6 4,848,85 9 65,628, 200 759,934

52,164,8 12

64,868,2 66

80,747,58 3

14,205,629

18,257,6 84

22,703,8 93

28,261,65 4

27,702,7 91

33,907, 128

42,164, 373

52,485,9 29

8,104,945 6,061,074 82,035,25 0

1,287,667

BALANCE SEET PROJECTIONS BEFORE ADJUSTMENT 2007

2008

2009

2010

2011

2012

(Rs 000)

(Rs 000)

(Rs 000)

(Rs 000)

(Rs 000)

(Rs 000)

15,377,148

21,368,020

10,853

11,752

34,970,71 7 9,897

43,713,396 .25 12,371.25

54,641,745. 31 1 5 , 4 6 4 .0 6

68,302,181.6 4 19,330.08

615,000

768,750.00 2,317,916.2 5 3 4 , 4 1 3 .7 5

960,937.50 2,897,395.3 1 4 3 , 0 1 7 .1 9

1,201,171.88 3,621,744.14

46,846,847. 50

58,558,559. 38

73,198,199.2 2

2,924,443.7 5 43,406,037. 50 648,062.50

ASSETS Non-current assets Fixed assets Long-term loans Long-term deposits Long term investment Long-term receivables Deferred Tax Asset

677,384

1,781,469

-

1,854,333 27,531

711,337

-

-

16,776,722

23,161,241

3 7 ,4 7 7 , 4 7 8

53,771.48

-

Current assets 1,474,655

1,604,385

1 , 8 7 1 ,6 4 4

9,002,094

1 3 ,2 2 8 ,4 5 6

27,779,864

34,001

46,506

4 1 4 ,7 6 0

2,339,555.0 0 34,724,830. 00 518,450.00

Short-term prepayments

408,658

698,029

3 1 9 ,9 6 7

3 9 9 ,9 5 8 . 7 5

499,948.44

6 2 4 ,9 3 5 . 5 5

Accrued financial income current maturity of long-term investments current maturity of long-term receivables

116,755

212,877

3 0 8 ,0 0 3

3 8 5 ,0 0 3 . 7 5

481,254.69

6 0 1 ,5 6 8 . 3 6

24,980

3 1 , 2 2 5 .0 0

3 9 , 0 3 1 .2 5

48,789.06

1 9 ,0 2 9

23,786.25

2 9 , 7 3 2 .8 1

37,166.02

155,229.69 20,651,103. 13 2,163,051.5 6 70,997,895 .31 1 2 9 , 5 5 6 ,4 5 5

1 9 4 ,0 3 7 . 1 1 25,813,878.9 1

88,747,369. 14 1 6 1 ,9 4 5 ,5 6 8

Stores and spares Trade debts Loans and advances

231,289

3,655,554.69 54,257,546.8 8 8 1 0 ,0 7 8 . 1 3

21,669

8 ,8 5 8

99,347

21,515,496

20,968,017

1 3 ,2 1 6 , 7 0 6

787,786

1,094,892

1 , 3 8 4 ,3 5 3

50,369,125

37,862,02 0 61,023,261

45,438,65 3 8 2 ,9 1 6 , 1 3 1

1 2 4 ,1 8 3 . 7 5 16,520,882. 50 1,730,441.2 5 56,798,316 .25 103,645,164

Share capital

6,858,376

7,544,200

8,298,606

8,298,606

8 , 2 9 8 ,6 0 6

8,298,606

Reserves

33,239,675

36,110,071

54,759,951

5 4 ,7 5 9 , 9 5 1

54,759,951

5 4 ,7 5 9 , 9 5 1

40,098,051

43,654,271

63,058,557

63,058,557

63,058,557

63,058,557

Other Receivables Short Term Investments Cash and Bank Balances Total current Assets

 TOTAL ASSETS

33,592,403

2,703,814.45

SHARE CAPITAL AND RESERVES

NON CURRENT LIABILITIES Provision for  decommissioning obligation Liabilities against assets subject to finance lease Deferred Liabilities

1,744,823

2,813,374

3 , 9 7 4 ,3 0 7

3,974,307

3 , 9 7 4 ,3 0 7

3,974,307

69,152

77,564

1 0 0 ,1 0 5

1 0 0 ,1 0 5

1 0 0 ,1 0 5

100 , 105

742,059

859,779

9 9 0 ,6 8 5

9 9 0 ,6 8 5

9 9 0 ,6 8 5

990 , 685

5,830

5,830

5,830

5, 830

39,157

138,563

1 3 8 ,5 6 3

1 3 8 ,5 6 3

138 , 563

2,556,034

3,789,874

5,209,490

5,209,490

5,209,490

5,209,490

7,220,468

12,241,943

13,474,434

16,843,042. 50

21,053,803. 13

26,317,253.9 1

231,289

-

50,696

44,795

45,946

45,946

45 , 946

45,946

9 71

971

971

971

1,408,466.2 5 18,298,425 .75

1,760,582.8 1 22,861,302 .94

28,564,899. 42

1 7 ,0 7 8 , 6 9 1

38,427,105

6 5 ,1 1 2 , 6 2 2

103,645,164

1 2 9 , 5 5 6 ,4 5 5

1 6 1 ,9 4 5 ,5 6 8

Deferred Income Deferred taxation

CURRENT LIABILITIES Trade and other payables current maturity of long term liability for gas development surcharge Current maturity of liabilities against assets subject to finance lease Current maturity of deferred income Taxation

212,587

1,292,378

1 , 1 2 6 ,7 7 3

7,715,040

13,579,11 6

14,648,08 4

2,200,728.52

CONTINGENCIES AND COMMITMENTS AFN  TOTAL EQUITY AND LIABILITIES

50,369,125

61,023,261

8 2 ,9 1 6 , 1 3 1

BALANCE SHEET

PROJECTIONS AFTER ADJUSTMENT 2007

2008

2009

2010

2011

2012

(Rs 000)

(Rs 000)

(Rs 000)

(Rs 000)

(Rs 000)

(Rs 000)

21,368,0 20 11 , 752

34,970,7 17 9,897

43,713,39 6.25 12,371.25 768,750.0 0 2,317,916. 25 34,413.75

54,641,74 5.31 1 5 ,4 6 4 . 0 6 960,937.5 0 2,897,395. 31 4 3 ,0 1 7 . 1 9

68,302,18 1.64 19,330.08 1,201,171. 88 3,621,744. 14 53,771.48

46,846,84 7.50

58,558,55 9.38

73,198,19 9.22

2,339,555. 00 34,724,83 0.00 518,450.0 0 399,958.7 5 385,003.7 5 31,225.00

2,924,443. 75 43,406,03 7.50 648,062.5 0 499,948.4 4 481,254.6 9 3 9 ,0 3 1 . 2 5

3,655,554. 69 54,257,54 6.88 810,078.1 3 624,935.5 5 601,568.3 6 48,789.06

23,786.25 124,183.7 5 16,520,88 2.50 1,730,441. 25 56,798,31 6.25 103,645,1 64

29,732.81 155,229.6 9 20,651,10 3.13 2,163,051. 56 70,997,89 5.31 129,556,4 55

3 7 ,1 6 6 .0 2 194,037.1 1 25,813,87 8.91 2,703,814. 45 88,747,36 9.14 161,945,5 68

ASSETS Non-current assets Fixed assets Long-term loans

15,377,148 10,853

615,000

Long-term deposits Long term investment Long-term receivables Deferred Tax Asset

677,384

1,781,469

-

27,531

711,337

-

-

16,776,722

23,161,2 41

37,477,4 78 -

Current assets Stores and spares Trade debts Loans and advances Short-term prepayments Accrued financial income

1,604,38 5 13,228,4 56

1,871,64 4 27,779,8 64

34,001

46 , 506

4 1 4 ,7 6 0

40 8 , 6 5 8

698,029

319,967

11 6 , 7 5 5

212,877

308,003

1,474,655 9,002,094

24,980

current maturity of long-term investments current maturity of long-term receivables Other Receivables Short Term Investments Cash and Bank Balances Total current Assets

 TOTAL ASSETS

1,854,333

23 1 , 2 8 9 21,669 21,515,496 787,786 33,592,40 3 50,369,125

19,029 8,858

99,347

20,968,0 17 1,094,89 2 37,862, 020 61,023,2 61

13,216,7 06 1,384,35 3 45,438, 653 82,916,1 31

SHARE CAPITAL AND RESERVES Share capital

6,858,376

54,759,95 1 63,058,55 7

8,298,606 12,979,80 5 54,759,95 1 76,038,36 2

8 ,2 9 8 , 6 0 6 29,204,60 0 54,759,95 1 92,263,15 7

8,298,606 49,485,59 3 54,759,95 1 112,544,1 50

7,544,200

8,298,606

36,110,07 1 43,654,27 1

Issued new share @ 101 Reserves

33,239,675 40,098,051

NON CURRENT LIABILITIES Provision for decommissioning obligation Liabilities against assets subject to finance lease Deferred Liabilities

1,744,82 3

2,813,374

3,974,307

3 , 9 7 4 ,3 0 7

3 ,9 7 4 , 3 0 7

3,974,307

69,152

7 7 ,5 6 4

100 , 105

100,105

1 0 0 ,1 0 5

100 , 105

742,059

859, 779

990 , 685

9 9 0 ,6 8 5

9 9 0 ,6 8 5

990 , 685

5,830

5,830

5 ,8 3 0

5 , 830

138,563

138,563

1 3 8 ,5 6 3

4,098,886

9 ,2 2 2 , 5 0 5

Deferred Income

2,556,034

3,789,874

5,209,490

9,308,376

14,431,99 5

138 , 563 15,627,02 9 20,836,51 9

7,220,468

12,241,943

13,474,434

16,843,04 2.50

21,053,80 3.13

26,317,25 3.91

current maturity of long term liability for gas development surcharge

231,289

-

Current maturity of liabilities against assets subject to finance lease

50,696

44,795

45,946

45,946

45,946

45,946

9 71

9 71 1,760,582. 81 22,861,30 2.94

971 2,200,728. 52 28,564,89 9.42

129,556,4 55

161,945,5 68

39,157

Deferred taxation Project Debt

CURRENT LIABILITIES Trade and other payables

212,587

1,292,378

1,126,773

7,715,0 40

13,579,1 16

14,648,0 84

971 1,408,466. 25 18,298,42 5.75

50,369,1 25

61,023,26 1

82,916,13 1

103,645,1 64

Current maturity of deferred income Taxation

CONTINGENCIES AND COMMITMENTS

 TOTAL EQUITY AND LIABILITIES

RECOMMENDATIONS Below are some recommendations which justify our investment in securities of the Pakistan Petroleum Ltd. 1. Pakistan Pakistan Petroleum Petroleum Ltd. Ltd. Is the pioneer pioneer of natural natural gas industry industry in Pakistan Pakistan and and is the front line line player player in the Industry, so we recommend investment in Pakistan Pak istan Petroleum Ltd. 2. The last three three years years averaged averaged growth rate rate of the Company Company is 25 % which which means company’ company’ss performance performance in term of profitability, growth and sales is increasing. 3. PPL’s stock stock is considered considered reliable reliable for investo investorr as the stock price price is constantly constantly moving moving upwards upwards in the recent time. 4. PPL had announ announce ced d a divi divide dend nd of Rs 15.50 15.50 per share share in the the year year 2008, 2008, and and in the year year 2009, 2009, the the announced dividend per share is Rs 13.00 which is quite attractive for an investor. 5. Shares of PPL are currently trading in Stock Exchange between 190 and 205 and are continuously moving upward which shows the sign of Investor’s confidence on the company. 6. Pakistan petroleum Ltd is the leader of the market in its industry and thus has a very high demand, so it is worth buying their shares.

7. If we see the Capital Capital structur structuree of PPL, we can see that there there is a very little little portion portion of Debt as compared compared to the Equity of the company, it’s another plus point of PPL. 8. The dividend on the PPL’s shares is attractive and the shares prices are going upward so an investor can earn handsome dividend and capital gain as well.

9. The Market Market risk of the the PPL’s Stock Stock is below 1 i-e 0.66 0.66 which means means it is less risky risky.. It has less deviati deviation on with the market.

Bibliography: The following links were used to obtain all the information about the project on Pakistan Petroleum Ltd.

http://en.wikipedia.org/wiki/Economy_of_Pakistan http://ppl.com.pk http://www.ppl.com.pk/AboutPPL/CompanyInfo/Pages/CompanyOverview.aspx http://www.ppl.com.pk/Repository/AnnualFinancialReport/Annual%20Financial%20Report%202007.pdf  http://www.ppl.com.pk/Repository/AnnualFinancialReport/Annual%20Financial%20Report%202008.pdf  http://www.ppl.com.pk/Repository/AnnualFinancialReport/PPL%20Annual%20Report%202009.pdf  http://www.brecorder.com/index.php?id=943778&currPageNo=1&query=&search=&term=&supDate http://www.kse.com.pk/listing-companies/analysis_report.php?id=3&sid=3.07 http://www.zhvsec.com/kseindex-history.aspx http://www.zhvsec.com/history-symbol-datewise.aspx http://www.pakistaneconomist.com/database2/cover/c2000-45.asp