Corporate results: Gloom over oil industry as ARL, POL earnings plunge

Analysts point to inventory depreciation as reason for disappointing results.

KARACHI:

The fallout of declining global oil prices on petroleum companies in Pakistan became obvious on Wednesday when Attock Refinery Limited (ARL) reported a loss of Rs548.9 million in the quarter that ended on December 31, 2014.

It was the worst second quarter for ARL in any of its past six fiscal years – a result that spooked investors in the oil and gas stocks, which took the entire Karachi Stock Exchange (KSE) down with them.

“We are waiting for the detailed accounts to know for sure what actually contributed to the loss but this was probably the result of inventory loss,” said JS Global Head of Research Atif Zafar.

Inventory loss refers to the depreciation in value of crude oil between the time when refineries book import and actually sell the processed petroleum products.

Industry officials say refiners want to carry minimum oil stocks whenever the price is falling.



But that is easier said than done, says Atif. “It’s not like the inventory can be cleared overnight. Besides, the government now has really pushed companies to carry stock of at least 20 days after the recent fuel crisis.”

A severe shortage of petrol in Punjab that paralysed transport for about a week brought a lot of criticism on oil companies for not maintaining sufficient quantities in their tanks.

Elixir Securities Head of Research Taha Javed said that a relatively better result of National Refinery Limited for the same quarter, announced a day earlier, had raised hopes of the investors.

On Tuesday, National Refinery Limited – also part of Attock Group – posted a profit of Rs788 million, a significant improvement over the loss of Rs172 million it incurred in the same quarter a year ago. The gain has been attributed to its high-margin lubricant business.

“Then ARL’s results panicked everyone,” he said, adding that he also feels the loss is due to inventory loss. Other petroleum companies including heavyweights Oil and Gas Development Company, Pakistan Petroleum Limited and Pakistan State Oil will be announcing results in coming days.

“October-December 2014 is not going to be good,” he said. ARL share was down 5.2% to Rs206.83 by the end of trading at the KSE.

POL – the first of heavyweights to go down

Pakistan Oilfields Limited (POL), the key earner for the Attock Group that has been churning out impressive results year after year, also had a terrible quarter.

Its net profit was down 64.2% to Rs1.18 billion compared to the same period a year ago as locally produced oil and gas are benchmarked to international crude.

The board of directors still announced a cash dividend of Rs15 per share. POL share was down 0.6% to Rs373.51. The result also showed that the government will see less of taxes it raised from oil and gas producers. POL’s royalty payments were down 27.8% to Rs642 million.

Published in The Express Tribune, January 29^th,  2015.

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