Oil and gas: Sector outperforms stock market by 19%

Despite circular debt crisis
, exploration and production segment surpasses KSE-100 index by 25% with return 51%.

The oil and gas sector posted a handsome return of 45 per cent, including dividends, during the outgoing year. The sector outperformed the benchmark 100-share index at the Karachi Stock Exchange (KSE) by 19 per cent on the back of rising foreign interest and volume-led growth in earnings, according to a research report prepared by Topline Securities.

Within the oil and gas sector, the exploration and production (E&P) segment surpassed the KSE-100 index by 25 per cent with return of 51 per cent – despite the circular debt crisis. The E&P sector comprises two state-owned companies and two private ones.

The Oil and Gas Development Company Limited (OGDCL), with a 25 per cent weight in the index, posted a 57 per cent return in the outgoing year.

This is primarily due to record foreign flows in the stock market in 2010 and OGDCL with the highest float and compelling valuation regionally attracted foreign interest.

“We believe every third share which foreigners owned in the year was of OGDCL,” asserted Farhan Mahmood from Topline.

On the other hand, the three listed oil marketing companies (OMCs) on the KSE-100 index and four refineries underperformed posting returns of five per cent and 23 per cent, respectively.

“This is primarily due to the higher turnover tax that posed concerns on future earnings of both OMCs and refineries which the government withdrew towards the end of the year,” explained Mahmood. Moreover, frequent changes in the oil pricing mechanism remained a major issue which restricted investors from taking positions in these scrips.

National Refinery Limited, being least affected from circular debt and with lower risk to change in regulated oil pricing, posted the highest return of 63 per cent in the oil and gas sector. Meanwhile, Pakistan Refinery and Attock Refinery both remained the worst performers due to negative fuel margins.

Of the 12 listed oil and gas firms, Shell Gas LPG is not included in KSE-100 index and hence excluded from the sector-return comparison.

Oil and gas sector returns

Companies Return (percentage)

National Refinery 63

Oil and Gas Development Company 57

Pakistan Petroleum  41

Pakistan Oilfields 37

Attock Petroleum      23

Byco Petroleum Pakistan   17

Pakistan State Oil 1

Shell Pakistan -6

Mari Gas Company   -8

Pakistan Refinery -10

Attock Refinery    -11



Sector         45

KSE-100 Index 26

Source: Topline Research

Published in The Express Tribune, December  31^st, 2010.