1. 1
We reini ate coverage on the Oil & Gas sector and strongly encourage por olio realignment towards
this space from a long term perspec ve where valua ons are undemanding. While we are not over-
looking the poten al of weakness in share price performance caused by nega ve oil headwinds, the
upstream sector (E&P) is overly discounted, in our view. In this regard, sharp decline in oil prices and
consequent subdued earnings growth outlook (2%YoY in FY16E with an avg. oil price assump on of
US$50/bbl) has opened up valua ons where our oil price simula on suggests that the upstream sec-
tor is currently trading at an implied oil price of US$16-18/bbl, an unjus fied steep discount of 58-63%
to prevailing Arab Light price. Catalysts spurring share price performance in the medium to long term
emanate from swi e ups of recent discoveries along with aggressive explora on as law & order
improves in high impact areas. The Oil & Gas sector (upstream and downstream) also offers one of the
highest dividend yields (FY16F D/Y avg. 6.5%) amongst regional peers. From a 12m+ investment hori-
zon, we like PPL (TP of PkR194/sh), POL (TP of PkR423/sh) and OGDC (TP of PkR175/sh) in the up-
stream sector while PSO (TP of PkR457/sh), HASCOL (TP of PkR152/sh - Ex bonus) and APL (TP of
PkR620/sh) make the cut in downstream (value enhancers include improving cash flow profile and
unique inventory management). Addi onally, immediate diversifica on benefits (low beta, low corre-
la on, US$ based topline) makes the Oil & Gas sector an essen al (track index weight) to counter
market vola lity, in our view.
PPL: Pakistan Petroleum Limited (PPL) with a Jun’16 target price of PkR194/sh offers an upside of 43%
from current price level. Similar to its peers, PPL underperformed the broader market by 30.5% during
FY15 on the back of steep 30% decline in the interna onal oil prices in FY15. Backed by incremental
produc on (from Gambat South block), the company is es mated to post earnings growth of 9%YoY in
FY16E. Presently trading at a FY16E P/E of 7.2x, we have a Buy stance on PPL. Buy!
POL: Pakistan Oilfields Limited (POL) with a NAV based Jun’16 target price of PkR423/sh provides an
upside of 25% from current price level. The scrip trades at an FY16E P/E of 8.8x and offers a 1yr E/Y of
11.4% backed by 8%YoY growth in FY16E earnings. Going forward, we es mate POL’s earnings to post a
3yr CAGR (FY15A‐18F) of 14% backed by incremental produc on coming from non‐operated JVs
(predominantly Tal block) and aided by addi onal flows from Mardan Khel and Makori East 04. Buy!
OGDC: We reini ate ac ve coverage on Oil & Gas Development Company Limited (OGDC) with a NAV
based Jun’16 target price of PkR175/share, offering a 28% upside from current market price. Though we
es mate a subdued 3yr forward earnings CAGR of ~4% during FY15A‐FY18F, a sharp fall in market capi‐
taliza on (down 33.4%CY15TD) has deviated valua ons rela ve to fundamentals that imply stable earn‐
ings. Buy!
PSO: Pakistan State Oil (PSO) with a Jun’16 DCF based target price of PkR457/sh offers a poten al upside
of 36% from current price level. With oil prices likely to move in a band of US$40/bbl ‐ US$50/bbl, we
believe the worse is over for PSO and forecast the stock to post a 3yr forward (FY16E—19F) earnings
CAGR growth of 13%, backed by an avg. 3% per annum increase in the company’s volumes coupled with
rela vely lower inventory losses, suppor ng a stronger core earnings base. Buy!
HASCOL: HASCOL provides an upside of 27% against our Jun’16 DCF based target price of PkR152/sh (ex
bonus). Our bullish outlook on HASCOL is underpinned by a 3yr earnings CAGR of 26% during CY15E‐
CY18F. Proac ve inventory management model that HASCOL has adopted is likely to reap further bene‐
fits for the company going forward. The scrip currently trades at a CY16E P/E of 9.4x and offers a D/Y of
5%. Buy!
APL: A ock Petroleum Limited (APL) provides an upside poten al of 17% against our DCF based target
price of PkR620/sh. The scrip, offering an FY16E D/Y of 8%, remains one of the highest yielding compa‐
nies at the KSE‐100 Index. Being a major asphalt player in the industry, the company is poised to benefit
from the construc on of highways/motorways earmarked under the Chinese Pakistan Economic Corri‐
dor (CPEC). Accumulate!
Valua ons are Heavily Discounted!
Asad I. Siddiqui
Senior Investment Analyst
Asad.Siddiqui@akdsecuri es.net
September 2, 2015 AKD Equity Research / Pakistan
Important Disclosure: Important disclosures including investment banking rela onships and analyst cer fica on at end of this report. AKD Securi es does and seeks to do business with companies covered in its
research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objec vity of the report. Investors should consider this report as only a single factor in
making their investment decision.
AKD Securi es
Member: Karachi Stock Exchange
Find AKD research on Bloomberg
(AKDS<GO>), firstcall.com
and Reuters Knowledge
Exchange
Copyright©2015 AKD Securi es Limited. All rights reserved. The informa on provided on this document is not intended for
distribu on to, or use by, any person or en ty in any jurisdic on or country where such distribu on or use would be contrary
to law or regula on or which would subject AKD Securi es or its affiliates to any registra on requirement within such
jurisdic on or country. Neither the informa on, nor any opinion contained in this document cons tutes a solicita on or offer
by AKD Securi es or its affiliates to buy or sell any securi es or provide any investment advice or service. AKD Securi es does
not warrant the accuracy of the informa on provided herein.
www.akdsecuri es.net
Bluetop
Pakistan Oil & Gas
Pricedon August 28,2015
KSE-100Index
34,447pts
KSEMarketCap
PkR7,459bn(US$74,612mn)
KSE-100(52WeekRange):
High: 36,228.88pts
Low: 27,774.43pts
12MKSE100-Avg.TradedValue
PkR 14,927.71mn (US$147.79mn)
12MKSE100-Avg.Volumes
286.34mn shares
0
115
230
345
460
575
690
805
920
Aug‐14
Nov‐14
Jan‐15
Mar‐15
Jun‐15
Aug‐15
(share mn) (Index)
27,000
28,000
29,000
30,000
31,000
32,000
33,000
34,000
35,000
36,000
Volume (LHS) KSE‐100 Index
Symbol Price TargetPrice Stance
PPL 135.5 194.0 Buy
POL 337.9 423.0 Buy
OGDC 137.01 175.0 Buy
PSO 335.8 457.0 Buy
HASCOL 143.5 152.0* Buy
APL 529.8 620.0 Accumulate
AKD Universe-OilSectorRecommendations
*Ex‐Bonus

2. 2
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
TheWorldwithoilatUS$40-50/bbl 3‐5
PakistanE&PSector:Growthrelianton fiscalterms 6‐9
PakistanOMCs:Improvingfundamentals 10‐11
Oil&GasExplorationCompanies(upstream) 12
PPL: Moving from Passive to Active 13‐21
POL: Piggybacking on JV Success 22‐29
OGDC: Exploring New Avenues 30‐38
OilMarketingCompanies(downstream) 39
PSO: Strong Core Earnings Base 40‐45
HASCOL: Continuing Organic Growth! 46‐51
APL: Reaping Benefits of Integration 52‐57
Annexure 58
Disclaimer 59
Page No.
Contents

3. 3
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
TheWorldwithoilatUS$40-50/bbl
OPEC and non-OPEC producers are faced with hard choices as interna onal oil prices head
towards levels last seen in 2008-2009, during the global financial crisis. On the supply side,
sharply lower oil prices are also not discouraging global produc on as supply from explor-
ers remains stable while both inventories (up 8%YoY) and domes c produc on (up 10%
YoY) are rela vely higher in the US. Li ing of sanc ons on Iran (con ngent upon a success-
ful nuclear deal with the P5+1 bloc) crystalizes oversupply concerns (already oversupplied
by ~2mn bopd) in the near to medium term, materially weakening the pricing power of
KSA and its allies (Qatar, Kuwait, UAE). Recall, Iran’s market share was around 20% during
the mid-1970s (before the Iranian revolu on) against its current market share of sub 4%.
The demand side of the equa on does not look promising either as global demand is s ll
anemic while a near zero interest rate environment spurs investment in alternate energy
and conven onal energy projects. We believe days of US$100/bbl oil are a thing of the
past as mul ple factors such as: 1) sluggish oil demand from China and EU, 2) heightened
US oil produc on and 3) oversupply concerns emana ng from Iran are likely to keep oil
prices in the range of US$40-50/bbl in the medium term.
OPEC produc on near historically high levels: In FY15, OPEC pumped an avg. 32.6mn bopd
of crude in the interna onal market (only 1% lower against an avg. 33.1mn bopd sold during
FY12). However, the main difference between both mes remains the direc on of the com‐
modity’s global supply. During FY12, global crude oil supply demand gap was at 0.1mn bopd
which has now widened to 2.1mn bopd. Despite the new opera ng environment, the oil
cartel is likely to con nue pumping above +30.0mn bopd into the market, in our view (next
OPEC mee ng is scheduled in Dec’15). In this regard, Kingdom of Saudi Arabia (KSA), the
largest OPEC member, has con nued to pump 9.7mn bopd on average into the market since
July’14 with an aim to preserve its market share.
Saudi Arabia’s OPEC market share over the period of me
Source: EIA
0%
10%
20%
30%
40%
50%
60%
Apr‐73
Jan‐75
Oct‐76
Jul‐78
Apr‐80
Jan‐82
Oct‐83
Jul‐85
Apr‐87
Jan‐89
Oct‐90
Jul‐92
Apr‐94
Jan‐96
Oct‐97
Jul‐99
Apr‐01
Jan‐03
Oct‐04
Jul‐06
Apr‐08
Jan‐10
Oct‐11
Jul‐13
Apr‐15
Iran Iraq KSA
IranianRevolution
(1978-1980)
IranIraqWar
(1980-1988)
Iraqlostoper.Badr
(1985)
IraqKuwaitWar
(1990-1991)
InvasionIraq byUS
(2003-2011)
EUembargoIran
(2012-2015)
US Inventory vs. Produc on and Imports
Source: EIA
‐
200
400
600
800
1,000
1,200
1,400
Jan‐1970
Nov‐1972
Sep‐1975
Jul‐1978
May‐1981
Mar‐1984
Jan‐1987
Nov‐1989
Sep‐1992
Jul‐1995
May‐1998
Mar‐2001
Jan‐2004
Nov‐2006
Sep‐2009
Jul‐2012
May‐2015
‐
50
100
150
200
250
300
350
Inventory (mnbbl.) (LHS) Production (mnbbl.) Imports (mnbbl.)
OPEC Produc on levels
Source: EIA
10,000
15,000
20,000
25,000
30,000
35,000
40,000
1‐Jan‐73
1‐Nov‐75
1‐Sep‐78
1‐Jul‐81
1‐May‐84
1‐Mar‐87
1‐Jan‐90
1‐Nov‐92
1‐Sep‐95
1‐Jul‐98
1‐May‐01
1‐Mar‐04
1‐Jan‐07
1‐Nov‐09
1‐Sep‐12
1‐Jul‐15

4. 4
AKD Securi es Limited
September 2, 2015
Don’t mix decline in rig counts with produc on decline: While pace of US oil imports have
tapered off (up 1.1%YoY as of May’15), domes c US oil produc on (including shale concerns)
has stepped up (up 10%YoY as of May’15) to keep oil inventories (up 8%YoY as of May’15)
healthy as advancements in technology (hydraulic fracturing and horizontal drilling) has kept
drilling economically feasible despite lower oil prices. As per latest EIA sta s cs, number of
rigs (579) employed by shale drillers in the US is at a 69 month low in Jul’15 (down 54%YoY)
vs. 1,268 rigs employed in Jul’14. Despite lower rig counts, the US shale oil produc on has
jumped ~16%YoY to 5.58mn bopd vs. 4.81mn bopd back in Jul’14. Upon looking at the incre‐
mental produc on each new well is bringing in, new well oil produc on per rig has also in‐
creased by 44%YoY in Jul’15 to 2.6k bopd (vs. 1.8k bopd in Jul’14) as the oil service industry
con nues to employ more efficient fracturing and lateral drilling technologies. Addi onally,
EIA projects per well shale output to register a growth of 3.4%MoM in Aug’15 and another
2.3%MoM in Sep’15 to 2.7k bopd sequen ally on MoM basis.
Oil in oversold territory? Interna onal oil price (Arab Light) has lost 54% in the past one year
(down 29% from its CY15TD peak) in the backdrop of an anemic demand outlook in an over‐
supply environment. Sta s cally speaking, the sharp vola lity in oil prices (refer to the chart
below) can be expected to con nue in the near term as Arab Light is again headed towards
our Bollinger lower band (‐2 standard devia on; 1 year moving average). The chart below
also implies that vola lity increases (band expands) when the price touches and rides the
bands (+2/‐2 standard devia ons). Addi onally, analyzing the historical distribu on of daily
year on year movement in oil prices (Arab Light) since 1984 indicates Arab Light price to yield
–ve 5%‐0% in the next one year with an event probability of 9.56% (the highest in the proba‐
bility distribu on). Moreover, historical distribu on of the past 40 years suggests a 55%
probability of a period gain (45% probability of period loss) with expecta on of a period gain
Bluetop - Pakistan Oil & Gas
US historical shale rig count and per well produc on (k Bopd)
Source: EIA
‐
200
400
600
800
1,000
1,200
1,400
Jan‐07
Apr‐07
Jul‐07
Oct‐07
Jan‐08
Apr‐08
Jul‐08
Oct‐08
Jan‐09
Apr‐09
Jul‐09
Oct‐09
Jan‐10
Apr‐10
Jul‐10
Oct‐10
Jan‐11
Apr‐11
Jul‐11
Oct‐11
Jan‐12
Apr‐12
Jul‐12
Oct‐12
Jan‐13
Apr‐13
Jul‐13
Oct‐13
Jan‐14
Apr‐14
Jul‐14
Oct‐14
Jan‐15
Apr‐15
Jul‐15
‐
500
1,000
1,500
2,000
2,500
3,000
Rig count (LHS) Production per rig (bopd)
SWF OPEC Member countries
Source: SWF Ins tute
1,215
882
677
592
256
182 157
66 62 50 40 37
(150)
50
250
450
650
850
1,050
1,250
UAE
Norway
KSA
Kuwait
Qatar
Russia
Kazakhstan
Libya
Iran
Algeria
Brunei
Azerbaijan
(US$bn)
Interna onal Oil Price (Arab Light) - Bollinger Chart
Source: AKD Research
0
25
50
75
100
125
150
175
Aug‐01
Feb‐02
Aug‐02
Jan‐03
Jul‐03
Jan‐04
Jun‐04
Dec‐04
Jun‐05
Nov‐05
May‐06
Nov‐06
May‐07
Oct‐07
Apr‐08
Oct‐08
Mar‐09
Sep‐09
Mar‐10
Sep‐10
Feb‐11
Aug‐11
Jan‐12
Jul‐12
Jan‐13
Jul‐13
Dec‐13
Jun‐14
Dec‐14
Jun‐15
ARAB LIGHT (US$/BBL) 1YrMovAvg +2Std_Dev ‐2Std_Dev

5. 5
of 14% and expecta on of a period loss of –ve 7% (avg. oil price). However, while history is
skewed in favor of a period gain, a high standard devia on of 26% of our sample period re‐
turns and the prevailing oversupply environment leads us to believe that oil prices are likely
to trade in the range of US$40‐50/bbl in the medium term (39%/29% lower compared to its
one year moving average).
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
Probability distribu on of oil price movement (Arab Light)
Source: AKD Research
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
‐75%/‐70%
‐65%/‐60%
‐55%/‐50%
‐45%/‐40%
‐35%/‐30%
‐25%/‐20%
‐15%/‐10%
‐5%/0%
5%/10%
15%/20%
25%/30%
35%/40%
45%/50%
55%/60%
65%/70%
75%/80%
85%/90%
95%/100%
105%/110%
115%/120%
125%/130%
135%/140%
145%/150%
155%/160%
165%/170%
175%/180%
185%/190%
0.0%
20.0%
40.0%
60.0%
80.0%
100.0%
120.0%
Event Probability (lhs) Cumulative Probability

6. 6
AKD Securi es Limited
September 2, 2015
PakistanE&PSector:Growthrelianton fiscalterms
Heavily reliant on natural gas for its energy requirements, the pace of new discoveries has
not kept up with demand/consump on in Pakistan, resul ng in deple on of reserves. Em-
pirically, the average reserve replacement ra o (RRR) has come off from 100%+ during
1980-99 to 36% during 2010-14. While the security situa on can be cited as a major reason
for not tapping high impact areas, we believe that weak fiscal frameworks through succes-
sive petroleum policies (with the excep on of the 1994 policy) have failed to adequately
compensate companies from a risk-return perspec ve. Consequently, many foreign drillers
have overlooked/exited Pakistan for other developing countries.
Pakistan E&P Sector through the sands of me: The upstream sector has witnessed many
policy level (economic, commercial) fluctua ons in the last many decades. During the 1950s‐
mid 80s, a cost plus ROE formula determined gas well‐head prices (under Pakistan Petroleum
(Produc on) Rules, 1949) which was not market reflec ve. From mid‐1980s to 1993, fiscal
terms for the sector (more specifically through Petroleum Policies (PP) of 1991/93) improved
by determining well head gas prices by applying different percentages to energy equivalent
of HSFO. Through PP 1994, the economic terms of the sector were overhauled by linking
prices with a crude basket (free cap), less zonal discounts. Following PP 1994, while gas price
linkage to oil benchmark was con nued, the reference crude price was capped at US$36/bbl
(floor of US$10/bbl) in PP 2001, inferring that well‐head gas prices could not exceed
US$2.84/mmbtu. With oil prices hovering around the ceiling level up to 2005, the policy
seemed a step in the right direc on. However, post 2005, at the me when oil prices made
way towards US$70/bbl (in mid‐2006), economic flaws of the PP 2001 started to emerge.
Through PP 2007, the cap was increased to US$45/bbl (note that oil prices reached US$140/
bbl by mid‐2008, dilu ng the impact of higher interna onal oil prices for local E&P players).
The cap was subsequently raised to US$100/bbl in PP 2009, however, the pricing framework
restricted gas well‐head prices rising above US$4.6/mmbtu. Realizing that gas pricing in Paki‐
stan needed another overhaul in order to introduce a more economically favorable frame‐
work for E&P companies rela ve to opportuni es in other developing countries, the GoP
introduced PP 2012 in which a maximum gas price of US$6.0/mmbtu was provided. The in‐
Bluetop - Pakistan Oil & Gas
Sindh
D&P Leases 117.0
D&P Area (Sq.km) 8,766.12
D&P Leases % 74%
D&P Area % 69%
KeyGasFields:
RecoverableReserves(bcf)
MARI 2,250
KANDRA 1,858
QADIRPUR 1,289
MARI DEEP 1,104
KANDHKOT 575
Balochistan
D&P Leases 9.0
D&P Area (Sq.km) 1192.67
D&P Leases % 6%
D&P Area % 9%
KeyGasFields:
RecoverableReserves(bcf)
SUI 2,233
UCH 1,742 KPK
D&P Leases 6.0
D&P Area (Sq.km) 744.35
D&P Leases % 4%
D&P Area % 6%
KeyOilFields:
RecoverableReserves(mnbbl)
NASHPA 152
MAKORI EAST 35 Punjab
D&P Leases 26.0
D&P Area (Sq.km) 1,739.23
D&P Leases % 16%
D&P Area % 14%
KeyOilFields:
RecoverableReserves(mnbbl)
ADHI (Cond.) 33.95
DHODAK (Cond.) 8.43
Sector’s reserve replacement history
Source: PPIS & AKD Research
Years
Reserves
Addition
(mmboe)
Production
(MMboe) RRR
1980‐84 273 294 93%
1985‐89 708 380 186%
1990‐94 1,382 562 246%
1995‐99 1,247 714 175%
2000‐04 206 948 22%
2005‐09 890 1,358 66%
2010‐14 519 1,446 36%
0
50
100
150
200
250
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
Target
Actual
FY01 FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15
Exploratory Development Total

7. 7
Historical Henry Hub Gas Prices vs. Policy Prices
Source: Bloomberg & AKD Research
AKD Securi es Limited
September 2, 2015
efficacy of 2001 Petroleum Policy became clear as fiscal terms within the policy began to trail
the rise in global oil and gas prices. As a proxy Henry Hub gas prices were at an average 106%
premium to producer prices in Pakistan. This not only limited explora on but also limited the
introduc on of technology and advanced drilling techniques to improve recoverable re‐
serves. During the same period several global players also exited onshore Pakistan where
capped fiscal terms fell short of covering normal explora on and country specific risk.
Energy mix still in favor of gas: With hydrocarbon produc on profile being lted towards
gas, Pakistan’s gas produc on over the course of the last 20 years has nearly doubled to
~4.2BCFD in FY12 from ~2.1BCFD in FY94. However, the country’s gas produc on has been
declining over the past two years where it was recorded at 4.0BCFD in FY15, down 2.3%YoY.
Conversely, Pakistan’s oil produc on touched 99k bopd mark in FY15 (averaging 95.8k bopd
in FY15, up 11%YoY) due to development programs to mone ze one of the country’s biggest
oil reservoir, Tal Block. Going forward, we expect oil produc on in the country to clock in at
107kbopd with incremental produc on coming in from development projects that are in the
pipeline by FY18. In this regard, developments on KPD‐TAY, Tal, Sinjhoro along with Nashpa
and Mela fields are likely to lead to produc on ramp up. At the same me, it is believed that
the country will add 0.4BCFD gas to the current produc on of 4.0BCFD, which is assumed to
be achieved by incremental flows from Gambat South and Uch‐II.
Revenues have higher gas par cipa on as well: Despite enhanced oil produc on raising
expecta ons towards a gradual shi in the sector’s revenue mix in favor of oil, the sharp
decline in interna onal oil prices has diluted the impact of higher oil produc on where oil
revenues of the sector are expected to remain muted at current levels. That being said, on
an energy equivalent basis, one mmbtu oil is s ll 2.0x more valuable than one mmbtu of gas
due to be er pricing of the former. Going forward, e ups of produc on from Tal Block
(Maramzai, Makori East and Mardan Khel), KPD & TAY integrated development project,
Sinjhoro, UCH‐II development project, Jhal Magsi development project and Nashpa/Mela
LPG plant project are likely to bolster the country’s oil produc on by 12% or by 11.5k bopd
by FY18F.
Earning’s growth to remain subdued across FY15A-FY18F: Pakistan’s E&P space is es mated
to clock tepid earnings growth of 2%YoY in FY16E due to a rela vely lower oil price outlook
(avg. oil price assump on of US$50/bbl). Similarly, the 3yr forward earnings of the sector are
forecasted to stay subdued, growing at a CAGR of 5% during FY15A‐FY18F.
E&P sector earnings growth sensi vity to oil price:
Bluetop - Pakistan Oil & Gas
Project ExpectedProduction
KPD‐TAY
Gas 125mmcfd, Oil 4,100bopd, LPG
410TPD
Sinjhoro
Gas 25mmcfd, Oil 1,600bopd, LPG
120TPD
Uch‐II Gas 160mmcfd
Nashpa/
Mela
Gas 10mmcfd, Oil 1,120bopd, LPG
340TPD
Gambat
South
Gas 162mmcfd, Oil 5,251bopd
Exploration Wells (TD) 936
Appraisal/Dev. Wells (TD) 1,253
Total 2,189
TotalDiscoveries: 318
Oil 71
Oil & Gas/Gas/Gas Cond. 247
OverAllSuccessRate 1:2.9
ActiveLeases 160
NumberOfOperators 30 (12local)
UpstreamOil&GasSector:
Sector FY16 FY17 FY18 3yr CAGR
US$30/bbl ‐13% 12% 3% 0%
US$35/bbl ‐9% 12% 3% 1%
US$40/bbl ‐5% 12% 3% 3%
Base Case (US$50/bbl) 2% 12% 3% 5%
US$60/bbl 10% 12% 3% 8%
US$65/bbl 13% 12% 3% 9%
US$70/bbl 17% 12% 3% 10%
‐
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
10.0
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
Henry Hub Policy Prices
Source: AKD Research
US$/mmbtu

8. 8
AKD Securi es Limited
September 2, 2015
Low btu gas policy yet to weigh in! With gas demand exceeding supply and no incen ves
available for explorers to venture into either low btu or ght gas extrac on, the GoP an‐
nounced a low btu gas pricing policy in 2012. This move by the GoP was aimed to provide
local and interna onal E&P companies with incen ves that would further invigorate their
explora on ac vi es and would lead to increase in overall gas produc on coming in from
low btu fields. As per the US EIA sta s cs, Pakistan has low btu gas reserves of 2.0 TCF while
ght gas reserves stand at 40.0 TCF. This is believed to add another dimension to the focus of
E&P companies working in Pakistan mainly due to rela vely a rac ve pricing provided by
the GoP. In this regard, low btu gas policy entails a base price of US$6 per mmbtu for fields
producing gas at a heat rate of 450 btu and pricing is formulated to increase by US$0.01 for
every one btu decrease in the hea ng rate of gas with price capped at US$8.75 per mmbtu.
This price cap is 46% higher than the price offered as per the latest policy for conven onal
gas. As for shale/ ght gas (a separate policy is s ll being considered), the GoP has extended
gas prices as per the 2009 policy with a 40% premium. While framework of these policies is
present, the same has not been implemented in spirit (due to administra ve hindrances) and
has kept the E&P companies from unlocking the poten al of low btu and shale gas.
Insulated from macro-economic and poli cal shocks! Macro‐economic shocks such as in‐
crease in average infla on or an abrupt hike in the policy rate might be a cause of concern
for majority of industries but are non‐events for the Pakistan E&P Sector. The sector is guard‐
ed against macro‐economic shocks as costs are dependent on global oil & gas dynamics,
while an unleveraged balance sheet makes the sector immune to interest rate changes. In
addi on to this, the sector provides the best hedge against the PkR vs. US$ deprecia on as
its revenues (either directly or indirectly) are US$ denominated. In a country like Pakistan
which is dependent on imported oil, the E&P sector should con nue to receive more incen‐
ves as the GoP tries to lessen its dependency on imported energy resources. This also insu‐
lates investors from any poli cal shocks that otherwise may adversely affect the investment
environment. With import of hydrocarbons responsible for more than one‐third of Pakistan’s
import bill, the GoP’s stance on the policy front should remain posi ve, in our view.
Baluchistan, so far forgo en, but an ace up the sleeve! Baluchistan has produced major
discoveries like Sui, Uch and Pirkoh in the 1950s and at present has ~15% share in the coun‐
try’s cumula ve gas produc on. Despite an average discovery size of 445mmboe (vs.
~29mmboe Pakistan average), Baluchistan remains one of the least explored areas of Paki‐
stan, which is further evident by its low explora on density. The province has significantly
Bluetop - Pakistan Oil & Gas
Source: PPIS & AKD Research
Firstconflict1958–59
 Nawab Nowroz Khan started a guerrilla war
against Pakistan, and were arrested, charged
with treason.
-Secondconflict1963–69
 Sher Muhammad Bijrani Marri led like‐minded
militants into guerrilla warfare by creating their
own insurgent bases, with a goal to force
Pakistan to share revenue generated from
the Sui gas fields with the tribal leaders. The
insurgents bombed railway tracks and am‐
bushed convoys.
-Thirdconflict1973–77
 The unrest continued into the 1970s, culminat‐
ing in a government‐ordered military opera‐
tion in the region in 1973.
Fourthconflict2004–todate
 On 15 December 2005 the inspector general of
the Frontier Corps, Major General Shujaat
Zamir Dar, and his deputy Brigadier Salim
Nawaz (the current IGFC) were wounded after
shots were fired at their helicopter in Balochi‐
stan Province.
 In August 2006, Nawab Akbar Khan Bugti, 79
years old, was killed in fighting with the Paki‐
stan Army, in which at least 60 Pakistani sol‐
diers and 7 officers were also killed.
BaluchistanSecurityTimeline

9. 9
Source: Data Stream & AKD Research
AKD Securi es Limited
September 2, 2015
lower drilling density (1 exploratory well per 6500 sq.km) in comparison to the Pakistan’s
drilling density of 1 well (exploratory) per 850 sq.km despite having 33% explora on acreage
allocated within it (that translates into 59 blocks out of total 177 blocks offered). This is
mainly due to an outstanding security situa on that has historically deterred explora on
ac vi es and kept explora on licenses under force‐majeure, in our view.
The Poten al! Current producing fields in the Baluchistan province (Sui, Pirkoh, Uch and Lo )
have SML (Sui Main Limestone), HRL (Habib Rahi Limestone), Ranikot and Pab produc on
forma ons. These forma ons belong to late Cretaceous to Eocene age as per the geologic
mescale, indica ng that the age of explored parts of Baluchistan is from 50 to 100 million
years. With majority of top 15 largest gas fields in the world belonging to late Cretaceous to
Eocene age, we are confident that there is a strong likelihood that immense untapped hydro‐
carbon poten al is s ll present in Baluchistan.
The hurdle between the poten al and its realiza on: Security has also been a major stum‐
bling block that has kept the government and the explora on companies from realizing the
immense poten al that is present in Baluchistan. As men oned above, the province has the
lowest explora on density in Pakistan, which is largely due to presence of an ‐state ele‐
ments in different regions of the province. Furthermore, difference of royalty compensa on
to local stakeholders (e.g. tribal landowners) from explora on companies (of both local and
foreign origin) and the government is another bone of conten on for the lack of explora on
in the province. In this regard, further problems come in the form of negligence and unequal
distribu on of wealth with limited development of earmarked territory .
The Swing Factor: As the government scrambles to improve law & order, we are encouraged
with the progress made by the government/law enforcing agencies to address the security
situa on and the overall opera ng environment in the country, especially the western region
of Pakistan. Our channel checks reveal that at least one major E&P player is set to aggressive‐
ly tap the western region for hydrocarbons. Successful headway on this front can act as a
posi ve surprise for the sector with others following suit and can result in a swi rera ng for
the E&P sector, in our view.
Pakistan upstream against regional peers: The free fall in interna onal oil prices and conse‐
quent melt down in share price performance has opened up valua ons in the sector where
the Pakistan E&P space is more a rac vely priced against its regional (Asian) as well as MSCI
FM peers. At current price, Pakistani E&P’s are trading at a P/E of 7.1x (discount of 35%
against the region). The sector also offers the highest compara ve dividend yield of 6.3%
(premium of 1.9ppts against our region sample). Addi onally, the Pakistan E&P sector pro‐
vides a natural hedge against PkR devalua on (revenues are US$ linked), enabling the sector
to counter currency vola lity.
Bluetop - Pakistan Oil & Gas
Mkt Cap EV/EBITDA EPS Growth DY
Name Country (USDmn) EV (x) 2015 2016 2017 TTM 2016 Forward (%)
Cnooc Ltd. China 53,231 59,691 3.4 8.2 14.16 9.76 11.03 7.91 7.14 5.43
Oil & Natural Gas Corp Ltd. India 31,522 31,307 6.3 11.8 8.62 7.54 10.40 14.20 (19.74) 3.10
Ptt Explor. & Prod Public Co. Thailand 8,964 9,409 2.0 n.a 13.35 10.77 (0.13) 6.20 (63.14) 4.02
Oil & Gas Development Co.Ltd Pakistan 5,665 5,441 3.2 6.8 6.49 5.71 20.82 17.88 (29.57) 3.54
Oil India Ltd. India 4,255 4,163 7.8 11.2 8.53 7.81 12.43 14.73 (15.79) 4.44
Cairn India Ltd. India 4,128 2,118 2.8 20.7 n.a n.a 7.70 n.a (81.99) 4.21
Kazmunai gas Exploration Prod. Kazakhstan 3,119 (539) 1.3 n.a n.a n.a (11.39) n.a (75.18) n.a
Pakistan Petroleum Ltd. Pakistan 2,566 2,256 3.3 7.6 6.67 5.98 24.73 17.41 (30.59) 5.57
Pakistan Oil fields Ltd. Pakistan 769 663 n.a 8.0 7.88 6.62 29.38 29.62 n.a 9.14
Bode Energy Equipment Co‐A China 527 627 n.a 142.6 53.80 41.94 4.44 13.79 n.a ‐
P/E(x) ROE
Oil & Gas Companies Rela ve Valua ons:
Geologic timescale is a system that deals with
stratigraphy (study of rock layers and different
layering) that is used to describe the timings of
different events such as origin of different life forms
and extinction of some of them that have taken
place throughout the earth’s history).

10. 10
AKD Securi es Limited
September 2, 2015
PakistanOMCs:Improvingfundamentals
Fundamentals of the Pakistan Oil Marke ng Companies (OMCs) are slated to improve on
the back of: 1) slowdown in circular debt buildup (improving cash flow profile) while a one-
off circular debt payment by the govt. (similar to FY13) cannot be ruled out, 2) volumetric
growth (MS & HSD) inline with GDP, underpinned by big cket infrastructure connec vity
projects (earmarked under CPEC) and 3) forecasted stability in oil prices (keeping inventory
losses materially low). On the flip side, heightened currency vola lity can inflate FX losses.
In this backdrop, we forecast the sector to post a 3yr earnings CAGR of 14% during FY16E -
FY19F. The sector has remained lackluster since the start of 2015 as it underperformed the
broader market by 7.2% and is currently trading at a forward FY16F P/E of 7.8x, a 10% dis-
count to the KSE-100 Index. We advocate taking exposure in the sector from a medium to
long term investment horizon where we recommend taking posi ons in PSO (TP: PkR457/
sh), HASCOL (TP: PkR182/sh) and APL (TP: PkR620/sh).
How volumes look going forward? With big cket infrastructure connec vity projects ear‐
marked to become part of the macro‐economic canvas, demand for petroleum products is
also expected to improve. In this regard, construc on of highways (~2,442km) under the
China Pakistan Economic Corridor (CPEC) are expected to improve road access which should
resultantly trigger growth in trade ac vi es and simultaneously POL demand. While this
would shape the long term volume outlook for the OMC sector, rela vely be er sales of
both High Speed Diesel (HSD) and MS (Motor Spirit) is poised to improve the near term vol‐
ume outlook of the sector (mul plier effect of underlying economic ac vi es and 26%
growth witnessed in motor vehicles on the road since FY12). In this regard, HSD sales have
crossed the 7mn ton barrier in FY15, a er a period of 4 years (7%YoY growth in FY15 – high‐
est in 7 years). Moreover, increased u liza on of MS (Motor Spirit) due to Compressed Natu‐
ral Gas (CNG) load management and reduced price differen al between MS and CNG is driv‐
ing the MS volume outlook where sales in FY15 reached 4.7mn, up 21%YoY. With improve‐
ment shown during FY15, we forecast Pakistan’s petroleum products sales to grow at a 3yr
CAGR of 3% (5.1% excluding FO sales) due to more grounded posi ve expecta ons (avg. GDP
growth forecast of 4.9% coupled with a 4yr auto sales CAGR of 25%) amid heightened CNG
outages. This volumetric growth is expected to be primarily supported by MS sales
(forecasted to grow at a 3yr CAGR of 10%) and HSD (expected to grow at 3yr CAGR of 2%)
while FO sales are likely to remain flat between 8.0‐9.0mn tons.
Petroleum products sales projec on:
Bluetop - Pakistan Oil & Gas
('000Tons) FY14A FY15A FY16F FY17F FY18F
FO 9,525 9,247 9,247 9,247 9,247
HSD 6,907 7,363 7,511 7,661 7,814
MOGAS 3,864 4,691 5,160 5,676 6,244
JP 801 813 842 871 902
Others 228 249 254 259 264
Total 21,325 22,363 23,013 23,714 24,470
Petroleum products sales and sales growth trend
Source: OCAC
0
2,000
4,000
6,000
8,000
10,000
12,000
FY05
FY07
FY09
FY11
FY13
FY15
MS HSD FO
('000tons)
‐20%
‐10%
0%
10%
20%
30%
40%
50%
FY05
FY06
FY07
FY08
FY09
FY10
FY11
FY12
FY13
FY14
FY15
MS HSD FO
Source: OCAC & AKD Research

11. 11
AKD Securi es Limited
September 2, 2015
Earnings growth intact! On the back of declining oil prices, performance of the OMC sector
during FY15 has been something to forget primarily due to sizable inventory losses. That
said, with oil prices expected to soon find the bo om and therea er stabilize in the interna‐
onal market, risks of steep inventory losses remain minimal, in our view. Similarly, PkR’s
movement against the US$ is now also es mated to remain in check, therefore, offse ng
currency risk. Our economist, Muneeba Shoaib forecasts avg. PkR deprecia on of 2.3% vs.
US$ during the next three years. Moreover, we believe an improved liquidity situa on would
discourage requirements for excessive borrowing which coupled with a low interest rate
environment is likely to provide impetus to the sector’s earning profile. Going forward,
backed by volumetric up ck, we forecast OMC sector’s earnings to grow at a CAGR of 14%
across FY16E‐FY19F.
Our view on the circular debt: There has been minimum policy headway on resolu on of
circular debt besides a slowdown in accre on due to lower interna onal oil prices. The long‐
er this issue con nues to remain outstanding, the longer industry assets would remain ed
up and away from being put to more produc ve uses. In this regard, the industry has
suffered in terms of heightened financial charges and lack of product availability. We are
encouraged by recent government ini a ves to resolve this issue (u lity tariff hikes to nar‐
row the gap between cost of genera on and billing). However, in the short term, to effec‐
vely improve the liquidity profile of the energy chain, the government should consider an‐
other cash injec on amoun ng to~PkR250‐300bn (a la mode Jun’13). Our view is under‐
pinned by: 1) lower interna onal oil prices, where we feel the price of oil in the interna onal
market is likely to trade in the band of US$40‐50/bbl, therefore, keeping the probability of
accelerated monthly circular debt build‐up at a low and 2) it would simultaneously send out
a posi ve signal to poten al par cipants in the upcoming priva za on of DISCOs (note that
priva za on of 3 DISCOs is slated to take place during FY16). Moreover, it would also set the
stage of further planned private investments in the genera on space, especially for the ex‐
pected incoming joint Chinese investments.
Infla on linked margins? Yes please! Another posi ve trigger for the sector can arise in the
form of linkage of margins on MS and HSD with annual CPI, therefore, making OMC margins
infla on adjusted. If approved by the ECC, this move can support the sector’s earnings
growth. That said, we a ach a low probability to it taking center stage any me soon due to
addi onal infla onary pressures it might create. Recall, previously a er appoin ng PIDE
(Pakistan Ins tute of Development Economics) back in Sep’13, the GoP increased OMC mar‐
gins on MS and HSD in Nov’14 a er a gap of 13 months where it cited higher prices during
the aforemen oned period as the key reason for delaying the increase.
OMCs sensi vity to infla on linked margins
Bluetop - Pakistan Oil & Gas
Source: AKD Research
FY16F FY17 FY18
OMC Sector Earnings growth 65% 14% 13%
Infla on Adjustment Earnings growth 78% 24% 21%
PSO Earnings Growth* 92%* 15% 15%
PSO Earnings Growth with Infla on Adjusted* 109%* 25% 24%
HASCOL Earnings Growth 38% 17% 15%
Hascol Earnings Growth with Infla on Adjusted 51% 28% 24%
APL Earnings Growth 26% 13% 6%
APL Earnings Growth with Infla on Adjusted 30% 17% 12%
* Base effect due to high inventory losses in FY15

12. 12
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
Oil&GasExplorationCompanies(Upstream)

13. 13
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
PPL:MovingfromPassivetoActive Buy
Price‐PkR135.35; Target Price‐PkR194; Upside to Target Price 43%
We are ini a ng coverage on Pakistan Petroleum Limited (PPL) with a target price of
PkR194/sh, offering an upside of 43% from current price level. Similar to its peers, PPL un-
derperformed the broader market by 30.5% during CY15TD on the back of a steep 30%
decline in interna onal oil prices in FY15 and is presently trading at an implied oil price of
US$18/bbl, at an unjus fied 58% discount to the prevailing crude oil (Arab Light)
price. Backed by incremental produc on (from Gambat South block), the company is es -
mated to post a 3yr earnings CAGR (FY15A-18E) of 8.5% at an avg. oil price assump on of
US$50/bbl. In addi on to this, e-in of recent successful discovery at Mardan Khel and
Makori East 04 in the Tal block should con nue to augment the company’s oil produc on
profile. The company has cumula ve reserves of 690mmboe (69.5 mmbbl oil and 3.6 TCF of
gas) with a remaining reserve life of 13yrs. Presently trading at a FY16E P/E of 7.2x, we
have a Buy stance on PPL.
PPL: Valua on Snapshot
Gambat South the new fron er! Up ll now, PPL has made 6 discoveries in Gambat South
block (where PPL with a 65% stake is also the operator) amoun ng to a cumula ve
~162mmcfd of gas flows while oil flows are at 5,251bopd. In addi on to these flows, the
company is likely to get gas prices for this par cular block upgraded to PP2012 (Petroleum
Policy 2012) where maximum wellhead gas price of fields in this block will be around US$6/
mmbtu. Upon commerciality, this should augment PPL’s earnings by PkR5.25/sh (~30.0% of
FY15A earnings). With commercial produc on from Shahdad (located in Gambat South) likely
to commence shortly, PPL’s annualized earnings can receive another boost of PkR0.91/sh or
by 5% of FY15A earnings. Furthermore, fresh flows from this block should address produc on
decline of the Sui gas field. In addi on to this, commercial produc on from Kinza, Sharf and
Faiz are likely to come online by end FY16.
Shi in produc on mix in favor of oil: PPL’s topline has historically been gas heavy due to a
higher par cipa on (83% in FY09) of gas produc on. That being said, the company’s gas pro‐
duc on has lately been on a declining trend where it has posted a nega ve 5 year (FY09‐14)
CAGR of 3%. Deteriora on in gas produc on is primarily due to weak produc on from PPL’s
100% owned and operated fields, predominantly Sui, due to a natural decline. Conversely,
KSE100 Index vs. PPL
Source: AKD Research
(0.40)
(0.30)
(0.20)
(0.10)
‐
0.10
0.20
0.30
0.40
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
Feb‐15
Mar‐15
Apr‐15
May‐15
Jun‐15
Jul‐15
Aug‐15
KSE100 PPL
Stock Price Performance
FY14A FY15A FY16F FY17F FY18F
EPS (PkR) 26.1 17.4 18.9 22.4 22.2
EPS Growth 23% ‐33% 9% 19% ‐1%
Dividend yield 7% 6% 6% 7% 7%
PER (x) 5.2 7.8 7.2 6.0 6.1
EV/EBIDTA (x) 3.6 5.2 4.7 4.4 4.3
ROE 28% 17% 17% 18% 16%
ROA 22% 13% 13% 14% 13%
Source: Company Reports & AKD Research
PPL Gambat South EPS Impact:
Wells Oil (bopd) Gas (mmcfd) EPS Impact (PkR/sh)
Faiz X‐1 2,215 20 1.15
Kinza X‐1 2,100 12 0.93
Sharf X‐1 199 42 1.19
Wafiq X‐1 400 58 1.08
Shahdad X‐1 337 30 0.91
Total 5,251 162 5.25
Source: Company Reports & AKD Research
KATS Code PPL
Bloomberg Code PPL.PA
Price PkR 135.35
Market Cap (PkRmn) 266,872
Market Cap (US$mn) 2,566.07
Shares (mn) 1,971.72
3M High (PkR) 174.39
3M Low (PkR) 125.27
1Yr High (PkR) 231.81
1Yr Low (PkR) 125.27
3M Avg Turnover '000 1,079.92
1 Yr Avg Turnover '000 1,372.97
3M Avg DT Value (PkR000) 166.68
3M Avg DT Value (US$000) 1.60
1Yr Avg DT Value (PkRmn) 250.94
1Yr Avg DT Value (US$mn) 2.41
Stock Performance 1M 6M CYTD
Absolute (%) ‐8.5 ‐11.0 ‐23.3
Rel. Index (%) ‐6.2 ‐25.9 ‐30.5
Absolute (PkR) ‐12.6 ‐16.7 ‐41.2

14. 14
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
PPL’s oil produc on during the same period registered a CAGR growth of 25%, owing to phe‐
nomenal produc on growth exhibited by Tal block where PPL is a non‐opera ng JV partner.
Over the course of the past 5 years (FY09‐14), PPL has seen its topline grow at a CAGR of 15%
which is primarily due to exploits of Tal block becoming visible on the company’s topline. This
is further evident by the por on of revenues occupied by Oil which have increased to 42% in
FY14 from 17% in FY09. At the same me, gas based revenue share in the topline has tapered
off to 52% in FY14 from 83% in FY09. In this backdrop, we es mate the company’s bo om
line to post a 3yr CAGR of ~9% during FY15A‐18F. Moreover, with every US$5/bbl increase in
the price of crude oil, earnings CAGR for PPL further improves by 1.17% during FY15A‐18F.
PPL: Sensi vity with Oil Price
Exploring the unexplored: PPL has recently struck ght gas reserves at Rizq‐1 exploratory
well in Kirthar block. In this regard, since the ght gas policy is linked to the 2009 policy, the
field is in line to receive gas pricing at US$6/mmbtu. That said, we feel commercial produc‐
on from this field is likely to commence in 2QFY16. PPL has a 30% stake in the field which is
operated by PGNiG, a Polish firm, and we expect exploita on on this front to take place once
a new ght gas policy is formally formulated.
PPL: Exploratory drilling progress
PPL: Developmental drilling progress
Tal block to remain precious! With the successful discovery of Mardan Khel‐1 and Makori
east‐04, in Tal block, cumula ve crude oil produc on from this block is likely to ramp up to
24k bopd, up ~20% from current levels (20k bopd), transla ng into an earnings impact of
PkR0.5/sh on PPL (~3.0% of FY15A earnings). Going forward, produc on from this block is
likely to increase to 30k bopd, however, due to lack of clear guidance from the operator we
have not incorporated incremental flows in our model . PPL stands to be amongst the key
beneficiaries of any produc on enhancements coming from Tal block as it has a 27.7% work‐
ing interest in the JV.
Valua on and investment perspec ve: PPL’s earnings growth will primarily hinge on incre‐
mental produc on and PkR deprecia on against the US$ going forward, as oil prices are ex‐
pected to stabilize at current levels. In this regard, backed by commercial produc on of re‐
cent discoveries, we expected PPL’s bo omline to register a 3yr CAGR of ~9% during FY15A‐
FY18F. At present, the scrip trades at a FY16E P/E of 7.2x and provides an upside of 43%
EPS (PkR) FY16 FY17 FY18 TP 3yr CAGR
US$30/bbl 16.0 19.3 19.2 163 3%
US$35/bbl 16.7 20.0 19.8 170 5%
US$40/bbl 17.4 20.7 20.5 177 6%
Base Case (US$50/bbl) 18.9 22.4 22.2 194 9%
US$60/bbl 20.2 23.9 23.6 205 11%
US$65/bbl 20.9 24.7 24.3 212 12%
US$70/bbl 21.6 25.6 25.3 220 13%
Source: Company Reports & AKD Research
Operator MOL
Other Partners PPL; OGDCL; GHPL; POL
DailyAverageProduction:
Manzalai 70 MMscf gas; 828 bbl cond.
Makori 2.2 MMscf gas; 76 bbl oil
Makori East 63 MMscf gas; 14,663 bbl oil
Mamikhel 34.40 MMscf gas; 1,233 bbl cond.
Maramzai 98 MMscf gas; 3,700 bbl cond.
Well Concession PPL Stake % of target achieved Partners Status
Dhok Sultan X‐1 Dhok Sultan 75% 87% GHPL Drilling in Progress
Nasr X‐1 Gambat South 65% 94% GHPL and AROL Tes ng
Kabir X‐1 Gambat South 65% 100% GHPL and AROL Tes ng
Fazal X‐1 Hala 65% 92% ENI Drilling in Progress
Well Concession PPL Stake % of target achieved Partners Status
Adhi‐24 Adhi 39% 98% OGDC and POL Drilling in Progress
Adhi‐23 Adhi 39% 70% OGDC and POL Drilling in Progress
Source: PPIS & AKD Research
Source: PPIS & AKD Research
Source: PPIS & AKD Research

15. 15
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
against our NAV based target Price of PkR194/sh (NAV of developed assets at PkR157/sh
while the value of explora on op on is at PkR37/sh). Buy!
Result review: In‐line with a 30%YoY decline in oil prices in FY15, PPL’s topline declined by
13%YoY in FY15 despite a 24%YoY up ck in the company’s oil produc on. During the period
under review, the company’s NPAT declined by 33%YoY to PkR34.3bn (EPS: PkR17.4) vs.
NPAT of PkR51.4bn (EPS: PkR26.1) in FY14. On a quarterly basis, the company’s bo omline
eased off by 45%QoQ to PkR4.3bn (EPS: PkR2.18) in 4QFY15 vs. NPAT of PkR7.8bn (EPS:
PkR3.96) in 3QFY15. Sharp decline in 4QFY15 profitability is primarily due to 24%QoQ in‐
crease in company’s field expenditures. Key highlights of the FY15 result include: 1) 28%YoY
increase in field expenditure, 2) gross and opera ng profits declining by 31%YoY each, and 3)
~1.9x increase in other opera ng expense which rose to PkR7.6bn in FY15.
PPL: FY15 Result review
RiskstoThesis
Higher than an cipated decline in Sui: Sui remains amongst the company’s key earnings
assets and any sharp decline in the flow from the field would nega vely impact PPL’s earn‐
ings profile.
Regulatory risk: Any possible changes in the regulatory framework can undermine earnings
outlook.
Prolonged slump in interna onal oil prices: A prolonged slump in interna onal oil prices will
be detrimental to the company’s bo om line as well a drag on aggressive explora on ac vity
in the coming years.
Pullback in PkR vs. US$: Having its revenues denominated in US$, any posi ve movement in
the PkR against US$ would nega vely impact the company’s earnings profile.
Cash flow risk: The outstanding circular debt issue keeps PPL’s assets ed up and away from
being put to more produc ve uses.
PkRmn FY15 FY14 YoY 4QFY15 3QFY15 QoQ
Net Sales 104,377 119,811 ‐13% 23,792 22,774 4%
Field Expenditures 42,059 32,817 28% 13,612 11,007 24%
Royal es 12,213 14,301 ‐15% 2,781 2,612 6%
Opera ng Profit 50,105 72,694 -31% 7,399 9,155 -19%
Other Income 7,569 6,381 19% 1,521 2,017 ‐25%
Other Charges 7,951 4,103 94% 3,200 552 480%
Finance Cost 554 426 30% 139 138 1%
PBT 49,170 74,547 ‐34% 5,582 10,482 ‐47%
Tax 14,916 23,129 ‐36% 1,276 2,673 ‐52%
PAT 34,253 51,417 -33% 4,306 7,809 -45%
EPS (PkR) 17.37 26.08 2.18 3.96
Source: Company Reports & AKD Research

16. 16
Source: Company Reports
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
PPLLeaseMap

17. 17
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
PPL:ChartBankI
Gas Produc on Share
Product wise Revenue Growth
Oil Produc on Share
Revenue Mix
Oil Produc on Growth
0%
20%
40%
60%
80%
100%
120%
FY13A FY14A FY15A FY16F FY17F FY18F
Crude Oil Gas Others
‐40%
‐20%
0%
20%
40%
60%
80%
FY14A FY15A FY16F FY17F FY18F
Crude Oil Gas Others Total
0%
15%
30%
45%
60%
75%
90%
105%
FY12A FY13A FY14A FY15A FY16F FY17F
Fully owned leases Operated JV leases Non‐operated JV leases
‐40%
‐20%
0%
20%
40%
60%
80%
100%
FY14A FY15A FY16F FY17F FY18F
Fully owned leases Operated JV leases
Non‐operated JV leases Total
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
FY13A FY14A FY15A FY16F FY17F FY18F
Fully owned leases Operated JV leases Non‐operated JV leases
‐35%
‐25%
‐15%
‐5%
5%
15%
25%
35%
45%
FY14A FY15A FY16F FY17F FY18F
Fully owned leases Operated JV leases
Non‐operated JV leases Total
Gas Produc on Growth

18. 18
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
PPL:ChartBankII
Arab light vs. PPL Realized Gas Prices
Arab light vs. PPL Realized Oil Prices
EBITDA/BOE (PkR)
EBITDA vs. EBITDA Margins
ROE vs. ROA
60%
62%
64%
66%
68%
70%
72%
74%
76%
78%
‐
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
FY13A FY14A FY15A FY16F FY17F FY18F
EBITDA (PkR mn) EBITDA Margin (RHS)
30
40
50
60
70
80
90
100
110
‐
20
40
60
80
100
120
FY13A FY14A FY15E FY16F FY17F FY18F
Arab light (US$/bbl)
PPL Realized Oil Price (US$/bbl) (RHS)
1.8
1.9
2.0
2.1
2.2
2.3
2.4
‐
20
40
60
80
100
120
FY13A FY14A FY15E FY16F FY17F FY18F
Arab light (US$/bbl)
PPL Realized Gas Price (US$/mcf) (RHS)
‐
10
20
30
40
50
60
70
FY13A FY14A FY15A FY16F FY17F FY18F
Gas (mmboe) Oil (mmboe)
Produc on Mix (mmboe)
‐
200
400
600
800
1,000
1,200
1,400
1,600
FY13A FY14A FY15A FY16F FY17F FY18F
EBITDA/BOE (PkR)
0%
10%
20%
30%
40%
50%
60%
FY13A FY14A FY15A FY16F FY17F FY18F
ROE ROA

19. 19
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
PPL:KeyOil&GasAssets
Revenues vs. Produc on - Adhi
Revenues vs. Produc on - Sawan
Revenues vs. Produc on - Kandhkot
Revenues vs. Produc on - Makori East
Revenues vs. Produc on - Qadirpur
Revenues vs. Produc on - Manzalai
Revenues vs. Produc on - Sui
Revenues vs. Produc on - Maramzai
6,500
7,000
7,500
8,000
8,500
9,000
9,500
10,000
10,500
11,000
FY14A FY15A FY16E FY17E FY18E
8.10
8.30
8.50
8.70
8.90
9.10
9.30
9.50
9.70
Revenue (LHS) Kandhkot (mmboe)
15,000
17,000
19,000
21,000
23,000
25,000
27,000
29,000
31,000
33,000
35,000
FY14A FY15A FY16E FY17E FY18E
22.00
23.00
24.00
25.00
26.00
27.00
28.00
Revenue (LHS) Sui (mmboe)
‐
2,000
4,000
6,000
8,000
10,000
12,000
FY14A FY15A FY16E FY17E FY18E
1.95
2.00
2.05
2.10
2.15
2.20
Revenue (LHS) Adhi (mmboe)
2,000
2,200
2,400
2,600
2,800
3,000
3,200
FY14A FY15A FY16E FY17E FY18E
1.60
1.65
1.70
1.75
1.80
1.85
1.90
1.95
2.00
2.05
2.10
Revenue (LHS) Qadirpur (mmboe)
4,500
5,000
5,500
6,000
6,500
7,000
7,500
FY14A FY15A FY16E FY17E FY18E
2.00
2.20
2.40
2.60
2.80
3.00
3.20
Revenue (LHS) Sawan (mmboe)
2,000
2,500
3,000
3,500
4,000
4,500
5,000
FY14A FY15A FY16E FY17E FY18E
1.05
1.15
1.25
1.35
1.45
1.55
1.65
1.75
1.85
1.95
2.05
Revenue (LHS) Manzalai (mmboe)
8,000
9,000
10,000
11,000
12,000
13,000
14,000
FY14A FY15A FY16E FY17E FY18E
1.50
1.70
1.90
2.10
2.30
2.50
2.70
2.90
3.10
3.30
3.50
Revenue (LHS) Makori East (mmboe)
4,500
5,000
5,500
6,000
6,500
7,000
7,500
FY14A FY15A FY16E FY17E FY18E
2.20
2.30
2.40
2.50
2.60
2.70
2.80
Revenue (LHS) Maramzai (mmboe)

20. 20
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
PPL: Annual Databank
ShareholdingPattern
Source: Company Reports & AKD Research
* As of Jun ‐ 2014 Annual Report
Category %
Govt of Pakistan 67.51
Associated Companies 7.35
Banks, DFI, NBFIs 1.07
Priva za on Commission 3.55
Valua on Mu ple
Year End Jun-30 FY14A FY15A FY16F FY17F FY18F
EPS (PkR) 26.1 17.4 18.9 22.4 22.0
EPS Growth 22.6% ‐33.4% 8.5% 18.9% ‐2.0%
BVS (PkR) 92.3 101.1 112.4 125.9 139.1
P/BVS(x) 1.5 1.3 1.2 1.1 1.0
PER (x) 5.2 7.8 7.2 6.0 6.2
CFS (PkR) 15.2 26.3 22.4 23.3 26.5
ROE 28.3% 17.2% 16.8% 17.8% 15.8%
ROA 21.8% 12.8% 13.2% 14.1% 12.7%
DPS (PkR) 9.6 8.5 7.5 9.0 8.8
Dividend yield 7.1% 6.3% 5.6% 6.6% 6.5%
Payout Ra o 36.7% 48.9% 40.0% 40.0% 40.0%
Sales growth 17.1% ‐12.9% ‐23.0% 17.2% 0.1%
Gross profit margin 60.7% 48.0% 56.3% 57.8% 57.8%
Net profit margin 42.9% 32.8% 46.3% 46.9% 45.9%
PAT growth 22.6% ‐33.4% 8.5% 18.9% ‐2.0%
Income Statement
(PkR mn) FY14A FY15A FY16F FY17F FY18F
Net sales 119,811 104,377 80,368 94,190 94,300
Royalty and Field Expenditure 47,118 54,272 35,109 39,742 39,803
Gross profit 72,694 50,105 45,258 54,448 54,497
Opera ng Expenses 4,103 7,951 3,441 4,051 3,857
Opera ng Profit 68,591 42,154 41,817 50,398 50,640
Financial charges 426 554 421 421 421
Other Income ‐ net 6,381 7,569 9,639 10,961 9,846
Profit before tax 74,547 49,170 51,035 60,937 60,065
Taxa on 23,129 14,916 13,862 16,729 16,749
Net Profit 51,417 34,253 37,173 44,208 43,316
Balance Sheet
(PkR mn) FY14A FY15E FY16F FY17F FY18F
Current assets 82,749 94,683 90,236 94,698 101,618
Long term assets 153,594 173,130 191,659 218,973 240,460
Total assets 236,343 267,814 281,895 313,671 342,078
Current Liabili es 21,741 35,306 24,672 27,511 27,516
Long term Liabili es 32,685 33,096 35,508 37,920 40,332
Total Liabili es 54,426 68,403 60,180 65,431 67,848
Paid up capital 19,717 19,717 19,717 19,717 19,717
Reserves and Unappropriated Profits 162,200 179,694 201,998 228,523 254,512
Total Equity 181,917 199,411 221,715 248,240 274,230
Total equity and liabili es 236,343 267,814 281,895 313,671 342,078
Cashflow Statement
(PkR mn) FY14A FY15E FY16F FY17F FY18F
Cashflow from opera ons 31,833 51,806 44,150 45,908 52,197
Cashflow from Inves ng Ac vi es (25,702) (31,471) (32,299) (31,981) (33,014)
Cashflow from Financing Ac vi es (19,020) (16,760) (12,869) (15,683) (15,326)
Net change in cash (12,891) 3,575 (1,018) (1,756) 3,856
Beginning cash balance 6,184 2,276 5,851 4,833 3,077
Ending cash balance 2,276 5,851 4,833 3,077 6,933

21. 21
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
PPL: Quarterly Databank
Source: Company Reports & AKD Research
Valua on Mul ples
Year End Jun-30 4QFY2014 1QFY2015 2QFY2015 3QFY2015 4QFY2015
EPS (PkR) 6.76 6.94 4.29 3.96 2.18
EPS growth 15.1% 2.7% ‐38.3% ‐7.6% ‐44.9%
PER (x) 5.0 4.9 7.9 8.5 15.5
ROE 29.3% 28.0% 17.9% 16.6% 9.0%
ROA 22.6% 21.5% 13.4% 12.4% 6.0%
BVS (PkR) 92.3 99.2 96.0 95.5 101.1
P/BVS (x) 1.5 1.4 1.4 1.4 1.3
CFS (PkR) 16.1 8.5 12.7 17.9 26.3
P/CFS (x) 8.4 15.9 10.6 7.6 5.2
Sales Growth 1.8% 0.1% ‐13.3% ‐15.2% 4.0%
NPAT Growth 15.1% 2.7% ‐38.3% ‐7.6% ‐44.9%
Gross Margin 57.6% 60.0% 55.8% 40.2% 31.1%
Opera ng Margin 57.6% 60.0% 55.8% 40.2% 31.1%
Net Margin 43.1% 44.2% 31.5% 34.3% 18.0%
Effec ve tax rate 26.6% 30.4% 37.1% 25.5% 22.9%
Profit & Loss Accounts
(In PkRmn) 4QFY2014 1QFY2015 2QFY2015 3QFY2015 4QFY2015
Net Sales 30,945 30,967 26,844 22,774 23,792
Royalty 3,636 3,686 3,134 2,612 2,781
Gross Profit 17,819 18,567 14,983 9,155 7,399
Other Charges 1,135 1,035 3,164 552 3,200
Financial Charges 106 138 139 138 139
Profit Before Tax 18,161 19,674 13,432 10,482 5,582
Taxa on 4,831 5,986 4,981 2,673 1,276
Net Profit 13,330 13,688 8,451 7,809 4,306
Balance Sheet
(In PkRmn) 4QFY2014 1QFY2015 2QFY2015 3QFY2015 4QFY2015E
Long Term Assets 153,594 156,327 160,874 164,884 173,130
Current Assets 82,749 98,030 91,190 87,038 94,683
Total Assets 236,343 254,357 252,064 251,922 267,814
Long Term Liabili es 32,685 33,226 34,908 36,676 33,096
Current Liabili es 21,741 25,526 27,888 27,041 35,306
Total Liabili es 54,426 58,752 62,795 63,717 68,403
Share Holders' Equity 181,917 195,605 189,268 188,205 199,411
Total Liabili es & Equity 236,343 254,357 252,064 251,922 267,814
Cash flow Statement
(In PkRmn) 4QFY2014 1QFY2015 2QFY2015 3QFY2015 4QFY2015E
CF from opera ons 31,833 16,802 25,113 35,286 51,806
CF from inves ng ac vi es (25,702) (2,270) (10,769) (14,757) (31,471)
CF from financing ac vi es (19,023) (27) (14,844) (20,839) (16,760)
Net chg. In cash & equiv. (12,892) 14,505 (501) (310) 3,575
Cash & Equiv. At beg. 34,518 21,626 21,626 21,626 21,315
Cash & Equiv. At end 21,626 36,131 21,125 21,315 24,890

22. 22
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
POL:Drilling benefitsfrom JVSuccess Buy
Price‐PkR337.9; Target Price‐PkR423; Upside to Target Price 25%
We reini ate ac ve coverage on Pakistan Oilfields Limited (POL) with a NAV based target
price of PkR423/sh, providing a poten al upside of 25% from current price level. The scrip
trades at a FY16E P/E of 8.8x and offers a 1yr E/Y of 11.4% backed by a 8%YoY growth in
FY16E earnings. Out of the three predominant explorers, POL has been the worst affected
in FY15, mainly due to its oil skewed topline (oil revenues made up 62% of the company’s
total revenues in FY14). Similar to its peers, POL is trading at an implied oil price of
US$16.5/bbl, an unjus fied steep 62% discount to interna onal oil prices (Arab Light). Go-
ing forward, we expect this discount to narrow as produc on visibility from exploratory
wells flow through (due to POL’s rela vely small produc on base, oil discoveries should
have a significant impact on the company’s earnings profile). In this backdrop, we es mate
POL’s bo om line to grow at a 3yr forward CAGR of 14%, which is backed up by incremen-
tal produc on coming from non-operated JVs (predominantly Tal block aided by addi onal
flows from Mardan Khel and Makori East 04).
POL: Valua on Snapshot
Improving revenue stream: POL’s revenues have grown by a 5‐year CAGR (FY09‐14) of 20%
while earnings have grown at a CAGR of 18% during the same period. Though oil volumes
were ~31% of POL’s total produc on (in mmboe terms) in FY14, they contributed 62% to
total revenue, giving POL high oil price par ality. Moreover, due to its rela vely smaller pro‐
duc on base, POL has been the biggest beneficiary of 25% oil produc on growth from Tal
block in FY15 (21% working interest), which had raised the company’s produc on by 10%YoY
to 6.6k bopd in FY15. However, the company’s gas produc on eased off by 8%YoY to
71.25mmcfd during FY15 due to absence of produc on from Domail, its operated
JV. Currently, POL’s own operated fields have 22% or 1.4k bopd share in the company’s total
oil produc on of 6.6k bopd while 66% of total oil produc on comes from MOL operated Tal
block. The company’s total recoverable hydrocarbon reserves stand at 83.9mmboe with a
reserve life of ~11yrs.
Own explora on ac vi es rather non-existent: At present, the company has one develop‐
ment well, Balkassar B‐7A spudded and is in the process of considering a re‐entry in Sadrial
well (Ikhlas Block operated by POL with 80% share). In addi on to that, currently there are
KSE100 Index vs. POL
Source: AKD Research
Stock Price Performance
(0.50)
(0.40)
(0.30)
(0.20)
(0.10)
‐
0.10
0.20
0.30
0.40
Aug‐14
Sep‐14
Oct‐14
Nov‐14
Dec‐14
Jan‐15
Feb‐15
Mar‐15
Apr‐15
May‐15
Jun‐15
Jul‐15
Aug‐15
KSE100 POL
FY14A FY15A FY16F FY17F FY18F
EPS (PkR) 54.5 35.8 38.6 50.5 52.4
EPS Growth 19% ‐34% 8% 31% 4%
Dividend yield 13% 12% 10% 13% 14%
PER (x) 6.2 9.4 8.8 6.7 6.4
EV/EBIDTA (x) 4.9 6.6 5.7 4.5 4.2
ROE 35% 24% 25% 30% 29%
ROA 23% 15% 17% 20% 20%
Source: Company Reports & AKD Research
POL: Volume Performance
Source: Company Reports & AKD Research
‐
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
FY14A FY15F FY16F FY17F FY18F
‐5%
0%
5%
10%
15%
20%
25%
30%
POL Oil production (bopd)
Oil production Growth
66.0
68.0
70.0
72.0
74.0
76.0
78.0
80.0
82.0
FY14A FY15F FY16F FY17F FY18F
‐10.0%
‐5.0%
0.0%
5.0%
10.0%
15.0%
POL Gas Production (mmcfd)
Gas production Growth
Stock Performance 1M 6M CYTD
Absolute (%) ‐3.5 5.1 ‐10.9
Rel. Index (%) ‐1.1 ‐9.9 ‐18.1
Absolute (PkR) ‐12.2 16.3 ‐41.4
KATS Code POL
Bloomberg Code POL.PA
Price PkR 337.93
Market Cap (PkRmn) 79,936
Market Cap (US$mn) 768.62
Shares (mn) 236.55
3M High (PkR) 413.28
3M Low (PkR) 305.58
1Yr High (PkR) 588.81
1Yr Low (PkR) 305.58
3M Avg Turnover '000 370.74
1 Yr Avg Turnover '000 498.11
3M Avg DT Value (PkR000) 132.98
3M Avg DT Value (US$000) 1.28
1Yr Avg DT Value (PkRmn) 193.88
1Yr Avg DT Value (US$mn) 1.86

23. 23
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
three wells spudded in which POL is a non‐operated JV partner. These wells are operated by
MOL, and all three are exploratory wells (MGN‐01 well in Margala North block, Tolanj South‐
01 and Makori Deep‐1 in Tal block). Out of these three, target depth of MGN‐01 04 has been
reached where it is currently under tes ng phase. Therefore, any posi ve developments
from these wells are likely to spur stock price performance.
POL: Developmental drilling progress
3yr forward earnings to grow at a CAGR of 14%: Underpinned by an avg. annual oil produc‐
on growth of 5% per annum in the next three years, we forecast POL’s 3yr forward earnings
to post a CAGR of 14%. Growth in oil produc on is expected to emanate from Tal block in the
form of successful e‐up of produc on from Mardan Khel and Makori East 04, which is likely
to make up for the decline in produc on from other assets in Tal block. Having oil lted reve‐
nues, a US$5/bbl increase in interna onal oil price (we have assumed oil prices at US$50/bbl
across our projec on horizon) would improve the 3yr forward earnings CAGR by 1.50%. The
company’s gas volumes, however, are likely to get tapered off by an avg. 3% per annum, pri‐
marily triggered by off plateau produc on from Mamikhel D&P. That said, a major boost to
forward earnings should come from enhanced LPG produc on, which has already risen by
97%YoY during FY15. We expect Tal blocks’ produc on to ramp up to 28k‐30k bopd (not in‐
corporated in our model due to lack of operator guidance) from its current level of 20k bopd
(24k bopd upon realiza on of produc on flows from Mardan Khel and Makori east 04).
POL: Sensi vity with Oil Price
Valua ons & Investment Perspec ve: Our NAV based target price of PkR423/sh provides a
poten al upside of 25% from current price level. The scrip trades at a FY16E P/E of 8.8x and
offers a 1yr E/Y of 11.4% backed by 8%YoY growth in FY16E earnings. POL also offers a FY16E
D/Y of 10% which is not only the highest within the E&P space but is amongst the highest on
offer at the KSE. At present, POL is trading at an implied oil price of ~US$16.5/bbl, which is at
a discount of 62% to the prevailing crude oil price. In this regard, we feel that further suc‐
cessful news on the explora on front is likely to be a price catalyst going forward.
Result review: Owing to a slide in interna onal oil prices during FY15, POL posted NPAT of
PkR8.5bn (EPS of PkR35.8) in FY15 vs. NPAT of PkR12.9bn (EPS: PkR54.5) posted in the same
period last year, down 33%YoY. POL’s bo omline could have been further dragged down had
it not been for: 1) 13.2%YoY increase in volumetric oil sales in FY15 to 6.4k bopd owing to
enhanced flows from Tal block and 2) 97%YoY increase in LPG produc on which supplement‐
ed the company’s bo omline. Also, the company expensed out 2 dry holes (Pindori‐9 and
Malgin) due to which the earnings profile of the company received another hit of PkR2.7bn in
the form of increased explora on costs (up 2.8x YoY to PkR4.7bn) during the review period.
POL: FY15 Result review
Source: Company Reports & AKD Research
EPS (PkR) FY16 FY17 FY18 TP 3yr CAGR
US$30/bbl 31.3 41.1 42.6 375 6%
US$35/bbl 33.1 43.5 45.1 387 8%
US$40/bbl 34.9 45.8 47.5 399 10%
Base Case (US$50/bbl) 38.6 50.5 52.4 423 14%
US$60/bbl 42.2 55.2 57.3 447 17%
US$65/bbl 44.0 57.5 59.8 459 19%
US$70/bbl 45.9 59.9 62.3 471 20%
Source: Company Reports & AKD Research
Well Concession POL Stake % of target achieved Partners Status
Balkassar B‐7A Balkassar 100% 3% None Drilling in Progress
Source: PPIS & AKD Research
(PkRmn) FY15 FY14 YoY 4QFY15 3QFY15 YoY
Net Sales 30,881 35,540 ‐13% 6,477 6,481 0%
Opera ng Profit 16,267 19,009 -14% 2,992 2,839 5%
PAT 8,459 12,886 ‐34% 1,092 2,020 ‐46%
EPS (PkR) 35.8 54.5 4.6 8.5

24. 24
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
RiskstoThesis
Regulatory risk: Any possible changes in the regulatory framework can undermine earnings
outlook.
Reserve concentra on: Majority of the company’s reserves are concentrated in Tal block
where any downgrade in reserves can substan ally hurt the company’s reserve life.
Prolonged slump in international oil prices: A prolonged slump in international oil prices
will be detrimental to the company’s bottom line as well a drag on aggressive exploration
activity in the coming years.
Pullback in PkR vs. US$: Having its revenues denominated in US$, any positive movement
in the PkR against US$ would negatively impact the company’s earnings profile.

25. 25
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
POL:ChartBankI
Gas Produc on Share
Product wise Revenue Growth
Oil Produc on Share
Revenue Mix
Oil Produc on Growth
Gas Produc on Growth
0%
20%
40%
60%
80%
100%
120%
FY13A FY14A FY15A FY16F FY17F FY18F
Crude Oil Gas POLGAS Others
‐40%
‐20%
0%
20%
40%
60%
80%
FY14A FY15A FY16F FY17F FY18F
Crude Oil Gas POLGAS Others Total
0%
15%
30%
45%
60%
75%
90%
105%
FY13A FY14A FY15A FY16F FY17F FY18F
Fully owned leases Operated joint ventures leases
Non‐operated joint ventures leases
‐30%
‐20%
‐10%
0%
10%
20%
30%
FY14A FY15A FY16F FY17F FY18F
Fully owned leases Operated JV leases
Non‐operated JV leases Total
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
110%
FY13A FY14A FY15A FY16F FY17F FY18F
Fully owned leases
Operated joint ventures leases
Non‐operated joint ventures leases
‐35%
‐25%
‐15%
‐5%
5%
15%
25%
35%
45%
FY14A FY15A FY16F FY17F FY18F
Fully owned leases Operated JV leases
Non‐operated JV leases Total

26. 26
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
POL:ChartBankII
Arab light vs. POL Realized Gas Prices
Arab light vs. POL Realized Oil Prices
EBITDA/BOE (PkR)
EBITDA vs. EBITDA Margins
ROE vs. ROA
45%
50%
55%
60%
65%
70%
‐
5,000
10,000
15,000
20,000
25,000
FY13A FY14A FY15A FY16F FY17F FY18F
EBITDA (PkR mn) EBITDA Margin (RHS)
30.0
40.0
50.0
60.0
70.0
80.0
90.0
100.0
‐
20.0
40.0
60.0
80.0
100.0
120.0
FY13A FY14A FY15A FY16F FY17F FY18F
Arab light (US$/bbl)
POL Realized Oil Price (US$/bbl) (RHS)
2.6
2.7
2.8
2.9
3.0
‐
20
40
60
80
100
120
FY13A FY14A FY15A FY16F FY17F FY18F
Arab light (US$/bbl)
POL Realized Gas Price (US$/mcf) (RHS)
‐
1.00
2.00
3.00
4.00
5.00
6.00
7.00
8.00
9.00
FY13A FY14A FY15A FY16F FY17F FY18F
Gas (mmboe) Oil (mmboe)
Produc on Mix (mmboe)
‐
500
1,000
1,500
2,000
2,500
3,000
FY13A FY14A FY15A FY16F FY17F FY18F
EBITDA/boe (PkR)
0%
10%
20%
30%
40%
50%
60%
70%
FY13A FY14A FY15A FY16F FY17F FY18F
ROE ROA

27. 27
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
POL:KeyOil&GasAssets
Revenues vs. Produc on - Maramzai
Revenues vs. Produc on - Adhi
Revenues vs. Produc on - Manzalai
Revenues vs. Produc on - Meyal
Revenues vs. Produc on - Makori East
Revenues vs. Produc on - Dhulian
Revenues vs. Produc on - Mamikhel
Revenues vs. Produc on - Pariwali
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
FY14A FY15A FY16E FY17E FY18E
0.95
1.05
1.15
1.25
1.35
1.45
1.55
Revenue (PkRmn) (LHS) Manzalai (mmboe)
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
FY14A FY15A FY16E FY17E FY18E
‐
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Revenue (LHS) Mamikhel (mmboe)
‐
1,000
2,000
3,000
4,000
5,000
6,000
FY14A FY15A FY16E FY17E FY18E
0.95
1.15
1.35
1.55
1.75
1.95
2.15
Revenue (LHS) Maramzai (mmboe)
‐
2,000
4,000
6,000
8,000
10,000
12,000
FY14A FY15A FY16E FY17E FY18E
‐
0.50
1.00
1.50
2.00
2.50
3.00
Revenue (LHS) Makori East (mmboe)
‐
500
1,000
1,500
2,000
2,500
3,000
3,500
FY14A FY15A FY16E FY17E FY18E
0.52
0.54
0.56
0.58
0.60
0.62
0.64
0.66
Revenue (LHS) Adhi (mmboe)
‐
100
200
300
400
500
600
700
800
900
FY14A FY15A FY16E FY17E FY18E
0.26
0.26
0.26
0.26
0.26
0.27
0.27
0.27
0.27
Revenue (LHS) Dhulian (mmboe)
‐
200
400
600
800
1,000
1,200
1,400
1,600
FY14A FY15A FY16E FY17E FY18E
0.42
0.42
0.43
0.43
0.44
0.44
0.45
0.45
0.46
0.46
0.47
Revenue (LHS) Meyal (mmboe)
‐
500
1,000
1,500
2,000
2,500
FY14A FY15A FY16E FY17E FY18E
0.40
0.45
0.50
0.55
0.60
0.65
0.70
Revenue (LHS) Pariwali (mmboe)

28. 28
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
POL: Annual Databank
Source: Company Reports & AKD Research
Valua on Mul ple
Year End Jun-30 FY14A FY15A FY16F FY17F FY18F
EPS (PkR) 54.5 35.8 38.9 50.9 52.9
EPS Growth 19.0% -34.4% 8.9% 30.6% 3.9%
PER (x) 6.2 9.4 8.7 6.6 6.4
BVS (PkR) 148.8 143.5 148.5 163.5 174.4
P/BVS(x) 2.3 2.4 2.3 2.1 1.9
CFS (PkR) 90.2 50.8 57.8 64.4 67.3
P/CFS (x) 3.7 6.6 5.8 5.2 5.0
ROE 37% 25% 26% 31% 30%
ROA 22% 15% 16% 20% 20%
DPS (PkR) 45.0 40.0 35.0 45.8 47.6
Dividend yield 13% 12% 10% 14% 14%
Payout Ra o 83% 112% 90% 90% 90%
Sales growth 23% -13% -14% 23% 2%
Gross profit margin 53% 53% 56% 59% 59%
Net profit margin 36% 27% 35% 37% 38%
PAT growth 19% -34% 9% 31% 4%
Income Statement
(PkR mn) FY14A FY15A FY16F FY17F FY18F
Net sales 35,540 30,881 26,650 32,804 33,329
Opera ng Expense 16,530 14,614 11,713 13,520 13,718
Gross profit 19,010 16,267 14,937 19,284 19,611
Explora on and Admin Expense 1,832 4,868 1,166 1,186 1,188
Opera ng Profit 17,178 11,399 13,771 18,098 18,423
Financial charges 654 987 778 778 778
WPPF 1,140 486 689 905 921
Other Income ‐ net 1,826 1,563 1,247 1,417 1,700
Profit before tax 17,210 11,489 13,551 17,832 18,423
Taxa on 4,319 3,031 4,431 5,887 6,023
Net Profit 12,890 8,459 9,120 11,945 12,400
Balance Sheet
(PkR mn) FY14A FY15E FY16F FY17F FY18F
Current assets 21,099 16,253 16,157 20,354 22,165
Long term assets 36,770 39,804 40,131 40,322 40,423
Total assets 57,869 56,056 56,288 60,676 62,588
Current Liabili es 8,334 7,761 6,829 7,660 7,735
Long‐term Liabili es 14,339 14,339 14,339 14,339 13,589
Total Liabili es 22,673 22,100 21,168 21,999 21,324
Paid up capital 2,365 2,365 2,365 2,365 2,365
Reservesand Unappropriated Profits 32,829 31,589 32,753 36,310 38,897
Total Equity 35,196 33,956 35,120 38,677 41,264
Total equity and liabili es 57,869 56,057 56,288 60,676 62,588
Cashflow Statement
(PkR mn) FY14A FY15E FY16F FY17F FY18F
Cashflow from opera ons 18,248 12,021 13,670 15,228 15,920
Cashflow from Inves ng Ac vi es (4,276) (7,404) (4,285) (4,355) (4,425)
Cashflow from Financing Ac vi es (10,624) (9,698) (8,047) (8,477) (9,917)
Net change in cash 3,577 (5,082) 1,338 2,396 1,578
Beginning cash balance 7,249 10,826 5,745 7,082 9,478
Ending cash balance 10,826 5,745 7,082 9,478 11,056
ShareholdingPattern
Category %
Associated Co. 52.86
Banks, FI 16.43
Mutual Funds 5.10
Insurance co. 7.17
Individual 12.01
As per annual report 2014

29. 29
AKD Securi es Limited
September 2, 2015 Bluetop - Pakistan Oil & Gas
POL: Quarterly Databank
Source: Company Reports & AKD Research
Valua on Mul ples
Year End Jun-30 4QFY2014 1QFY2015 2QFY2015 3QFY2015 4QFY2015
EPS (PkR) 11.77 17.62 4.99 8.54 4.62
EPS growth ‐13% 50% ‐72% 71% ‐46%
PER (x) 7.2 4.8 16.9 9.9 18.3
ROE 32% 53% 14% 26% 12%
ROA 19% 28% 8% 14% 8%
BVS (PkR) 148.8 133.9 138.9 132.4 148.5
P/BVS (x) 2.3 2.5 2.4 2.6 2.3
CFS (PkR) 77.1 20.3 38.7 54.0 57.8
P/CFS (x) 4.4 16.7 8.7 6.3 5.8
Sales Growth 12% 5% ‐18% ‐21% 2%
NPAT Growth ‐13% 50% ‐72% 71% ‐46%
Gross Margin 47% 61% 55% 45% 46%
Net Margin 30% 42% 15% 31% 17%
Effec ve tax rate 28% 26% 25% 27% 28%
Profit & Loss Accounts
(In PkRmn) 4QFY2014 1QFY2015 2QFY2015 3QFY2015 4QFY2015
Net Sales 9,363 9,845 8,078 6,418 6,540
Royalty 896 918 643 528 521
Opera ng expenses 4,104 2,965 2,979 3,033 3,027
Gross profit 4,364 5,962 4,457 2,856 2,992
Other income 201 830 110 419 204
Explora on & prospec ng exp 286 288 2,799 18 1,625
General and administra on exp 52 38 39 43 20
Finance cost 221 497 25 275 190
Workers' profit par cipat. fund 151 367 127 157 ‐165
Profit before taxa on 3,854 5,602 1,578 2,784 1,526
Taxa on 1,069 1,435 398 764 434
NAPT 2,785 4,167 1,180 2,020 1,092
Balance Sheet
(In PkRmn) 4QFY2014 1QFY2015 2QFY2015 3QFY2015 4QFY2015E
Long Term Assets 36,771 37,738 36,032 36,522 40,422
Current Assets 21,098 21,665 20,923 19,919 20,753
Total Assets 57,869 59,403 56,955 56,441 61,175
Long Term Liabili es 14,339 15,106 14,867 15,988 12,002
Current Liabili es 8,334 12,622 9,233 9,125 6,828
Total Liabili es 22,673 27,728 24,100 25,113 18,830
Share Holders' Equity 35,196 31,675 32,856 31,328 42,345
Total Liabili es & Equity 57,869 59,403 56,955 56,441 61,175
Cash flow Statement
(In PkRmn) 4QFY2014 1QFY2015 2QFY2015 3QFY2015 4QFY2015E
CF from opera ons 18,248 4,791 9,154 12,781 13,679
CF from inves ng ac vi es (4,276) (1,660) (882) (2,025) (7,270)
CF from financing ac vi es (10,624) (4,065) (7,673) (11,243) (9,698)
Net chg. In cash & equiv. 3,348 (934) 598 (487) (3,289)
Cash & Equiv. At beg 7,478 11,058 10,899 10,826 10,340
Cash & Equiv. At end 10,826 10,124 11,497 10,340 7,051