Wellhead gas Prices 2HFY10 Review

International crude oil and HSFO prices led the surge
The Oil and Gas Regulatory Authority (OGRA) has recently issued new wellhead gas prices for the period of 2HFY10 which indicated the surge of around 3% to 67% relying upon the field’s pricing mechanism. The revision was accounted in response to the increase in international crude oil prices along with the HSFO prices.
Arab Light Crude prices upped by 37%HoH
Arab Light Crude prices showed an up-move by 37%HoH during 1HFY10 to USD 69.09 per barrel on average comparing to the averaged price of USD 50.30 per barrel during 2HFY09. On the other hand, the PKR-USD Parity depreciated by 4%HoH during 1HFY10 to 83.12 comparing to 80.23 during the earlier half. On the other hand, HSFO witnessed 43%HoH increase to USD 422.06 per ton during the period.
Sui field witnessed the largest increment
The Sui and Kandhkot field prices increased by 24.3%HoH and 19.1%HoH respectively while Sawan and Minao wellhead gas prices upped by 19.4%HoH to USD 3.50mmbtu during the review. Moreover, the Adhi field prices depicted an up-surge of 3.7%HoH to PKR 124.03mmbtu where Bhit, Pindori and Pariwali fields witnessed a price increase of 19.4%HoH during the period.
PPL would be the major beneficiary
I believe that Pakistan Petroleum Limited (PPL) would be the major beneficiary of these revisions in wellhead gas prices as Sui and Kandhkot fields who witnessed the largest price increase are under 100% stake of PPL coupled with some other beneficiary fields. On the other hand, Pindori and Adhi fields are expected to improve the earnings of OGDCL and POL during the remaining half of the year.
Looking Forward
I maintain ‘buy’ stance for PPL and POL and ‘hold’ for OGDC by considering their FY10E earnings at is 8.44x, 8.43x and 10.11x respectively where my target price for FY10 is PKR 228, PKR 275 and PKR 122.50 per share respectively.