Where rising uncertainty about global economic outlook has exert pressure on the international benchmark WTI crude oil prices, prices of Arab Light (relevant to Pakistan) has relatively remained immune to these factors. In Fiscal Year 2011-12 YTD, WTI has average around $89 per barrel while Arab Light has stayed firm to average $108 per barrel. Therefore, in line with the prevalent trend we are upward adjusting our oil prices assumption to $100 per barrel previously from $96 per barrel for Fiscal Year 2011-12, which would subsequently increase are earnings forecast by 2 to 4 percent for Topline E&P universe. For period beyond, we have kept our oil assumptions intact, with our long term oil assumption of US$90 per barrel.
We maintain ‘Over-weight’ stance on the sector with our liking towards Pakistan Petroleum (PPL) and Pakistan Oilfields (POL) that our trading at implied oil price of $64 and US$68 per barrel, respectively.
Arab Light assumption at $100 per barrel in FY12
Global uncertainty has turned international research houses to relatively bearish on international benchmark crude oil prices (WTI), with mean prices consensus coming out to be $90 per barrel for FY12. However, Arab Light continues to remain to the bearish sentiment and is trading at a premium of approx. $10 per barrel for last 1-year as against an average discount of $2 per barrel for last 10-years.
In line with the prevalent trend, we are revising our Arab Light prices assumption in our model for FY12 to $100 per barrel after incorporating the $10 per barrel premium to WTI forecast. For period beyond FY12, we are keeping our oil price intact.
Impact on the E&P
Increase in the oil prices assumption would bode positively on E&P sector’s profitability. Amongst the Topline Universe, the increase would augment POL earnings by 4%, while PPL and OGDC earnings projections have increased by 2% each. The subdued impact on OGDC and PPL is on account of relatively higher weightage of gas in their revenue mix.
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