Karachi: Pakistan's Exploration and Production (E&P) sector experienced a significant earnings increase of 43% year-on-year for the first quarter of the fiscal year 2027, primarily driven by elevated oil and gas prices. However, the sector reported a quarter-on-quarter decline of 47% in earnings, reflecting fluctuating market conditions.

According to JS Global, the sector's net sales rose by 32% year-on-year, reaching Rs279.1 billion, despite a 9% quarter-on-quarter decrease. The year-on-year growth was largely due to a 26% increase in international oil prices, with Arab Light crude averaging $90 per barrel, compared to $71.5 in the previous year. The decline from the previous quarter was attributed to a 13% decrease in oil prices, alongside an 8-10% increase in wellhead gas prices for selected fields as revised by the Oil and Gas Regulatory Authority (OGRA).

Exploration costs surged by 45% year-on-year to Rs10.2 billion, but saw a 61% quarter-on-quarter reduction. The quarter reported one dry well, Ishraq X-1, operated by Pakistan Petroleum Limited (PPL), compared to two dry wells reported in the previous quarter by Oil and Gas Development Company Limited (OGDC).

The sector's tax provisions totaled Rs52.1 billion, with an effective tax rate of 31.5%, compared to Rs44.6 billion and 35.9% in the same quarter last year. This followed a major tax reversal in the previous quarter due to a Federal Constitutional Court decision on super tax levies.

The sector announced a first interim dividend of Rs26.9 billion, marking a 31% increase year-on-year, with a payout ratio of 23.7%, lower than the previous year's 25.7% and the preceding quarter's 39.8%. Notably, companies like MARI and Pakistan Oilfields Limited (POL) declare dividends on a semi-annual basis.

OGDC reported a 53% increase in earnings year-on-year, despite a 54% quarterly decline, due to higher sales, finance income, and reduced administrative costs. The company declared a cash dividend of Rs5.0 per share with a 37% payout ratio.

PPL's earnings rose 25% year-on-year, despite a 33% quarterly drop, attributed to increased sales and other income. The company announced a cash dividend of Rs2.0 per share with a 22% payout ratio.

MARI saw a 36% year-on-year earnings growth, despite a 42% quarterly decline, driven by 24% higher sales and a reduced effective tax rate. Exploration costs decreased by 7% year-on-year and 75% quarter-on-quarter.

POL's earnings increased by 51% year-on-year but dropped 34% quarterly. The company reported a 26% year-on-year sales growth, with a 58% increase in other income due to higher investment income.

JS Global maintains an overweight stance on Pakistan's E&P sector, indicating optimism for future performance despite current market fluctuations.