Pakistan Petroleum Ltd.

Submitted to: PROF. HAFIZ TAUSEEF

Submitted By: ZEESHAN KAUSAR (L1R06MBBF2024)

M. RAMZAN (L1F07MBBF2010)

SYED AHSAN ASHFAQ (L1S07MBBF2012)

AJMAL AFTAB (L1S08MBBF2034)

DATE: 29/01/2010

PAKISTAN PETROLEUM LTD

COMPANY ANALYSIS, INDUSTRIAL ANALYSIS, ECONOMIC ANALYSIS, ANALYSIS OF FINANCIAL STATEMENTS, PROJECTIONS AND CALCULATION OF THE EXPECTED RETURN, MARKET RISK OF THE SECURITY AND CAPM.

CONTENTS

PREFACE

ACKNOWLEDGEMENT

EXECUTIVE SUMMARY

INTRODUCTION

ECONOMIC ANALYSIS

PAKISTAN’S ECONOMIC ANALYSIS

INDUSTRY ANALYSIS

COMPANY ANALYSIS

O DEBT MANAGEMENT

O ASSET MANAGEMENT

O LIQUIDITY

O FUTURE OUTLOOK

RATIO ANALYSIS

O LIQUIDITY RATIOS

O SOLVENCY RATIOS

O PROFITABILITY MEASURES

PROJECTIONS 2010-2012

RECOMMENDATIONS

BIBLIOGRAPHY

PREFACE

We are students of Banking & Finance and this was the first time we have got a chance to explore our financial knowledge and skills that we have learnt so far in our University. Although this was a practical work, so we faced many difficulties and confusions at many stages of this project. We worked with cooperation and we were keen to make this project the best in term of material and quality. Although we are not professionals but we have given our best efforts to present this project as much professional as we can. We have learnt a lot from this effort, we have got a chance to work on MS Excel and we have learnt a lot using Excel. We explored Excel deeply and got many new things to learn. Thanks to the Almighty Allah who enabled us to complete this project successfully.

This project is a complete guideline for financial analysis. This includes company’s income, expenses, future projections, future values, investment decisions and budgeting. This project is done by applying the best financial manner using our financial skills and knowledge.

In this project, we have deeply analyzed Pakistan Petroleum Ltd and projected its future income and expenses. We have also calculated the company’s Beta, Alpha, Expected Return and CAPM. We also analyzed the financial statements of Pakistan Petroleum Ltd e-g Ratios. We have deeply analyzed the Company, the Industry and the market in this project. We have also discussed the situation of Petroleum industry in the Economy and its contribution in GDP and GNP.

ACKNOWLEDGEMENTWe thank to the Almighty Allah who provided us with this opportunity and gave us the courage and ability to accomplish this task successfully. We have used our best efforts and abilities. We would like to express profound gratitude to our advisor, PROF. HAFIZ TAUSEEF, for his invaluable support, encouragement, supervision and useful suggestions throughout this research work. His moral support and continuous guidance enabled us to complete our task successfully. We are thankful to our parents for financially assisting us in this Project. This project has been challenging for us but it provided us knowledge and better techniques for the future projects.

EXECUTIVE SUMMARY

The project assigned to us was on Pakistan Petroleum Ltd. in which we had to discuss the industry and company

condition as affected by the country’s political and economic conditions. At the beginning of our project we

started the content of project with writing preface containing experience we have been through in making of the

project and the expectations of performance of this project. It also contains our actual doings in this project

along with difficulties faced. It is then followed by the acknowledgment after which there is introduction

congaing history of firm and there is little about the industry and social-economic environment relevant to

automobile industry. The main idea was that whether the investment in company’s stocks was feasible or not.

Since we have work-out on this project and we have had done analysis of Petroleum industry and company

analysis through different dimensions. This project on Pakistan Petroleum contains various aspects and position

of company from production to market conditions. We analyzed our economic conditions in relation with

investment in Indus motor company’s stocks and consider some of the Macro economic indicators to determine

the future course of our economy. Other than that we have done the comprehensive economic analysis

containing GDP, GNP, Employment growth rate, inflation rate and some of the governmental policies. Than

majorly brief but adequate industry and company analysis for financial statements were important parts of our

project. In this we have done horizontal, vertical and ratio analysis along with Beta, Alpha and CAPM

calculation. Importantly three year projections of company’s financials were significant part of our project. Last

but not the least this project is concluded with recommendations about whether the investment in company’s

stocks is advisable or not. The project of Pakistan Petroleum Ltd Also contains the contents in ordinal format

and the bibliography having links concerned to this project.

Introduction

The pioneer of the natural gas industry in the country, Pakistan Petroleum Limited (PPL) has been a key player in the energy sector since the 1950s.The company has managed to sustain its positioning due to its robust business programme and persistent efforts to optimize production from existing fields and new discoveries, currently contributing about 25 percent of the country’s total natural gas supplies in addition to crude oil, Natural Gas Liquid and Liquefied Petroleum Gas.

PPL’s history can be traced back to the establishment of a public limited company in June 1950, the majority shares of which were held by Burmah Oil Company (BOC) of the United Kingdom. In September 1997, BOC disinvested from the E&P sector worldwide and sold its equity in PPL to the Government of Pakistan. In July 2004, the government, in turn, sold 15 percent of its holding in PPL to the general public through an Initial Public Offer, reducing its share to 78.4 percent. The remaining equity is divided between International Finance Corporation and private investors, holding 1.3 percent and 20.3 percent respectively.

The company operates five producing fields across the country at Sui (Pakistan’s largest gas field), Adhi, Kandkhot, Chachar and Mazarani and holds working interest in seven partner-operated producing fields. These are Qadirpur, the second largest gas field, Miano, Sawan, Block 22 (Hasan, Sadiq and Khanpur) and Tal Block (Manzalai).

As a major stakeholder in securing a safe energy future for the country, PPL pursues a dynamic exploration agenda aimed at enhancing hydrocarbon reserves. In Pakistan, the company’s exploration portfolio comprises 22 exploration blocks. Of these, PPL operates seven through joint ventures with other Exploration and Production (E&P) companies and has working interest in 15 more exploration areas, including three off-shore blocks, as non-operating partner. PPL is also among the first local E&P companies to extend its operations beyond national borders and has an interest in an exploration licence in Yemen in a joint venture with OMV.

Over the years, PPL has developed a reliable foundation and infrastructure for providing clean, safe energy through sustainable exploitation of indigenous natural resources while adhering to the highest standards of health and safety and constraining the ecological footprint of its operations. As a result, Monitoring and Inspection and Design & Construction departments, Mazarani and Kandhkot gas fields, Adhi field, Sui Field Gas Compressor Station, Sui Production, Sui Field Engineering and Purification Plant were certified for ISO 9001:2000 Quality Management System.

As such, the company believes in value addition for all its stakeholders and remains committed to a transparent financial and corporate regime. This factor has been recognized by the prestigious Management Association of Pakistan that selected PPL as the recipient of its 25th and 26th Corporate Excellence Awards.

At PPL, the health and safety of employees and sustainable use of natural resources are key requirements of operational excellence. Every effort is made to enhance Health, Safety and Environment awareness among staff and other stakeholders. This commitment is evident from the landmark certification of Mazarani Gas Field, Sui Production, Sui Field Gas Compressor Station and Adhi Field for ISO 14001 and OHSAS 18001 certification. Besides, PPL was also awarded the Annual Environmental Excellence Award in 2006, 2008 and 2009 by the National Forum for Environment and Health.

PPL has played a significant role as a responsible corporate citizen since the inception of its commercial activities in Sui by establishing Model School Sui in 1957 for children of workers and local communities. Over time, the outreach of PPL’s Corporate Social Responsibility (CSR) portfolio has gone well beyond obligatory requirements. In 2001, PPL Welfare Trust was founded to provide geographical and thematic diversity within its CSR initiatives, which include education, health, infrastructure development and socio-economic uplift of disadvantaged communities, particularly those living in and around its operating areas. In recognition of these efforts, PPL has won the Corporate Philanthropy Award for four consecutive years from 2004 to 2007 for its commitment to social development.

ECONOMIC ANALYSIS

Economy of Pakistan

Currency 1 Pakistani Rupee (PKR) Rs. = 100 Paisa

Fiscal year July 1–June 30

Trade

organizations

ECO, SAFTA, ASEAN, WIPO and WTO

Statistics

GDP $431.2 billion (PPP) (2008)

GDP growth 2.0% (2009 est.)

GDP per capita $9,600 (PPP) (2008)

GDP by sector agriculture: 19.6%, industry: 26.8%, services: 53.7% (2007)

Inflation (CPI) 11.17% (2009-2010)

Population

below poverty line

23% ((2007))

Labor force 99.18 million (2006 est.)

Unemployment 7.5% (2007 est.)

Main industries textiles, chemicals, food processing, steel, transport equipment, automotives, machinery,

beverages, construction, materials, clothing, paper products

External

Exports $17.78 billion (2008 est.)

Export goods textile goods (garments, bed linen, cotton cloths, and yarn), rice, leather goods, sports goods,

chemicals manufactures, carpets and rugs

Main export

partners

United States 22.4%, UAE 8.3%,UK 6%, China 15.4%, Germany 4.7% (2006 est.)

Imports $30.99 billion f.o.b. (2007 est.)

Import goods Petroleum, Petroleum products, Machinery, Plastics, Transportation equipment, Edible oils, Paper

and paperboard, Iron and steel, Tea

Main import

partners

China 14.7%, Saudi Arabia 10.1%, UAE 8.7%, Japan 6.5%, United States 5.3%, Germany 5%, Kuwait

4.9% (2006 est.)

Public finances

Public debt $45 billion (2007)

Revenues $127.5 billion (2006 est.)

Expenses $135 billion (2006 est.)

The economy of Pakistan is the 27th largest economy in the world in terms of purchasing power, and the 48th largest in absolute dollar terms. Pakistan has a semi-industrialized economy, which mainly encompasses textiles, chemicals, food processing, agriculture and other industries. Growth poles of Pakistan's economy are situated along the Indus River, diversified economies of Karachi and Punjab's urban centers; coexist with lesser developed areas in other parts of the country. The economy has suffered in the past from decades of internal political disputes, a fast growing population, mixed levels of foreign investment, and a costly, ongoing confrontation with neighboring India. However, IMF-approved government policies, bolstered by foreign investment and renewed access to global markets, have generated solid macroeconomic recovery the last decade. Substantial macroeconomic reforms since 2000, most notably at privatizing the banking sector have helped the economy.

GDP growth, spurred by gains in the industrial and service sectors, remained in the 6-8% range in 2004-06. Due to economic reforms in the year 2000 by the Musharraf government. In 2005, the World Bank named Pakistan the top reformer in its region and in the top 10 reformers globally. Islamabad has steadily raised development spending in recent years, including a 52% real increase in the budget allocation for development in FY07, a necessary step toward reversing the broad underdevelopment of its social sector. The fiscal deficit - the result of chronically low tax collection and increased spending, including reconstruction costs from the devastating Kashmir earthquake in 2005 was manageable.

Inflation remains the biggest threat to the economy, jumping to more than 9% in 2005 before easing to 7.9% in 2006. In 2008, following the surge in global petrol prices inflation in Pakistan has reached as high as 25.0%. The central bank is pursuing tighter monetary policy while trying to preserve growth. Foreign exchange reserves are bolstered by steady worker remittances, but a growing current account deficit - driven by a widening trade gap as import growth outstrips export expansion - could draw down reserves and dampen GDP growth in the medium term.

In the period of these 8 (2001-2008) years the poverty levels decreased and unemployment levels faced a decline as well inflation remained between 6-8% ranges. The services sector grew at a rapid pace. Specially the banking and telecommunication sectors saw rapid success and increased interest of investors to invest in these sectors. During this period of great macro-economic activity, Pakistan economy faced growth of about 5.8% constantly in the GDP.

Budget deficit and raising inflation rates have always been a concern for Pakistan’s economy. Pakistan’s imports are of huge values mainly due to its ever increasing oil imports. This also effects on the prices of petroleum in Pakistan. The above mentioned period also saw an increase in the spending of people. Rupee was a bit stable up till November 2007 against Dollar but it has deteriorated dramatically now due to the political instability in the country and due to increased capital flight.

The stock market in the country also performed well during this period of increased economic activity. Through the markets were extremely volatile and responded rapidly and adversely to political situations in country at times, and KSE 100 index came to marks of above 15000 points in 2008 and became one of the best performing and fastest growing markets in ASIA. But after the occurrence of these incidents the KSE 100 index declines to 5000 points in the mid of 2008 these factors are such as

Law in Order Situation October-2008 Karachi Incident 12-May-2007 Benazir Assassination Elections 2008 Musharraf Resignation Long March Bomb Blasting

The chart given below shows some of the sectors that grew during these 8 years or experienced enhanced activity.

Banking Automobile Manufacturing Telecommunication Electronic Media/ news Channels Oil Marketing Companies Investment & Market Funds Real Estate

In 2008, the political instability and in-competency of the Government to take measures to regain the trust of foreign investors and controlling inflation. Pakistani economy is at an all time low level and is expected to go further down-road. Despite the fact that prices of commodities such as oil and gold are falling internationally.

Pakistan is not benefiting from the situation properly mainly due to the constant depreciation of Pak-Rupee in comparison with U.S. Dollar. Pak Rupee which traded in the range of 60-70 rupees against a single dollar during the last couple of years depreciated heavily during the year 2009 to Rs. 80 against U.S. Dollar. Currently it is trading at Rs.83 against Dollar. As imports are rapidly increase in Pakistan economy it increased to the level of $ 3.54 billion alone for the month of July 2008. Our exports have decreased constantly during 2008 mainly because of low output of Textile sector that contributed heavily to our exports. Our export bill for July 2008 was $ 1.9 billion which resulted in a trade deficit of $ 1.64 billion in July 2008.

The Average Consumer Price Index reached 26% during the financial year 2008-09 as compared to almost 12% during June 08. This increase is mainly due to increased commodity prices both locally and globally. The increased commodity prices and decreasing foreign reserves have caused the inflation. The foreign Direct Investment in Pakistan has fallen by almost 11% during the financial year 2008-09. The total direct foreign investment in Pakistan is $ 4.6 billion in 2009.

Some facts and figures related to Pakistan economy are as follows

Economic Comparison of Pakistan 1999-2009

1999 2007 2008 2009GDP $ 75 billion $ 160 billion $ 170 billion $ 185

billionGDP Purchasing Power Parity (PPP)

$ 270 billion $ 475.5 billion $ 504.3 billion $ 580.6 billion

GDP per Capita Income $450 $925 $1,085 $1,250 Revenue collection Rs. 305 billion Rs. 708 billion Rs. 990 billion Rs. 1.05

trillionForeign reserves $ 700 million $ 16.4 billion $ 10 billion $ 14 billionExports $ 7.5 billion $ 18.5 billion $ 19.22 billion $ 18.45

billionTextile Exports $ 5.5 billion $ 11.2 billion - -

KHI stock exchange (100-Index)

$ 5 billion at 700 points

$ 75 billion at 14,000 points

$ 56 billion at 9,000 points

Foreign Direct Investment $ 1 billion $ 8.4 billion $ 5.19 billion $ 4.6 billionDebt servicing 65% of GDP 26% of GDP - -Poverty level 34% 24% - -Literacy rate 45% 53% - -Development programs Rs. 80 billion Rs. 520 billion Rs. 549.7 billion Rs. 880

billion

Pakistan's industrial sector accounts for about 24% of GDP. Cotton textile production and apparel manufacturing are Pakistan's largest industries, accounting for about 66% of the merchandise exports and almost 40% of the employed labour force. Other major industries include cement, fertilizer, edible oil, sugar, steel, tobacco, chemicals, machinery, and food processing.

The government is privatizing large-scale parastatal units, and the public sector accounts for a shrinking proportion of industrial output, while growth in overall industrial output (including the private sector) has accelerated. Government policies aim to diversify the country's industrial base and bolster export industries.

Industries: Automobile, textiles (8.5% of the GDP), fertilizer, cement, oil refineries, products, food processing, beverages, construction materials, clothing, paper products, shrimp

Industrial production growth rate: 6% (2005)

Large-scale manufacturing growth rate: 19.9% (2005)

Pakistan is an emerging market for automobiles and automotive parts offers immense business and investment opportunities. The total contribution of Auto industry to GDP in 2007 is 2.8% which is likely to increase up to 5.6% in the next 5 years. Auto sector presently, contributes 16% to the manufacturing sector which also is expected to increase 25% in the next 7 years.

The new Government is working quite efficiently but so far it hasn’t been successful in solving and finding solutions to the various economic and defense related issues faced by the country. As soon as the political situation of the country becomes stable the confidence of local and foreign investors will be regained and can be further strengthened if the Government introduces measures & policies to facilitate sectors of economy that have suffered in the recent bad phase of economic instability.

INDUSTRY ANALYSISHistorically the demand of petroleum products has been increasing at an average rate of 7.5 percent per year (last 4 years 4.25 %). The long term growth estimates have been forecast to range between at 4.5 to 5%. The maximum growth of 9% has been forecast in oil and gas consumption in the transport sector.

The consumption of furnace oil however, is expected to double itself mainly in power generation. There are several refinery projects in different stages of development which when reach maturity shall considerable increase the country’s refining capacity. The recent overhauling of Pakistan Refinery Limited (PRL) and Park-Arab Refinery Limited (PARCO) production units have enhanced production of HSD & FO during Jul-Oct 2007, which was up by 21 percent and 26 percent as against corresponding months of last year respectively. But, these are deficit products as their local production meets only 47 percent and 45 percent of the local demand for HSD and FO, respectively. Hence, in the meantime the growing needs for petroleum products will have to be met from additional imports of refined products as well as increase crude imports for the new refineries.

The existing infrastructure in the country is not adequate to bear the burden of the large volumes which are envisaged at the term of this millennium. For storage, transportation and distribution of the additional quantities of oil, additional facilities on the continuing basis need to be introduced before the existing facilities become so incapable that the consumers bear the cost of Shortages & non-availability in the market. In addition to the injection of adequate and modern facilities, the consumer will look for innovative marketing techniques and safe and friendly products to satisfy their sophisticated demands & concern about pollution and ecological imbalance. The petroleum industry must prepare itself to meet the challenges of free market and discerning consumers of the new era.

Based on the various factors, such as GDP growth, sustainable agricultural activities, increase in the vehicle population leading to increased petroleum trade activity, and thermal power generation etc., the POL requirement of the country are on constant increase. As per OCAC’s long term demand estimates the POL demands, in the next 5 years i.e. up to 2005-10 is expected to increase by about 33% to a volume of 22,345 million tons as compared to 1998-99 actual of 16,805 million tons.

Currently the demand is met by importing refined products mainly HSD and HSFO to the tune of 63% and the balance 37% demand is met by processing imported and as well as the indigenous crude.

In developing counties the demand for middle distillates and furnace oil grows at a fast rate. At present the demand for gas oil & furnace oil constitutes about 84% of the fuel. The four domestic refineries cannot meet such demand and since the refining capacity has been left far behind these two products are being and shall continue to be imported in large quantities in future. In 1998-99 nearly 5026 million tons of gas oil and 5.32 million tons of furnace oil was imported. At the time kerosene, gasoline and JP-1 were also imported to meet the small shortfalls in the supply from the local refineries.

The cost of current and next year’s petroleum imports are expected to be close to $7billion, which is higher than previous years import and about $1.2billion higher than current year’s revised estimates of $ 6.6billion. The oil import bill for the year 2007-2008 has been reported as approximately $9.00 billion.

The anticipated total consumption of crude oil for the next year has been estimated at 73.3million tons out of which the consumption of HSD High Speed Diesel and furnace oil, which recorded at 7.4 million tons and 7.3 million tons in the previous fiscal year, have been increasing substantially during the current year and it is being estimated that their demand will increase to 9.1 million tons and 8.1 million this year. The cumulative cost of Diesel and Furnace Oil has been projected at $2.25billion for the next year against $2.7billion during the current year.

For the current year, an amount of $6.4billion had been estimated for the import of about 64.75million tons of crude, 4.6million tons of diesel, 2million tons of furnace oil.

COMPANY ANALYSISPakistan Petroleum Limited is one of the oldest and largest E&P companies in the country. The primary activities of the company involve exploration, development and production of Pakistan's natural reserves of oil and gas. It was incorporated on 5th June 1950 after the promulgation of the Pakistan Petroleum Production Rules in 1949. PPL inherited all the assets and liabilities of its parent company, the Burmah Oil Company (Pakistan Concessions) Limited and commenced business on 1st July 1952.

The company remained under the management control of Burmah Castrol, UK till 1997. After that the government purchased the entire equity interest of Burmah Castrol PLC, formerly Burmah Oil Company. After June 2004, the Government of Pakistan disinvested around 15% of its equity in the company through an Initial Public Offering (IPO). The Government of Pakistan intends to privatize PPL and IPO was a significant step towards achieving this objective. As at June 2008, the government of Pakistan owned 78.4% stake of PPL, the International Finance Corporation (IFC) had 3.43% of shareholding and the rest 18.17% is free-float.

PPL is the second largest Exploration and Production (E&P) companies, both, in terms of production and reserves. PPL has been playing a crucial role in augmenting hydrocarbon resources since 1955. Presently PPL contributes around 25% of the country's total natural gas production. It is also one of the market leaders in terms of its holdings of exploration area. Out of 242,714 sq.kms area under exploration in Pakistan, PPL holds the second largest share, more than 22% in joint venture with partners. PPL is aggressive in exploration but at the

same time conservative in selecting drilling sites.

It has discovered eight gas and three oil fields. PPL has working interest in 24 exploration blocks, of which eight are PPL operated and the other 14, including 4 off-shore are partner operated. Sui and Kandhkot gas fields are two of the major PPL operated fields where PPL has 100% ownership. In 1952 the company discovered the largest gas reserves at Sui. Within three years (1955) the supply of natural gas to Karachi for industrial and domestic use began through pipelines. Sui caters to about one-fifth of the total gas demand in the country. In 1959, vital discoveries at Kandhkot gas field and Mazarani field were made. Crude oil was discovered at Adhi field in 1978 and in 1980 commercial production started at Adhi.

In 1990, the Liquefied Petroleum Gas (LPG) and Natural Gas Liquid (NGL) Plan was installed and the production of LPG, NGL and gas from Adhi commenced. In the year 2007, PPL made oil and gas discovery at Mela-1 well (Nashpa Block) and two gas discoveries at Latif-1 (Latif Block) and Tajjal-1 (Gambat Block). In the same year, the first exploratory well Mela-1 at Nashpa Block was completed as oil and gas producer and the Extended Well Test production commenced. Bolan Mining Enterprises (BME) is a joint venture between PPL and the Government of Baluchistan for the development, mining, grinding and marketing of barites mineral deposits found near Khuzdar and other minerals in the province of Baluchistan. The Company operates a Baryte mine in the Baluchistan province.

Profits for the 9 months ending March 2009 were Rs 20.970Billion which is 40% higher than same period last year. This translated into earnings of Rs 25.27 per share (9M 2008: Rs 18.04per share). This profit started from 37% higher sales this year of Rs 45.337Billion (9M 2008: Rs 33.126Billion). Main contributors to high profits this year are rupee depreciation against US dollar and delayed effect of the high international Oil prices. Other operating income has been high contributor in total profits, 3.344Billion, which comes directly from deposits in bank accounts, Musharika certificates, Pakistan Investment Bonds and TFCs.

On a closer look we get to see that along with high profits Finance cost has also went up by 38%. Similarly, other operating expenses have also increased by 46%. During the year on the operating front, Gas production from Sui and Sawan fields declined while production started from Gambat and Latif along with increases in production from Kandhkot and Nashpa. New business acquisitions included 75% working interest in Tullow Pakistan (Development) Limited in Chachar Development and Production lease, along with operatorship of the area in March 2009. The current production of the field is around 10 MMcfd of natural gas.

The exploration activities are done on local and international horizons. On local front, company has 22 operated exploration fields out of which 7 are exclusively PPL owned while others are partnered. Internationally, deals are going with Yemen and in future PPL is legible to participate in bidding of exploration and development of areas in Iraq. Besides this other working interests are in North, West and East Africa as well as Middle East And central Asian State countries.

The Exploration and Production (E&P) companies would be offered $4.08 per mmbtu in as per 2009 petroleum policy, which was $3.65 per mmbtu in 2007 and $2.99 per mmbtu in 2001. The increase in the gas rates would bode positively for the E&P companies, and the sector is expected to show better results in the coming times.

RESERVES: The total oil & gas reserves of Pakistan fell by 3.6% during the first half of FY'08.

The country's oil and gas reserves declined from 5.95b barrels of oil equivalent at the end of Jun'07 to 5.74b barrels of oil equivalent (boe) by end of Dec'07. Overall oil reserves stood at 340m barrels at December FY'08, as against 353m bbl at Jun'07, showing a decline of 3.8%. The only increase in oil reserves were noted in Naspha block (increase of 7.15m bbl) and in Tando Allah North (oil reserves revised up by 0.20m bbl to 0.37m bbl).

The total gas reserves of Pakistan decreased by 3.4% (from 32.38tcf in Jun'07 to 31.27tcf in Dec'07). Mela and Uch were the two fields that showed significant upward revision in gas reserves. The gas reserves of Mela field were revised upward by 32.47bcf to 78.86bcf at the end of Dec'07 from 46.40bcf earlier at the end of Jun'07. The reserves of Uch field were up by 54.75bcf to 4.49tcf at the end of Dec'07. Thus the total reserve life of the country fell to 22.2 years during the first half of FY'08 from 23.1 years at the end of Jun'07. PPL has around 19% of total oil and gas reserves in Pakistan and it is second to OGDC in this regard.

There has been a net addition of 1.36m barrels in PPL's oil reserves while the reserves of other major companies such as OGDCL and POL declined by 6.9 m barrels and 1.02 m barrels respectively. However, PPL's gas reserves fell by 0.01 TCF. The gas reserves of OGDC and POL also declined by 0.36 TCF and 0.24 TCF respectively.

DRILLING: E&P sector missed drilling target in FY'08 as the companies could spud in 72 oil and

gas drills as against the target of 87 oil drills. The sector missed its target mainly due to deteriorating law and order situation in Balochistan and NWFP. Also the target was burdensome because the drilling target for FY'08 included the target of outgoing fiscal year. Pakistan Petroleum Limited (PPL) announced only one gas discovery during last fiscal year at Adam-X well in Hala Block. In addition, the company is also a JV partner in oil and gas discovery at Mamikhel in Tal Block. PPL has set its target 10 wells average drilling target for a year.

Overall the E&P sector of Pakistan made 11 oil, gas well discoveries, and 23 exploratory and drilled 49 development wells. The new oil and gas discoveries have resulted in a success ratio of 1: 2.1 wells (47 percent), significantly higher than country's historical average of 1: 3.4 wells (29 percent).

PRODUCTION: Pakistan's oil and gas production during FY'08 stood at 703,000 boepd

(barrels of oil equivalent per day) depicting a growth of 2% as compared to FY'07. Oil production alone stood at 698,000 bpd (thousand barrels per day) versus 674,000 bpd depicting a growth of 4%. Similarly, gas production also increased by 1.9 percent to 3.9bcfd (billion cubic feet per day). Pakistan Petroleum Limited (PPL) is primarily a gas producing company, however with increased production of crude from Tal block and Adhi fields as well as additional production from Mela field, the production of crude oil increased during FY'08. This was in line with the sector trend.

The total production of crude oil and gas in the E&P sector improved during the first 11 months of FY'08. Crude oil production grew 4.0% to 69,565bpd during 11mths'08 as against 66,900bpd in the corresponding period of FY'07. Natural gas production during the same period stood at 3,910mmcfd as compared to

3,841mmcfd in 11mths'07, showing a nominal rise of 1.8%. PPL showed considerable increase in crude production supported by additional production from Mela 1 during the period Jun'07 to May'08. Crude oil production by the company stood at 4,031bpd in 11mths FY'08 as against 2,726bpd in the same period in FY'08. Along with this, the production from Tal block also showed an impressive growth of 37.4% and contributed 17.1% of total oil production of the company.

Gas production declined nominally to 989mmcfd during 11mths'08 as compared to 993mmcfd in 11mths'07. Sui and Kandhkot field are the main contributors to the company's gas production. The Sui Sui gas field still remains an important source of gas supply meeting a substantial part of gas demand of the country. The volume of gas sales during FY'08 from the field was 202,771 million cubic feet as against 207,746 million cubic feet in FY'07. The volume of gas sales from Kandhkot field during FY'08 was 52,594 million cubic feet as against 48,370 million cubic feet in FY'07.

PPL registered a growth of 1% in total oil and gas production in FY'08. Oil production of PPL registered a growth of 50% and stood at 43, 000 bpd, while in contrast, gas production remained stagnant at 982mmcfd. This was due to decline in gas production from Sui field, which offset the impact of increased production from newer fields. As shown by the field wise contribution of gas and oil, PPL holds the most attractive exploration portfolio and its growth profile is therefore more impressive than other companies in the sector.

REVENUE: The net sales revenue of PPL increased by around 19% during FY'08 as the total

revenue increased from Rs 38.4 billion earned in FY'07 to Rs 45.7 billion in FY'08. This increase in revenue was mainly helped by higher production from Kandhkot, Adhi, Qadirpur, Sawan and Tal fields which more than offset the decline in production of gas from Sui, Mazarani and Miano fields and commencement of production of gas and crude oil from Mela-1 and Mela-2 wells in Nashpa Block.

Also, higher sales volume of all of PPL's product categories and better well head gas prices caused the rise in revenue in FY'08. The well head gas prices improved due to phased increase in pricing under 2002 pricing agreement. The last such increase in pricing became effective from January 2007.

The company is less vulnerable to oil price movements because of a greater share of natural gas in the total production. The table shows that natural gas has made a higher contribution to total revenue over the years and in FY'08 natural gas contributed to 81.57% of revenue.

PROFITABILITY Pakistan Petroleum Limited posted a profit after taxation of Rs 19.7 billion for the period FY'08 as compared to Rs 16.77 billion earned during FY'07, showing an increase of almost 18%. The company's operating profit increased from Rs 24.5 billion in FY'07 to Rs 29.5 billion. This 20% increase in the company's operating profit resulted despite 15% increase in field expenditure mainly due to extensive exploration activities carried out and 20.5% increase in royalties during the period. The reason for increased operating profit in FY'08 was the rise in

sales revenue earned.

The company registered an increase of 19% in the sales revenue in FY'08. The sales revenue increased from Rs 38.4 billion in FY'07 to Rs 45.7 billion in FY'08. This improved sales performance was largely due to the growth in the overall production and increase in sales volume across all product categories.

The increase in gas production was mainly on the back of rise in production from Kandhkot, Sawan and Adhi fields. Total oil production by the company rose impressively by 82.3% during the first half of FY'08 due to addition by Mela and increase in production from Adhi field and Tal block. During the 3Q FY'08, there was increased gas production from Kandhkot, Adhi, Qadirpur, Sawan and Tal fields and additional production from Nashpa. Also, high international prices resulted in higher profits for FY'08.

Arab light prices grew almost by 40% during 3Q FY'08 as compared to same period in FY'07. The change in pricing of Sui and Kandhkot field also .boosted the profits for FY'08. The well head gas prices especially that of Sui and Kandhkot improved due to phased increase in pricing under 2002 pricing agreement with last such increase becoming effective from Jan'07. The gross profit margin of the company has had a declining trend over the past years because the gross profit earned has fallen during all the previous fiscal years.

In FY'06 the gross profit margin had increased by 36% while in FY'07 the increase in gross profit was only by 21%. During FY'08 the gross profit grew by 19% as compared to FY'07. This has been because over the years the royalties have grown more in proportion to the sales revenue of the company. During FY'08 the sales revenue increases by 19% while the royalties payment increased by 21%. The company was able to almost maintain its profit margin during FY'08. Over the past years the company has had an increasing trend in its profit margin because profit after taxation grew more in proportion to sales.

PPL's profits were boosted by other sources apart from sales revenue. The share of profit in Bolan Enterprises increased by 17% to reach Rs 55.8 million in FY'08. Other operating income rose to an impressive Rs 3.0 billion, an increase of 26% over FY'07, mainly due to effective fund management policy followed by the company. Income on loans bank deposits and term deposits increased. There were substantial increases in the income on long term held to maturity investments and rental income on assets increased from Rs 2 million in FY'07 to Rs 45 million in FY'08. Similarly the exchange gain on foreign currency amounted to Rs 246 million during FY'08 as against Rs 2.77 million in FY'07.

LIQUIDITY: The liquidity management of PPL had been improved greatly since FY03 as

illustrated in the figure. The liquid funds generated from operating activities contributed to the improvement in the ratio. In FY07, the company managed to catch up with and supersede the industry, thus breaking the trend of lower than average current ratio. PPL had increased its investments in short term instruments, contributing to the improvement in current ratio during FY'07. Also, the company has maintained a lower level of inventory than the other major players in the sector.

This reflects company's strength in asset management as well as the liquidity of its asset portfolio. The large amount of cash balances and short term investments maintained by the company will also help PPL in financing future exploration activities. The liquidity position of the company deteriorated during FY'08 after a better

liquidity position in FY'07. This has been due to a 76% increase in the current liabilities of the company while current assets increased only by 12.7%. The company's trade payables and other payables increased during FY'08. Taxation liability also showed an increase.

However, the claims to have a comfortable liquidity position since an amount of Rs 21.6 billion was generated from operating activities of the company. This amount was used to meet the expenditures on capital projects, operational requirements, payment of dividends to the shareholders and investments (short and long-term). At the end of FY'08, the company had cash / bank balances and short-term investments amounting to Rs 22.1 billion. Thus, the company is comfortably placed to meet its existing short-term and long-term commitments and financing requirements of future exploration and development expansion plans.

ASSET MANAGEMENT: PPL has performed well in terms of asset management,

exhibiting a positive trend for inventory turnover and DSO over the years since FY'03. The company's efficiency in inventory management has resulted in its operating cycle being shorter than the industry average. FY08 saw a further increase in the collection period of receivables for PPL and the trade debts continued to mount. Although high DSO is an industry wide trend in the E&P sector but a reduction in the period will improve the company's efficiency and have a positive impact on the company's financial strength.

The turnover of all the company's assets improved during FY'08 due to a 21% increase in assets relative to a 19% increase in sales. This shows that the total asset turnover ratio has increase in FY'08 due to increase in the increase in investment and production capacity. Although less sales were generated relative to the increase in total asset investment, the company can be expected to improve sales and asset management in the future. The sales to equity ratio increased indicating that the company's asset management has been satisfactory.

DEBT MANAGEMENT: PPL has the lowest level of leverage among the major

players in the E&P sector. This is evident in the lower debt ratios of the company compared to the other companies. The debt ratios are low and have been steadily declining over the last few years, indicating that the company is largely equity financed. PPL has not undertaken any long term loans during the past few years. This shows that the company does not rely on loans or other such instruments to finance its growing exploration activities. This trend reflects upon the financial strength of PPL compared to its peers.

Despite the equity financed nature of the company, the financial charges have been mounting and the TIE ratio of PPL has shown a negative trend since the FY06. This may be attributed partly to the increase in assets subject to financial lease in the last one and a half years. However despite the decline, the TIE remains

substantially strong. In the FY07, a large portion of the finance cost accrued to the unwinding of discount on decommissioning cost.

FUTURE OUTLOOK: The E&P sector of Pakistan seems to have a positive future

outlook as the sector's profit after taxation soared by 55% during the first quarter of FY'09. This shows that the sector has had a promising start of the present fiscal year FY'09. The profitability of the sector is expected to increase despite falling oil prices in the international market. Higher wellhead prices under the new pricing policy will help increase the sales revenue and future profitability of the sector. The depreciation of the Pakistani rupee will also helped the sector achieve higher profits as the sector's revenues are priced on an international parity basis.

Along with rising sales revenue, the increase in other income played a major role in boosting the profits during 1Q FY'09. Other income contributed around 8.5% to PBT in 1Q FY'09 as compared to 6.7% in the same period of FY'08. PPL's other income grew substantially by113% to Rs 1.23 billion as the company has over Rs 23 billion in cash and short-term investments which are principally held in term deposits with banks and mutual funds investments along with long-term investments of over Rs 1.8bn mainly parked in PIBs and TFCs.

However, the production for the sector went down during the first quarter of FY'09. Production of oil and gas of the sector fell by 8.7 percent and one percent respectively during 1Q FY'09. Pakistan Petroleum Limited's (PPL) oil and gas production also fell modestly by 2.6 percent and 0.6 percent respectively. Pakistan Petroleum Limited can be expected to increase production in the future because it is present in major geographical zones of the country. Production from Nashpa, Adhi and Tal block will be major contributors and will help in offsetting expected decline from Sui field.

The oil production of the sector declined due to many factors. Firstly, there were slow down in production, especially at sites such as Pindori and Adhi. Pindori field's production remains a concern as its average production in the first quarter FY09 fell by a massive 63 percent, averaging just less than 1,400bpd. Secondly water cuts were experienced in Dhodak and Kal fields. Along with this issues such as annual turn around jobs, delay in completion of development work (at Chanda-3 well) and mechanical problems (at Mela-1 well) slowed down the sector's oil production.

Although the falling oil prices present a downside risk to the sector's earnings, the weak Pak rupee against the US Dollar is expected to make up for it as the sector's revenues are priced on an international parity basis. However, the sector's unabated rise in trade debts is a point of concern as they have risen by 33 percent to Rs 77 billion (June to Sept-08) mainly due to pending payments from refineries, Wapda and gas distribution companies. OVERVIEW (July 29 2008): Recent results 3Q'08PPL posted a sales revenue of Rs 33,126 million for 9M'07 compared to Rs 28,034 million in the same period last year, depicting an increase of 18.2%. Profit after tax of the company grew to Rs 14,971 million during the nine months ended March 31, 2008 compared to

Rs 13,105 million during the corresponding period of previous year, representing an increase of 14.2%.

The increase in PAT is due to rising world oil prices, which offset the decline in production from Sui gas fields. Also contributing to increase in profitability was an increase in gas production from Kandhkot, Adhi, Qadirpur, Sawan and Tal fields which more than offset the decline in production from Sui and Miano fields, commencement of gas/crude oil production from Nashpa field and phased increase in Sui and Kandhkot gas prices under the 2002 Gas Price Agreement, with the last such increase becoming effective from January 01, 2007. As can be observed above, the E&P sector has shown an increase in its profits, due to rising international oil prices and an increase in gas wellhead prices.

The productivity of both crude and gas has been higher compared to the corresponding period of FY07. Pakistan's GDP has grown at an average of 5.8% for the last five years. The rapid growth in the industrial sector has triggered a surge in demand for energy products. The country's gas consumption has been rising at a rapid rate, a five-year CAGR of 5.4%. The cumulative profitability of the listed E&P companies grown phenomenally over the last few years. The top line of these companies grew at a five-year CAGR of 24.8% mainly due to significant growth in the volumetric sales and significant surge in crude oil prices. Moreover, for the same period, the bottom line increased at a 5-year CAGR of 28.42%. For FY07, the profitability of E&P sector increased by a 4.9%.

Oil production, however, grew only by 2.8% during the year to 67,415 bpd in FY07 compared to 65,577 bpd in FY06 and gas production increased negligibly by 0.9% to 3,872 mmcfd from 3,836 mmcfd in FY06. PPL is one of the oldest and largest E&P Company in the country. It was incorporated in 1950 subsequent to the promulgation of the Pakistan Petroleum Production Rules, 1949. The primary activities of the company involve exploration, development and production of Pakistan's natural reserves of oil and gas. PPL inherited all the assets and liabilities of its parent, the Burmah Oil Company (Pakistan Concessions) Limited and commenced business on 1st July 1952.

The company remained under the management control of its parent, Burmah Castrol, UK until 1997 when the government purchased the entire equity interest of Burmah Castrol PLC, formerly Burmah Oil Company. The government owns 78.4% stake of PPL, the International Finance Corporation (IFC) owns 6.1% and the rest 15% are free-float available in the equity markets of the country. PPL is the second largest Exploration and Production (E&P) companies both, in terms of production and reserves. The company's contribution to oil and gas production in the country is illustrated in the chart. PPL accounts for 26.8% of country's total oil and gas production and 23.9% of total oil and gas reserves.

It is also one of the market leaders in terms of its holdings of exploration area. Out of 242,714 sq.kms area under exploration in Pakistan, PPL holds the second largest share, more than 22% in joint venture with partners. PPL has working interest in 24 exploration blocks, of which eight are PPL operated and the other 14, including 4 off-shore are partner operated. Sui and Kandhkot gas fields are two of the major PPL operated fields where

PPL has 100% ownership. Sui caters to about one-fifth of the total gas demand in the country.

In FY06, Sui contributed 67% of total gas sales of the company, higher than FY05. This increase however was due to less than 100% capacity utilization in FY05. Later, the production from this field has declined due to its gradual depletion. As a result, the contribution of the field is likely to decline in the future. In first nine months of FY07, Kandhkot and Sui fields contributed about 80% of the company's total sales. This was due to the unique pricing formula for the two fields. Both, the Sui and Kandhkot are the backbone of PPL. Mazarani and Adhi are other major fields operated by PPL where the company has 87.5% and 39% stakes respectively. Among the partner-operated fields, Miano, Sawan, Tal and Qadirpur are more prominent. The figure above shows the contribution of each field to the total gas production of PPL.

In order to meet the growing energy demands of the country, PPL has enhanced its exploration efforts. This includes the acquisition of new areas and working interests. As various agreements are finalized, the working interests of the company will increase to 24 areas, 19 onshore and 5 offshore. PPL has the second largest exploration programme in the industry. One of the major oil and gas discoveries since FY02 has been in the Nashpa block. The Tal block is another major find. Among the activities undertaken during FY07, the Sarang X-1 well in Kot Sarang block was abandoned in the third quarter of FY07 as the dry hole. However, the seismic survey in Hala and Tajpur blocks has been completed.

Besides this, activities also took place in PPL non-operated areas. Moreover, initial phase of drilling of the Adhi well was completed in FY06 and development of Sawan-6 and Sawan-10 was also completed. The exploration efforts during FY07 reaped benefits in the form of three discoveries of oil and gas out of 10 exploratory wells drilled during the year. First, an oil discovery of 20.4 mmcfd was made in Tajjal 1 of Gambat block in second half of the current fiscal year. PPL holds 23.68% shares in this joint venture. Besides this, one oil and gas discovery was made at Mela-1 (Nashpa Block) and a gas discovery was made at Latif-1 (Latif Block).

Lastly, PPL has recently made a gas condensate discovery in Hala Block at Adam X-1 well in Sindh. A successful drill test system was carried out which flowed at a rate of 1,301 bpd of condensate and 27.4 mmcfd of gas. PPL has 65% stake in this discovery. The testing for other prospective zones has been completed in this area and encouraging results have been produced. Moreover, testing of one exploratory well drilled in PPL operated Hala Block (Adam X-1) has been completed and the results are encouraging. Another exploratory well in partner operated Tal Block (MamiKhel-1) has also shown encouraging results and is being tested for potential reservoir zones.

In addition, two more exploratory wells ie Qadirpur Deep and Kahi Deep-X1 in Tal Block were suspended for further evaluation. The remaining three exploratory wells in S.W. Miano II, Tal (Sumari Deep-X1) and Kot Sarang blocks were plugged and abandoned due to discouraging results. In addition to oil and gas discoveries, PPL has completed three major expansion projects during FY07. These include commissioning of the second LPG/NGL Plant at Adhi. Following commissioning, the performance test was carried out which has confirmed

the design capacity of the plant.

The completion of this project has more than doubled the field production capacity. Phase II of the SUL Compression at Sui and the revamping of Sui power supply system were the other two major projects completed during the year. At the same time, the Kandhkot Wellhead Gas Compression Project has been initiated to maintain the contractual delivery pressure of gas sales while maximizing the reserves recovery. PPL is also evaluating international business opportunities, both for venture exploration as well as acquisition of developed and undeveloped reserves. The company's efforts in International Exploration have paid off with its successful bid for a block in Yemen in a 50:50 joint venture with OMV as operator.

Currently, Product Sharing Agreement (PSA) negotiations are underway with the Government of Yemen for the Block. In addition, a three-member technical/commercial team has visited Morocco, Tunisia and Mauritania for evaluation of exploration opportunities in these countries. Evaluation of exploration investment opportunities in other North African and Central Asian countries has also started. During FY07 the average oil production grew significantly by 58.2% to 2,830bpd from 1,789bpd in FY06. This growth can be attributed mainly to an improvement in production from Adhi field, Tal Block and additional production of 213.2bd from Mela field. The production from Adhi field increased especially after the commissioning of Adhi LPG/NGL Plant II.

The FY07 saw a 301.2mmcfd reduction in average gas production from the Sui field, thus depressing gas production of the company. However, increase in production from Sawan in Nashpa Block, Tal Block and Adhi field, managed to partially offset the decline from Sui. As a result, the total gas production declined by 1.8% to 991 mmcfd in FY07, as compared to 1,009mmcfd in FY06. The sales revenue grew by 21% in FY07 to 38.4 billion. A number of factors contributed to this growth in sales. The higher international crude oil prices during FY07, together with the phased price increase under the Sui and Kandhkot Gas Price Agreement 2002 contributed to the growth in sales.

Moreover, the increase in production, especially from the Adhi field, Tal Sawan and commencement of Extended Well Test Production from Mela-1 discovery at Nashpa Block, also contributed significantly to the sales growth. The growth in sales and production generated an all time high profit figure for PPL in FY07. The profit after tax for FY07 stood at Rs 16.8 billion, depicting a 25% growth over FY06, the highest among the three market leaders in the E&P sector. Sales revenue increased by 36% in FY06 as compared to FY05. The phased increase in prices under the Sui and Kandhkot Gas Price Agreement 2002 was prominent factor behind the rising sales and profits.

The higher international oil prices backed the trend. The rising gas supplies particularly from the Qadirpur, Tal and Kandhkot fields contributed to higher sales revenue. As a result, profit after taxation increased by a massive 55% in FY06 compared to FY05. The profit margin for PPL continued with its positive trend in the FY06 and FY07. The company soars above the industry with respect to the profit margins. The ROA has shown improvement during FY07 but the ROE has declined nominally. The company has benefited from a 63%

growth in other income, one of the highest in the industry. This mainly came from higher financial income from deposits and other sources.

Field expenditure increased by 18% in FY06 and 13.4% in FY07 largely due to heightened exploration activities since the company had working interest in 19 blocks in the FY07. The revision in wellhead gas prices of Sui and Kandhkot fields also contributed positively to the company's profitability. PPL has performed well in terms of asset management, exhibiting a positive trend for inventory turnover and DSO. The company's efficiency in inventory management has resulted in its operating cycle being shorter than the industry average. FY07 saw a further increase in the collection period of receivables for PPL and the trade debts continued to mount.

Although high DSO is an industry wide trend in the E&P sector but a reduction in the period will improve the company's efficiency and have a positive impact on the company's financial strength. The total assets turnover and sales/equity have also fared better than the average industry for all years, once again depicting the company's strength in asset management. The total assets turnover rose slightly in FY06 whereas the sales to equity ratio fell marginally during the same year. This indicates a better utilization of the company's assets than the industry.

The liquidity management of PPL has improved greatly since the FY03 as illustrated in the figure. The liquid funds generated from operating activities contributed to the improvement in the ratio. In FY07, the company managed to catch up with and supersede the industry, thus breaking the trend of lower than average current ratio. During FY07, PPL has increased its investments in short term instruments, contributing to the improvement in current ratio.

Additionally, the company as maintained a lower level of inventory than the other major players in the sector. This reflects company's strength in asset management as well as the liquidity of its asset portfolio. The large amount of cash balances and short term investments maintained by the company will also help PPL in financing future exploration activities. EPS has shown a positive trend for the last few years and the high net profit during FY07 translated into a 25% growth in EPS, bringing it to Rs 24.5 per share. The DPS has shown similar growth as EPS. The company declared a dividend of Rs 11 per share for FY07.

PPL has shown impressive performance in the third quarter of FY08, both in terms of profitability as well as production. The Sui and Kandhkot Gas Price Agreement provide the company with an edge over the other players, and will continue to add to the profitability of the company. The life of its reserves is around 20 years, thus promising a smooth flow of oil and gas for the next couple of decades. Even though the production from one of the backbone fields, Sui, is expected to decline in the future due to its depletion but the company has still been able to maintain a 100% reserve replacement ratio. However, the company is making efforts to extend the reservoir life and optimize gas recovery of the Sui Upper Limestone (SUL) reservoir.

Moreover, the increased production from Tal Block, Adhi, Sawan and Qadirpur blocks is expected to cover up for the decreased production from Sui. The commissioning of the Additional Processing Facilities, Phase II at Adhi has increased the production capacity of the field. This is likely to enhance production of the company in the coming years. PPL has the advantage of holding a good resource base in terms of existing resources. Moreover, the company also enjoys additional reserves potential in some of its existing producing areas like Adhi, Qadirpur etc. This bodes well for the future production potential of the company.

In addition, the success rate of PPL exploration activities stands around 25% which is remarkable compared to the 10% international rate. Thus even though, the exploration involves a very high risk of drilling the dry holes, the company's success rate had partially reduced this risk. Furthermore, to revamp its exploration activities, the company has employed modern technology, including computer applications, remote sensing and communications techniques and other devices. This will further improve the success rate for the company.

The approval of the Petroleum Policy 2007 by the ECC (Economic Coordination Committee) bodes well for the E&P companies, especially those focusing on exploration activities. Being the largest and oldest gas exploration company, PPL therefore, will be one of the major beneficiaries of the policy. Under the petroleum policy 2007, oil and gas process are now indexed with the reference crude oil price, equal to C&F price of the Arabian/Persian Gulf crude oils, with proper adjustments for the quality differential for calculation of crude oil prices (providing 100% linkage with the international prices). The $36 per barrel cap has also been removed.

As a result of this, formula, the gas price per unit will grow by a significant 38.5%. Hence the new policy will provide a positive change, especially to PPL and OGDC, the two companies more aggressive in their exploration activities. An oil discovery of 20.4 mmcfd was made in the Tajjal-1 of Gambat block in second half of the current fiscal year. PPL holds 23.68% shares in this joint venture. The discovery is expected to increase PPL's EPS by 0.18 in the coming fiscal year. Besides this, the discovery in the Hala Block where PPL holds 65% share will also augment production in future.

The new gas pricing formula will enable the company to benefit from the international oil and gas pricing tends unlike the former policy whereby they were offered a 30% ROE in addition to costs. Under the new Agreement, the pricing from both fields was to improve semi annually to reach, by 2007, 50% of international oil prices less applicable discounts under the Petroleum Policy 2001. The phased price increases from the Kandhkot and Sui fields, it is believed, will continue to accentuate profits for the company, especially in the face of the rising international crude oil prices.

In addition, the government in July 2007 announced new five-year energy policy. The new policy provides a 6-8% increase in oil and gas production prices on new discoveries the petroleum exploration and development companies would make in future. Secondly, under this policy, gas producers are required to pay 50% of the difference to the government in case the gas is sold to a third party. Previously, the companies could only sell

their produce to the government or its entities. However, the existing oil and gas producers will continue to follow the existing policy, hence their rates will remain unchanged.

On the other hand, the companies currently under exploration phase or those which have applied for the concession license under the old policy will be allowed to switch to the new policy but would have to offer a price at 0.2 GPG. Lastly, the producers will also have to pay a marine research fee and coastal area development fee of $50,000 per year until the first discovery and the amount would double thereafter, until the declaration of commerciality. The fees would go up during the development phase and reach $500,000 during the production phase. These developments in the policy will also have significant impact on PPL which is the second largest company in the sector.

CALCULATION OF MARKET RISK (BETA)

CALCULATION OF BETA FOR PAKISTAN PETROLEUM LTD. JAN 2009 TO DECEMBER 2009

MONTH DAY STOCK PRICE KSE 100 INDEX STOCK RETURN (Y) MARKET RETURN (X) (X)*(Y) X² Y²

JANUARY 1 105.65 5751

6 122.29 6078 15.75 5.69 89.55 32.33 248.07

12 134.82 6038 10.25 -0.66 -6.74 0.43 104.98

22 139.96 5018 3.81 -16.89 -64.40 285.37 14.54

30 149.37 5367 6.72 6.95 46.76 48.37 45.20

FEB 2 142.36 5336 -4.69 -0.58 2.71 0.33 22.02

16 160 5764 12.39 8.02 99.39 64.34 153.54

20 148.34 5961 -7.29 3.42 -24.91 11.68 53.11

27 145.48 5727 -1.93 -3.93 7.57 15.41 3.72

MAR 3 141.91 5606 -2.45 -2.11 5.18 4.46 6.02

13 148.92 5750 4.94 2.57 12.69 6.60 24.40

19 168.22 6441 12.96 12.02 155.75 144.42 167.96

31 173.27 6860 3.00 6.51 19.53 42.32 9.01

APR 1 171.05 6948 -1.28 1.28 -1.64 1.65 1.64

10 178.82 7620 4.54 9.67 43.93 93.54 20.63

20 202.68 7902 13.34 3.70 49.38 13.70 178.04

30 171.54 7196 -15.36 -8.93 137.27 79.82 236.06

MAY 4 167.47 7061 -2.37 -1.88 4.45 3.52 5.63

12 173.7 7297 3.72 3.34 12.43 11.17 13.84

21 169.22 6969 -2.58 -4.49 11.59 20.21 6.65

29 178.93 7276 5.74 4.41 25.28 19.41 32.93

JUNE 1 178.67 7198 -0.15 -1.07 0.16 1.15 0.02

10 187.16 7043 4.75 -2.15 -10.23 4.64 22.58

19 186.18 7039 -0.52 -0.06 0.03 0.00 0.27

30 189.54 7169 1.80 1.85 3.33 3.41 3.26

JULY 1 191.46 7270 1.01 1.41 1.43 1.98 1.03

13 195.22 7684 1.96 5.69 11.18 32.43 3.86

20 194.25 7703 -0.50 0.25 -0.12 0.06 0.25

31 186.03 7726 -4.23 0.30 -1.26 0.09 17.91

AUG 3 186.86 7716 0.45 -0.13 -0.06 0.02 0.20

11 191.77 8056 2.63 4.41 11.58 19.42 6.90

21 191.46 8116 -0.16 0.74 -0.12 0.55 0.03

31 213.07 8675 11.29 6.89 77.74 47.44 127.40

SEP 1 209.7 8769 -1.58 1.08 -1.71 1.17 2.50

11 226.72 9053 8.12 3.24 26.29 10.49 65.88

18 194 9436 -14.43 4.23 -61.06 17.90 208.28

30 188.99 9349 -2.58 -0.92 2.38 0.85 6.67

OCT 1 187.22 9301 -0.94 -0.51 0.48 0.26 0.88

12 190.26 9642 1.62 3.67 5.95 13.44 2.64

20 184.85 9573 -2.84 -0.72 2.03 0.51 8.09

30 174.56 9151 -5.57 -4.41 24.54 19.43 30.99

NOV 2 165.84 8848 -5.00 -3.31 16.54 10.96 24.95

11 172.39 8928 3.95 0.90 3.57 0.82 15.60

20 181.02 9306 5.01 4.23 21.20 17.93 25.06

26 182.36 9206 0.74 -1.07 -0.80 1.15 0.55

DEC 1 177.8 9019 -2.50 -2.03 5.08 4.13 6.25

10 177.7 8999 -0.06 -0.22 0.01 0.05 0.00

21 182.51 9237 2.71 2.64 7.16 6.99 7.33

31 189.59 9386 3.88 1.61 6.26 2.60 15.05

SUM 68.07 54.64 777.35 1118.97 1952.39

AVERAGE 1.42 1.138

BETA=nΣXY - (ΣX)(ΣY)/nΣX² - (ΣX)²

n = 48

ΣX= 54.64

ΣY=68.07

ΣX²= 1118.97

Σxy = 777.35

BETA = 48(777.35) - (54.64)(68.07) / 48(1118.97) - (54.64)²

=37312.8 - 3719.3448 / 53710.56 - 2985.5296 » 0.66

ALPHA = Ȳ - βẊ

= 1.42 - 0.66(1.138) » 0.67

Rf + Bs (Rm - Rf)

Expected Return Rs=ᾳ + β(Rm) where Rs= Required Return= (0.67 + 0.66(20.30) ᾳ = 0.67= 14.07% β= 0.66

Rm is assumed to be 20.30

CALCULATION OF CAPM

Rs =

Where;

Rs= Required Return on Pakistan Petroleum Ltd

Rf= Risk Free rate of Return which is assumed to be 12.25%

Bs= Beta of Pakistan Petroleum stock which was calculated to be 0.66

Rm= Market Rate of Return is assumed to be 20.30

Rs = Rf + Bs (Rm – Rf)

Rs = 12.25 + 0.66(20.30 – 12.25)

= 17.60 %

RATIO ANALYSIS

RATIO ANALYSIS OF PAKISTAN PETROLEUM LTD. LIQUIDITY RATIOS 2007 2008 2009

Current Ratio Current Assets 4.35 2.79 3.10Current Liabilities

Quick Ratio Quick Assets 4.16 2.67 2.96Current Liabilities

Cash Ratio Cash 0.10 0.08 0.09Current Liabilities

Fixed Asset Turn Over Ratio Sales 2.72 2.48 2.19Avg. Net Fixed Assets

Net Working Capital to Total

AssetsNet Working Capital 0.56 0.44 0.43

Avg. Total Assets

LONG TERM SOLVENCY MEASURES

Total Debt Ratio Total assets - Total equity 0.22 0.31 0.28Avg. Total Assets

Times interest earned ratio Earnings before Interest & Tax 494 Times 458 Times 448 TimesInterest

ASSET MANAGEMENT, OR TUROVER, MEASURES

Inventory TurnoverCost of Goods sold

10.07 10.53 11.87Avg. Inventory

Days sales in inventory 365 days 36 35 31inventory turnover

Receivables Turnover Sales 4.8 4.11 3Avg. Accounts receivable

Days' sales in receivables 365 days 76 89 122

Receivables turnover

ASSET TURNOVER RATIOS

Fixed Asset Turn Over Ratio Sales 2.72 2.49 2.19Avg. Net Fixed Assets

Total Assets Turnover Sales 0.84 0.82 0.86Avg Total Assets

PROFITABILITY MEASURES

Profit Margin Net Income 43.68% 43.10% 45%Sales

Return on Assets Net Income 36.67% 35.38% 38.49%Avg Total assets

Return on equity Net income 41.82% 45.14% 44%Total Equity

Basic Earning Power RatioEarnings before Interest & Tax

0.53 0.54 0.58Avg Total Assets

The interpretation of these calculated Ratios is as follows:

Liquidity Ratios:

Current Ratio:

Current AssetsCurrent Liabilities

2007: = 4.35

2008: = 2.79

2009: = 3.10

This ratio shows that how much current assets a company as against current liabilities. And how efficiently company uses its current assets to generate more profit and higher ratio shows better performance. The latest current ratio of PPL is 3.10 which shows that PPL has current assets of Rs. 3.10 against liabilities of Rs.1. Current Ratio more than 1 is considered good, it means PPL is doing very good.

Quick Ratio:

Quick AssetsCurrent Liabilities

2007: = 4.16

2008: = 2.67

2009: = 2.96

Quick ratio or liquid ratio measures the ability of a company to use its near cash or quick assets to immediately extinguish its current liabilities. Quick assets include those current assets that presumably can be quickly converted into cash at close to their book values. Such items are cash, marketable securities and some accounts receivable. This ratio indicates a firm’s capacity to maintain operations as usual with current cash or near cash reserves in bad periods. Quick ratio of PPL was 4.16 in 2007 then it dropped to 2.67 and now 2.96. Still it is very good and showing good performance of the Company.

Cash Ratio:

CashCurrent Liabilities

2007: = 0.10

2008: = .08

2009: = .09

The cash ratio measures the extent to which a corporation or other entity can quickly liquidate assets and cover short-term liabilities, and therefore is of interest to short-term creditors. Cash ratio was 0.10 in 2007,.08 in 2008 and .09 in year 2009. It means PPL has Rs .09 against short term liability of Rs 1

Asset Management:Inventory Turn over Ratio:

Cost Of Goods soldAverage inventory

2007: = 10.07

2008: = 10.53

2009: = 11.87

Inventory turnover mean, the number of times the company will completes its operating cycle. Its mean greater the inventory turnover ratio, more will be the operating cycles. Which is favorable for the company’s position and as well as the inventory turn ratio is also increased in the past three years.

Fixed Asset Turn Over Ratio:

SalesNet Fixed Assets

2007: = 2.72

2008: = 2.48

2009: = 2.19

This ratio shows that how company is utilizing its fixed assets efficiently for generating sales and higher the ratio better the company performance. PPL’s latest fixed assets turnover ratio is 2.19 which means PPL is utilizing fixed assets of Rs 1 to generate sales of Rs 2.19

Total Asset Turnover Ratio:

SalesAvg. Total Assets

2007: = 0.84

2008: = 0.82

2009: = 0.86

This ratio shows how company is utilizing its total assets efficiently for generating sales and more the ratio better the company’s performance. Total assets turnover ratio of PPL is 0.86 in 2009 which is quite good, means PPL is utilizing Rs 1 Total assets to generate sales of Rs 0.86

Day Sales Outstanding:

Receivable turnover

SalesA/C Receivable

2007: = 4.8

2008: = 4.11

2009: = 3

Receivable turnover means how quickly company’s receivable is converted into cash. It must be higher. The PPL receivable turnover is 3 in 2009 which means it collects its debts 3 times in a year.

No. of Days = 365/4.8 = 76 days (2007)

= 365/4.11 = 89 days (2008)

= 365/3 = 122 days (2009)

It is the debt collection period. This ratio describes that how quickly a company collect its outstanding receivable. PPL debt collection period is 122 days in 2009 which means PPL is collecting cash from receivables in 122 days. This ratio is high and PPL should collect its debts earlier in order to maintain performance.

Debt Management:

Debt to Total Assets:

Total DebtTotal Assets

2007: = 0.20

2008: = 0.28

2009: = 0.24

In the debt to total asset ratio, which shows the comparison of the debt and total assets of the company. In the past few years, it is observed that the debt of the company is decreasing from the previous year in relation to the total assets of the company. This is favorable for company

Times Interest Earned:

EBITInterest

2007: =494 times

2008: = 458 times

2009: = 448 times

Times interest earned ratio means how many number of times the company is earning its profit over its interest expenses. PPL’s Times interest earned ratio is very high which means it can pay its interest 448 times. Shows that the debt is low compared to the equity.

Profitability Ratios:

Profit margin on sale:

Net Profit * 100Sales

2007: = 43.68 %

2008: = 43.10 %

2009: = 45 %

Net profit ratio refers to a measure of profitability and shows that a company earns how much profit after deducting all expenses. The profit of PPL is 45 % is 2009 and increasing from the previous year. PPL is getting 45% profit on sales after deducting all expenses.

Basic Earning Power Ratio:

EBIT

* 100Total Assets

2007: = 0.53

2008: = 0.54

2009: = 0.58

The basic earning power ratio shows that how the total assets of the company affect the profit of the company and it also shows how the earnings are affected by the total assets of the company.

Return on Equity:

2007: = 42 %

2008: = 45 %

2009: = 44 %

It is the ratio of net income to total equity. It means PPL has got a return of 44% in 2009 on its total equity. The return on equity in the previous year is averaged 44% which is very good and showing good performance of the company.

Price Earnings Ratio:

2007: = 12.99

2008: = 10.36

2009: = 5.68

The P/E ratio (price-to-earnings ratio) of a stock (also called its "P/E", "PER", "earnings multiple," or simply "multiple") is a measure of the price paid for a share relative to the annual net income or profit earned by the firm per share. It is a financial ratio used for valuation: a higher P/E ratio means that investors are paying more for each unit of net income, so the stock is more expensive compared to one with lower P/E ratio. PPL’s P/E ratio as reduced highly compared to the previous year’s which means now investors are paying less for each unit of net income, showing a healthy sign of the company’s performance.

Dividend Yield:

2007: = 4.19 %

2008: = 6.30 %

2009: = 6.86 %

The dividend yield or the dividend-price ratio on a company stock is the company's annual dividend payments divided by its market cap, or the dividend per share divided by the price per share. It is often expressed as a percentage. Its reciprocal is the Price/Dividend ratio.PPL has given 6.86% yield per unit in the year 2009.

Return on Capital Employed:

2007: = 57 &

2008: = 64%

2009: = 62 %

Return on Capital Employed (ROCE) is used as a measure of the returns that a company is realizing from its capital employed. It is commonly used as a measure for comparing the performance between businesses and for assessing whether a business generates enough returns to pay for its cost of capital.

PROJECTED FINANCIAL STATEMENTS OF

PAKISTAN PETROLEUM LTD.(FROM 2010-2012)

PROFIT AND LOSS ACCOUNT

PROJECTIONS BEFORE ADJUSTMENT

               2007 2008 2009 2010 2011 2012  (Rs 000) (Rs 000) (Rs 000) (Rs 000) (Rs 000) (Rs 000)   

Net sales 38,38

2,645 45,71

6,789 61,58

0,072 76,975,

090 96,218,8

63 120,273,5

78

Cost of sales 13,841,3

67 16,210,3

85 20,624,4

86 25,780,

608 32,225,7

59 40,282,1

99

Gross profit 24,54

1,278 29,50

6,404 40,95

5,586 51,194

,483 63,993

,103 79,991

,379

Other operating Income 2,465,0

22 3,092,1

42 4,149,7

32 5,187,1

65 6,483,9

56 8,104,

945

Other operating expenses 2,600,1

06 2,085,3

67 3,103,2

70 3,879,0

88 4,848,8

59 6,061,

074 Profit before Interest & taxation

24,406,194

30,513,179

41,908,420

52,502,560

65,628,200

82,035,250

Finance costs 49,4

24 66,6

24 93,6

28 93,6

28 93,62

8 93,62

8

Profit before taxation 24,35

6,770 30,44

6,555 41,90

8,420 52,408

,932 65,534

,572 81,941

,622

Taxation 7,588,9

96 10,739,1

57 14,205,6

29 18,343,

126 22,937,

100 28,679,

568

Profit after taxation 16,76

7,774 19,70

7,398 27,70

2,791 34,065,8

06 42,597,4

72 53,262,0

54

PROFIT AND LOSS ACCOUNT

PROJECTIONS

AFTER ADJUSTMENT

  2007 2008 2009 2010 2011 2012  (Rs 000) (Rs 000) (Rs 000) (Rs 000) (Rs 000) (Rs 000)   

Net sales38,382,6

4545,716,7

8961,580,0

7276,975,0

90 96,218,863 120,273,578

Cost of sales13,841,367 16,210,385 20,624,486

25,780,608 32,225,759 40,282,199

Gross profit24,541,2

7829,506,4

0440,955,5

8651,194,4

8363,993,1

0379,991,3

79

Other operating Income2,465,022 3,092,142 4,149,732

5,187,165 6,483,956 8,104,945

Other operating expenses2,600,106 2,085,367 3,103,270

3,879,088 4,848,859 6,061,074

Profit before Interest & taxation24,406,1

9430,513,1

7941,908,4

2052,502,5

60 65,628,200 82,035,250

Finance costs 49,424 66,624 93,628 337,748 759,934 1,287,667

Profit before taxation24,356,7

7030,446,5

5541,908,4

2052,164,8

1264,868,2

6680,747,5

83

Taxation7,588,996 10,739,157 14,205,629

18,257,684

22,703,893

28,261,654

Profit after taxation16,767,7

7419,707,3

9827,702,7

91 33,907,128 42,164,373 52,485,929

BALANCE SEET PROJECTIONS BEFORE ADJUSTMENT

  2007 2008 2009 2010 2011 2012

  (Rs 000) (Rs 000) (Rs 000) (Rs 000) (Rs 000) (Rs 000)

ASSETS    

Non-current assets    

Fixed assets15,377,148 21,368,020

34,970,717 43,713,396.25 54,641,745.31 68,302,181.64

Long-term loans 10,853 11,752 9,897 12,371.25 15,464.06 19,330.08

Long-term deposits 615,000 768,750.00 960,937.50 1,201,171.88

Long term investment 677,384 1,781,469 1,854,333 2,317,916.25 2,897,395.31 3,621,744.14

Long-term receivables - 27,531 34,413.75 43,017.19 53,771.48

Deferred Tax Asset 711,337 - -

  16,776,722 23,161,241 37,477,478 46,846,847.50 58,558,559.38 73,198,199.22

Current assets -

Stores and spares 1,474,655 1,604,385 1,871,644 2,339,555.00 2,924,443.75 3,655,554.69

Trade debts 9,002,094 13,228,456 27,779,864 34,724,830.00 43,406,037.50 54,257,546.88

Loans and advances 34,001 46,506 414,760 518,450.00 648,062.50 810,078.13

Short-term prepayments 408,658 698,029 319,967 399,958.75 499,948.44 624,935.55

Accrued financial income 116,755 212,877 308,003 385,003.75 481,254.69 601,568.36current maturity of long-term investments

24,980 31,225.00 39,031.25 48,789.06

current maturity of long-term receivables

231,289 19,029 23,786.25 29,732.81 37,166.02

Other Receivables 21,669 8,858 99,347 124,183.75 155,229.69 194,037.11

Short Term Investments 21,515,496 20,968,017 13,216,706 16,520,882.50 20,651,103.13 25,813,878.91

Cash and Bank Balances 787,786 1,094,892 1,384,353 1,730,441.25 2,163,051.56 2,703,814.45

Total current Assets33,592,403

37,862,020

45,438,653 56,798,316.25 70,997,895.31 88,747,369.14

TOTAL ASSETS 50,369,125 61,023,261 82,916,131 103,645,164 129,556,455 161,945,568

SHARE CAPITAL AND RESERVES      

Share capital 6,858,376 7,544,200 8,298,606 8,298,606 8,298,606 8,298,606

Reserves 33,239,675 36,110,071 54,759,951 54,759,951 54,759,951 54,759,951

  40,098,051 43,654,271 63,058,557 63,058,557 63,058,557 63,058,557

NON CURRENT LIABILITIESProvision for decommissioning obligation

1,744,823 2,813,374 3,974,307 3,974,307 3,974,307 3,974,307

Liabilities against assets subject to finance lease

69,152 77,564 100,105 100,105 100,105 100,105

Deferred Liabilities 742,059 859,779 990,685 990,685 990,685 990,685

Deferred Income 5,830 5,830 5,830 5,830

Deferred taxation 39,157 138,563 138,563 138,563 138,563

  2,556,034 3,789,874 5,209,490 5,209,490 5,209,490 5,209,490

CURRENT LIABILITIES      

Trade and other payables 7,220,468 12,241,943 13,474,434 16,843,042.50 21,053,803.13 26,317,253.91current maturity of long term liability for gas development surcharge

231,289 -

Current maturity of liabilities against assets subject to finance lease

50,696 44,795 45,946 45,946 45,946 45,946

Current maturity of deferred income

971 971 971 971

Taxation 212,587 1,292,378 1,126,773 1,408,466.25 1,760,582.81 2,200,728.52

 7,715,040

13,579,116

14,648,084 18,298,425.75 22,861,302.94 28,564,899.42

CONTINGENCIES AND COMMITMENTS

AFN 17,078,691 38,427,105 65,112,622

TOTAL EQUITY AND LIABILITIES 50,369,125 61,023,261 82,916,131 103,645,164 129,556,455 161,945,568

BALANCE SHEET

PROJECTIONS AFTER ADJUSTMENT

  2007 2008 2009 2010 2011 2012

  (Rs 000) (Rs 000) (Rs 000) (Rs 000) (Rs 000) (Rs 000)

ASSETS

Non-current assets

Fixed assets15,377,148

21,368,020

34,970,717

43,713,396.25

54,641,745.31

68,302,181.64

Long-term loans 10,853 11,752 9,897 12,371.25 15,464.06 19,330.08

Long-term deposits 615,000 768,750.00 960,937.50 1,201,171.88

Long term investment 677,384 1,781,469 1,854,333 2,317,916.25 2,897,395.31 3,621,744.14

Long-term receivables - 27,531 34,413.75 43,017.19 53,771.48

Deferred Tax Asset 711,337 - -

 16,776,722 23,161,241 37,477,478

46,846,847.50

58,558,559.38

73,198,199.22

Current assets -

Stores and spares1,474,655

1,604,385

1,871,644 2,339,555.00 2,924,443.75 3,655,554.69

Trade debts9,002,094

13,228,456

27,779,864

34,724,830.00

43,406,037.50

54,257,546.88

Loans and advances 34,001 46,506 414,760 518,450.00 648,062.50 810,078.13

Short-term prepayments 408,658 698,029 319,967 399,958.75 499,948.44 624,935.55

Accrued financial income 116,755 212,877 308,003 385,003.75 481,254.69 601,568.36

current maturity of long-term investments 24,980 31,225.00 39,031.25 48,789.06

current maturity of long-term receivables 231,289 19,029 23,786.25 29,732.81 37,166.02

Other Receivables 21,669 8,858 99,347 124,183.75 155,229.69 194,037.11

Short Term Investments21,515,496

20,968,017

13,216,706

16,520,882.50

20,651,103.13

25,813,878.91

Cash and Bank Balances787,786

1,094,892

1,384,353 1,730,441.25 2,163,051.56 2,703,814.45

Total current Assets33,592,40

337,862,

02045,438,

65356,798,316.2

570,997,895.3

188,747,369.1

4

TOTAL ASSETS 50,369,125 61,023,261 82,916,131 103,645,164 129,556,455 161,945,568

SHARE CAPITAL AND RESERVES

Share capital 6,858,376 7,544,200 8,298,606 8,298,606 8,298,606 8,298,606

Issued new share @ 101 12,979,805 29,204,600 49,485,593

Reserves33,239,675

36,110,071

54,759,951

54,759,951 54,759,951 54,759,951

 40,098,051

43,654,271

63,058,557

76,038,362 92,263,157 112,544,150

NON CURRENT LIABILITIES

Provision for decommissioning obligation1,744,82

32,813,374 3,974,307 3,974,307 3,974,307 3,974,307

Liabilities against assets subject to finance lease

69,152 77,564 100,105 100,105 100,105 100,105

Deferred Liabilities 742,059 859,779 990,685 990,685 990,685 990,685

Deferred Income 5,830 5,830 5,830 5,830

Deferred taxation 39,157 138,563 138,563 138,563 138,563

Project Debt 4,098,886 9,222,505 15,627,029

  2,556,034 3,789,874 5,209,490 9,308,376 14,431,995 20,836,519

CURRENT LIABILITIES

Trade and other payables7,220,468 12,241,943 13,474,434

16,843,042.50

21,053,803.13

26,317,253.91

current maturity of long term liability for gas development surcharge

231,289 -

Current maturity of liabilities against assets subject to finance lease

50,696 44,795 45,946 45,946 45,946 45,946

Current maturity of deferred income 971 971 971 971

Taxation 212,587 1,292,378 1,126,773 1,408,466.25 1,760,582.81 2,200,728.52

 7,715,0

4013,579,1

1614,648,0

8418,298,425.7

522,861,302.9

428,564,899.4

2

CONTINGENCIES AND COMMITMENTS

TOTAL EQUITY AND LIABILITIES 50,369,125 61,023,261 82,916,131 103,645,164 129,556,455 161,945,568

RECOMMENDATIONS

Below are some recommendations which justify our investment in securities of the Pakistan Petroleum Ltd.

1. Pakistan Petroleum Ltd. Is the pioneer of natural gas industry in Pakistan and is the front line player in the Industry, so we recommend investment in Pakistan Petroleum Ltd.

2. The last three years averaged growth rate of the Company is 25 % which means company’s performance in term of profitability, growth and sales is increasing.

3. PPL’s stock is considered reliable for investor as the stock price is constantly moving upwards in the recent time.

4. PPL had announced a dividend of Rs 15.50 per share in the year 2008, and in the year 2009, the announced dividend per share is Rs 13.00 which is quite attractive for an investor.

5. Shares of PPL are currently trading in Stock Exchange between 190 and 205 and are continuously moving upward which shows the sign of Investor’s confidence on the company.

6. Pakistan petroleum Ltd is the leader of the market in its industry and thus has a very high demand, so it is worth buying their shares.

7. If we see the Capital structure of PPL, we can see that there is a very little portion of Debt as compared to the Equity of the company, it’s another plus point of PPL.

8. The dividend on the PPL’s shares is attractive and the shares prices are going upward so an investor can earn handsome dividend and capital gain as well.

9. The Market risk of the PPL’s Stock is below 1 i-e 0.66 which means it is less risky. It has less deviation with the market.

Bibliography:

The following links were used to obtain all the information about the project on Pakistan Petroleum Ltd.

http://en.wikipedia.org/wiki/Economy_of_Pakistan

http://ppl.com.pk

http://www.ppl.com.pk/AboutPPL/CompanyInfo/Pages/CompanyOverview.aspx

http://www.ppl.com.pk/Repository/AnnualFinancialReport/Annual%20Financial%20Report%202007.pdf

http://www.ppl.com.pk/Repository/AnnualFinancialReport/Annual%20Financial%20Report%202008.pdf

http://www.ppl.com.pk/Repository/AnnualFinancialReport/PPL%20Annual%20Report%202009.pdf

http://www.brecorder.com/index.php?id=943778&currPageNo=1&query=&search=&term=&supDate

http://www.kse.com.pk/listing-companies/analysis_report.php?id=3&sid=3.07

http://www.zhvsec.com/kseindex-history.aspx

http://www.zhvsec.com/history-symbol-datewise.aspx

http://www.pakistaneconomist.com/database2/cover/c2000-45.asp