Strategic Business Plan
Oil price started to decline in the latter half of 2014 and plunged to below US$ 25/bbl in January 2016. Although oil price has a history of volatility but the intensity of the current turmoil was severe enough to shake up the global petroleum industry forcing even the big petroleum giants to cut budgets, scrap low priority investments and lay off several employees. According to a recent Deloitte report, around a third of all oil companies could face bankruptcy this year if the oil price does not recover sufficiently.
In such a difficult situation, MPCL was able not only to sustain itself but also outperform in key performance indices in view of the timely strategic decisions by the Management. The actions defined in the 2015-16 Strategic Plan resulted in corporate efficiency, prudent investment choices and stricter financial discipline leading to improved growth in its core oil and gas business and creation of strong fundamentals for a robust recovery of profitability even in this challenging business environment.
Overall strategic and management’s objectives
Considering the price volatility, MPCL is continuing to review and adjust its strategic focus. Industry expects oil price to rise gradually to US$ 65/bbl by 2019. Accordingly, MPCL has redefined its business strategy spreading it over three time horizons:
i. Short-term: the Company aims to remain focused on its core business and pursue cash flow maximization initiatives to safeguard financial robustness through efficiency gains and cost reduction.
ii. Medium term: the Company plans to focus on investments aimed at adding high prospectivity blocks in its portfolio characterized by high-cost high-reward and medium to high risk to achieve positive reserves replacement rate and increase production.
iii. Long term: the Company places strategic focus on diversifying investments for adding value to its existing business and to securing sources of income other than oil and gas to ensure growth on sustainable basis in varying oil price regimes.
Management’s strategies of meeting these objectives
The Management has set operational priorities in line with the defined strategic focus for the year 2016-17. The Business Plan for 2016-17 will serve as a road map for MPCL’s targets for the year. The Company shall keep pursuing exploration-led growth strategy backed by optimized production from all its fields especially Mari D&P Lease. The corporate targets have been formulated considering the following four key areas:
1)Core Business, 2) Internal Processes & Policies, 3) Stakeholders, and 4) Financial Growth.
To ensure achievement of corporate goals within the stipulated time period, a Management Control System (MCS) has been instituted for close monitoring and reporting of the progress for mid-course corrections in case of slippages from the planned course.
Significant changes in objectives and strategies from the previous year
In the short term, no significant change is expected in the objectives and strategies from the previous year. For the long term, however, the Management has started evaluating diversification opportunities. Diversification will provide the much needed synergy to MPCL upstream business which is likely to remain volatile in the foreseeable future.
Relationship between the company’s results and management’s objectives
The actions defined in Strategic Plan 2015-16 resulted in corporate efficiency, prudent investment choices and stricter financial discipline leading to improved growth in the Company’s core business and creation of strong fundamentals for a robust recovery of profitability even in a globally challenging business environment.
Business Overview & Key Performance Indicators
The Company is principally engaged in exploration, production and sale of hydrocarbons
- Crude Oil
Macro level overview
On the whole, the performance of Pakistan’s oil and gas sector remained sluggish during the year. Domestic oil and condensate production which touched 100,000 bpd mark in first quarter of 2014 has been hovering around 90,000 to 95,000 bpd since 2014 with no significant addition. Similarly, the forecast trajectory of natural gas volumes, although being more than 6 times larger than oil, is not optimistic.
Local gas production presents a gloomy picture. The Country’s gas production peaked at 4.3 BCF per day
(654 KBOE per day) in 2012 and has since been in a declining phase, falling to around 4.0 BCF per day by
the end of 2014 and remains stagnated at that level as of today. The remaining recoverable gas reserves have
also been sliding since peaking at 32.8 TCF in 2005. As of June 30, 2015 the remaining recoverable gas
reserves were 20.265 TCF. The downward trajectory of the Country’s recoverable gas reserves amid declining
production volumes from maturing fields projects a weaker outlook for indigenous gas production.
Total equity increased by 48% from Rs. 11.50 billion to Rs. 16.97 billion and comprised of issued, subscribed
and paid up capital, undistributed percentage return reserve, capital redemption reserve fund and other reserves. Fauji Foundation remains the major shareholder of the Company with an equity stake of 40%. Long term financing of the Company decreased from Rs. 9.3 billion to Rs. 1 billion at the year end, thereby, decreasing the debt / equity ratio to 5.57:94.43 from 44.69:55.31 in 2014-15. Future projections indicate adequacy of the capital structure for the foreseeable future.
Analysis of the prospects of the company
Over the period under review except for the targets for both financial as well as non-financial measures which
were strategically put on hold by the management, or involved some delay on part of external stakeholders,
Company was able to successfully achieve its ambitiously set targets in its annual Business Plan. For instance, MPCL’s production enhancement project from Habib Rahi Limestone resulted in an enhanced supply of 60 MMSCFD gas to Thermal Power Station Guddu in the first phase. Due to Management’s untiring efforts, the Company was able to transform its Mari Services Division into a profit making unit. On the Technology end, MPCL successfully installed
Supervisory Control & Data Acquisition System at Sujawal field and implemented E&P Corporate Data
Management System. With regard to achievement of targets on HSE, the Total Recordable Case Frequency
(TRCF) was brought down from 0.79 to 0.22 in the year. The target of Reserve addition of 70 BCF was partially
achieved due to unsuccessful exploration efforts in Non-operated blocks and lesser than expected results
from MPCL’s own Exploration Blocks. Despite the above, MPCL’s gross sales revenues increased by 8
percent year-on-year basis due to increase in wellhead gas price for Mari gas field and improvement in oil
and gas sales volumes. The Company also planned and achieved an early redemption of Rs. 10.59 billion
preference shares. The Company also embarked upon its most ambitious exploration plan by spending US$99 million on exploration activities in 2015-16.
In 2016-17, MPCL plans to spend US$110 Million on pursuing its exploration goals. Further increase of 45
MMSCFD from Habib Rahi Limestone is also set to be achieved in the next year in production enhancement
project. Over the period under review there was no change in the company’s performance measures or indicators.
Critical / key performance indicators
Besides using financial KPIs, the company uses following performance indicators to evaluate its operational efficiencies. The indicators are calculated periodically as “look-behind” indices to measure performance.
1. Finding & Development Cost per BOE of Reserves Added
2. Reserves Replacement Rate (%)
3. Exploration Success Rate
4. Drilling Cost per Meter
5. Production Cost per BOE Production
6. Production Growth (%)
7. EBITDA per BOE Production
8. EBITDA per employee
9. Petro-Technical Professionals per MMBOE production
10. Reserve Growth (%)
11. Reserve to Production Rate
Forward looking statement
Analysis of prior period forward looking disclosures
In year 2015-16 company successfully achieved numerous strategic objectives set for the year, including; implementation of incremental production project; two new hydrocarbon discoveries in Karak Block; completion of back to back seismic acquisition projects by its seismic unit; transformation of Mari Services Division into a profit making unit; substantial recoveries on account of outstanding receivables; IMS re-certification for the third consecutive time as well as certifications for three new fields (Zarghun, Sujawal, Halini).
Forward looking statement
In early 2016 production increase of 60 MMSCFD gas from Mari field was achieved, whereas, another 45 MMSCFD gas is available, awaiting up-gradation of facility by the buyer, which is expected by end of this year. Production enhancement from these two initiatives will positively impact the Company’s financial performance.