Pakistan Oilfields Limited (PSX: POL) is engaged in the exploration, drilling, and production of crude oil and natural gas in Pakistan. The company also produces LPG, sulfur, and solvent oil, and markets gas under the POLGAS brand through its subsidiary CAPGAS (Private) Limited. POL operates an extensive pipeline network supplying crude oil to Attock Refinery Limited (ATRL), part of the Attock Group. Attock Oil Company (AOC) holds a majority stake in POL. Past Performance FY20–FY21: Pandemic shock and weak prices FY20 was marred by the global pandemic and a sharp fall in oil prices, leading to subdued sector earnings. POL’s revenues declined 13 percent year-on-year, with a steep 48 percent drop in 4QFY20 sales. Oil and gas production fell 13 percent and 9 percent year-on-year, respectively, while average oil prices dropped 25–26 percent. Exploration costs remained contained due to the absence of dry wells, and lower interest rates reduced finance costs. As a result, earnings remained broadly flat. In FY21, hydrocarbon production stayed weak and crude prices remained subdued. Gas and oil output declined 2.5 percent and 0.77 percent year-on-year, respectively. Revenues were largely flat, but earnings fell 18 percent year-on-year, mainly due to exchange losses, lower income from bank deposits, and higher effective taxation stemming from reduced exploration and development costs. FY22–FY23: Price-led recovery, but volatile costs FY22 marked a sharp turnaround, with earnings surging 94 percent year-on-year, driven by a 44 percent increase in revenues. This was largely due to crude oil prices rising over 65 percent year-on-year alongside rupee depreciation of around 10 percent. However, production remained weak, with gas and oil volumes down 10 percent and 9 percent, respectively. Exploration and prospecting expenses jumped 77 percent due to higher seismic activity, while finance costs increased sharply amid rising interest rates. These pressures were partly offset by a seven-fold rise in other income on the back of exchange gains. In FY23, POL’s earnings rose 41 percent year-on-year, supported by a 17 percent increase in revenues, again largely due to rupee depreciation. Production trends remained negative, and oil prices fell around 3 percent year-on-year. Gross margins improved as amortization of development and decommissioning costs declined 65 percent. However, exploration and prospecting expenses surged 7.7 times due to two dry wells. Other income increased 131 percent year-on-year, driven by exchange gains and higher returns on cash balances, supporting bottom-line growth. FY24–FY25: Production pressures and exploration-driven volatility In FY24, POL’s oil and gas production declined 6 percent and 5 percent year-on-year, respectively, despite a modest increase in national oil output. Revenues grew 7 percent year-on-year, mainly due to rupee depreciation offsetting lower volumes. Profit after tax rose around 7 percent year-on-year to Rs39 billion, supported by a sharp 76 percent reduction in exploration costs due to the absence of dry wells. Operating expenses increased 9 percent, but gross margins improved. Other income declined 39 percent year-on-year due to the absence of prior-year exchange gains, although 4QFY24 saw a recovery driven by higher investment returns. FY25 proved challenging. Profit after tax fell 38 percent year-on-year as softer oil prices, gas curtailments, and a staggering spike in exploration spending weighed on earnings. Net sales declined 13 percent year-on-year, while gross margins remained resilient at 70 percent, though net margins compressed to 42.3 percent from around 60 percent previously. Gas surplus in the national network led to reduced offtake from key Tal and Adhi fields, hurting volumes. Exploration and prospecting expenses rose to Rs11 billion—around 6–7 times higher year-on-year—mainly due to a dry well and increased seismic activity. Other income declined amid easing market yields. Despite these pressures, POL announced a final dividend of Rs50 per share, taking the FY25 payout to Rs75 per share. POL in FY26 and beyond Pakistan Oilfields Limited delivered a strong start to FY26, reporting profit after tax of Rs5.4 billion in 1QFY26, translating into earnings per share of Rs19.13—up 111 percent year-on-year, though 27 percent lower quarter-on-quarter. The result reflected sharp cost discipline, significantly lower exploration spending, and a softer effective tax rate. Net sales declined 15 percent year-on-year to Rs13 billion, primarily due to a 14 percent drop in average crude oil prices and lower hydrocarbon production. On a quarter-on-quarter basis, sales rose 7 percent, supported by modest volume recovery and a slight improvement in oil prices to an average of $71 per barrel from $69 previously. Royalty and operating costs declined 14–15 percent year-on-year, keeping gross margins stable at around 65 percent. Exploration expenses were the key earnings driver, falling 85 percent year-on-year to around Rs1 billion, compared to Rs7.7 billion last year when dry well costs were booked. Finance costs declined 44 percent year-on-year, while other income fell 50 percent due to lower interest rates and exchange losses from rupee appreciation. Net margins improved sharply to 41 percent from 17 percent a year earlier. Looking ahead, FY26 performance will hinge on three factors: easing of gas curtailments at the Tal and Adhi fields, trends in oil prices and the rupee-dollar parity, and outcomes from exploration activity following elevated FY25 spending. While concentration risk remains, any normalization in volumes or improvement in prices—alongside controlled exploration costs—could lift earnings from the lower base, with dividends continuing to underpin investor returns.