Pakistan Refinery Limited (PSX: PRL) is a hydro-skimming refinery based in Karachi, Pakistan. Established in 1960, PRL processes imported and local crude oil into products like furnace oil, diesel, kerosene, jet fuel, and gasoline, with a capacity of 50,000 barrels per day. The refinery operates at two locations: the main facility at Korangi Creek and crude oil berthing and storage at Keamari, ensuring efficient operations and logistics. PRL remains a key player in Pakistan’s energy sector, committed to meeting the country’s fuel needs. PRL historical performance Pakistan’s refineries have long faced challenges due to outdated technology, tight refining margins, and a credit crunch in the energy sector. In FY15, Pakistan Refinery Limited (PRL) grappled with falling crude oil prices and heavy inventory losses, resulting in a 36 percent drop in revenue and after-tax losses. However, a rights issue and the commissioning of an isomerization plant boosted gasoline production, improving liquidity. FY16 saw PRL return to profitability, driven by higher gross refinery margins (GRMs) and increased petrol production from the new isomerization unit, despite lower oil prices. This momentum continued into FY17, with profits tripling, though production was hampered by catalyst deactivation in the isomerization plant. FY18 brought mixed results: revenue rose by 32 percent, but profits halved due to depressed refining margins, exchange losses, and reduced furnace oil demand. FY19 was even more challenging, with steep losses of Rs5.82 billion due to weak refining margins, currency devaluation, and lower petrol prices. Despite this, PRL approved a Refinery Upgrade Project to meet EURO II compliance, and PSO became its majority shareholder. The COVID-19 pandemic in FY20 led to plummeting demand, inventory losses, and regulatory challenges with EURO II compliance. PRL struggled with losses but continued to realign operations. FY21 marked a recovery, with improved revenue, better product mix, exchange gains, and reduced finance costs turning losses into profits. FY22 was a standout year for PRL, with record revenues, profits, and throughput, driven by high GRMs, optimized production, and increased sales of diesel and petrol. In contrast, FY23 was marked by economic turmoil, currency devaluation, rising inflation, and operational hurdles, including LC issues and delayed payments. PRL’s expansion and upgrade projects to produce EURO-compliant fuels and double crude processing capacity faced delays, significantly impacting profitability. In FY24, Pakistan Refinery Limited (PRL) achieved significant growth and strategic milestones. The company reported a topline of PKR 306 billion, marking a 17 percent year-on-year increase, driven by volumetric growth. Earnings also improved significantly, reaching PKR 4.1 billion (EPS: PKR 6.45), compared to PKR 1.8 billion (EPS: PKR 2.90) in FY23. Operationally, PRL recorded total High-Speed Diesel (HSD) production of 660,180 tons, with the highest average daily production at 2,013 tons. Motor Spirit (MS-92) production also increased, while MS-95 output included EURO-V compliant volumes. The company focused on optimizing crude intake and reducing furnace oil production to enhance its profitability. PRL in FY25 Pakistan Refinery Limited’s FY25 performance highlighted a clear divergence between operational execution and financial outcomes, as a weak refining environment overwhelmed otherwise solid plant performance. Net sales edged up to around Rs 310 billion, supported mainly by higher volumes, but profitability deteriorated sharply, with the company reporting a net loss of Rs 4.7 billion versus a profit of Rs 4.1 billion in FY24. The reversal was driven primarily by severe margin compression rather than any decline in operational efficiency. Refining spreads remained depressed for most of the year, averaging roughly $1.5–2 per barrel, levels insufficient to absorb fixed costs. This was compounded by structurally weak domestic demand for high-sulphur furnace oil, forcing PRL to export furnace oil at discounted prices. Despite efforts to rebalance the product slate, furnace oil economics continued to weigh heavily on gross margins and overall earnings. Operationally, FY25 was one of PRL’s strongest years. High-speed diesel production reached a record level of nearly 800,000 metric tons, supported by disciplined crude selection and stable plant operations, while motor spirit output remained steady. Management actively optimized crude sourcing—largely from ADNOC and Aramco—to better match the refinery’s configuration and improve yields. The product mix continued to shift toward white oils, with diesel and gasoline together accounting for almost two-thirds of output, though residual furnace oil exposure remained material. Cost control provided partial relief. Conversion and energy costs were kept in check, and letter-of-credit charges fell sharply, easing financing pressures. However, these gains were insufficient to offset the impact of weak spreads, higher levies on furnace oil, and the broader margin environment. Strategically, FY25 marked an important transition year. Completion of the Front-End Engineering Design for the Refinery Expansion and Upgrade Project and receipt of EPC bids advanced PRL’s long-term transformation agenda. The year underscored a central reality: while PRL can deliver strong throughput and operational reliability, sustainable profitability hinges on structurally higher margins and the successful execution of the upgrade project that will reduce furnace oil dependence and improve product quality. In essence, FY25 demonstrated operational resilience but financial fragility—reinforcing that PRL’s earnings recovery is ultimately tied to industry margins, policy support, and timely delivery of its upgrade strategy. Outlook – PRL Operationally, PRL is expected to remain stable, with high plant availability and continued focus on maximizing white products through disciplined crude selection. Diesel and gasoline output should stay firm, providing some insulation against demand volatility, but furnace oil will remain a structural drag as domestic upliftment stays weak, and exports continue at discounted economics. Financially, the near-term outlook is better than FY25, provided refining margins hold. The improvement seen in 1QFY26 shows that even a modest recovery in spreads can quickly restore profitability. That said, earnings will remain extremely sensitive to global cracks and the domestic tax regime. Higher levies on furnace oil and unresolved sales tax issues continue to weigh on margins and cash flows. The medium-term inflection hinges on the Refinery Expansion and Upgrade Project. Successful financial close and execution would materially reduce furnace oil exposure, improve product quality, and stabilize earnings. Until then, PRL’s outlook remains cyclical—operationally resilient but financially exposed to margin volatility and policy risk.