Pakistan E&P sector projected to drill into new growth horizons

February 16, 2026 (MLN): Pakistan’s exploration and production (E&P) sector is showing signs of a medium-term turnaround after a recent market correction reset valuations to more attractive levels, with projections of improving liquidity, easing production curtailments, and a stronger exploration pipeline as the key drivers of a potential rerating cycle.

Core earnings across the sector are projected to grow at an aggregate EBITDAX compound annual rate of about 8% between FY26 and FY28, while total output is expected to expand roughly 9% over the same period as mature field declines stabilize and new discoveries and technical interventions begin to feed into volumes.

Despite a 10% pullback from all-time highs in January, sector stocks have largely outperformed underlying oil prices over the past year, creating what is viewed as a more balanced and de-risked entry point for long-term investors.

According to a new research report by KTrade, the improving circular debt dynamic is emerging as a central catalyst for deleveraging and valuation uplift, particularly for the most receivable-exposed players.

At an average oil price of around US$67 per barrel, annual sector debt reduction could exceed Rs90 billion, with no material risk of fresh accumulation seen unless prices move beyond the US$75–77 range under current tariff assumptions.

The report highlights that foreign farm-ins and technical partnerships are improving risk-adjusted exploration exposure, with frontier discovery sizes averaging nearly three times those seen over the last decade.

Diversification is also adding a structural layer to earnings outlooks, with Mari Energies’ data center initiative projected to contribute 8–10% to profits at scale, while Pakistan Petroleum Limited and Oil & Gas Development Company’s stakes in the Reko Diq copper-gold project are viewed as high-impact long-term value drivers despite potential timeline delays.

Pakistan Petroleum Limited (PPL) remains KTrade’s top pick, trading at Rs236 with a target price of Rs365, implying 54% upside, for the fiscal year ending in 2027.

Production recovery is expected to be the strongest in the sector, with 12% aggregate growth over FY26–28 driven by normalized output from flagship fields Sui, Kandhkot, and Nashpa which together account for 47% of production previously impacted by curtailments.

The Baragzai discovery adds medium-term support, providing 9,480bopd and 22.25mmscfd potential, while frontier exploration and offshore concessions offer de-risked growth optionality.

PPL’s Reko Diq stake contributes Rs118/share, roughly 30% of the target price.

The stock trades at a 67% oil-implied discount and a FY27e EV/EBITDAX of 3.6x, well below mid-cycle averages, with a projected 9% EPS CAGR over FY26–29.

Oil & Gas Development Company (OGDC) trades at Rs295 with a target of Rs442, implying 50% upside.

The company benefits from a diversified hydrocarbon portfolio, strong reserve base, and substantial cash holdings.

Production is expected to normalize with aggregate growth of 9% over FY26–28 through optimization at legacy fields, incremental volumes from new wells, and easing of gas curtailments.

Frontier and tight gas exploration, along with an 8.33% stake in Reko Diq (valued at Rs91/share, 21% of the target), enhance OGDC’s optionality.

The stock trades at a FY27e EV/EBITDAX of 3.5x, a discount to historical mid-cycle averages, while delivering a modest projected 8% EPS CAGR over FY26–29.

Mari Energies (MARI) also carries a Buy with a Rs846 target versus a Rs687 market price, offering 23% upside.

The company’s robust upstream portfolio and high-margin data center projects underpin a projected 12% EPS CAGR over FY26–29.

MARI has maintained resilient production despite sector-wide curtailments, with tie-ins from Waziristan and partner-operated discoveries supporting incremental volumes.

Its aggressive frontier and offshore exploration strategy now covering 46 licenses provides high-alpha optionality but involves long-cycle capital intensity and execution risk, meaning most upside is strategic rather than near-term.

The digital infrastructure initiative is expected to contribute 8–10% to earnings by FY30–31, with mining ventures providing additional optionality. MARI trades at a FY27e EV/EBITDAX of 5.6x, reflecting its premium positioning.

Pakistan Oilfields Limited (POL), in contrast, is rated Hold with a Rs744 target against a Rs639 current price (16% upside), offers a defensive profile with sector-leading dividend yields of 12% for FY26/27e. However, growth prospects remain constrained due to concentration in the maturing TAL block, accelerating depletion, and minimal exploration activity.

Production is projected to decline slightly at a 1% CAGR over FY26–28, while reserves replacement is largely low-quality and dependent on mature assets. Its asset-based valuation is supported primarily by cash reserves (Rs112bn, 63% of market cap) rather than production growth, and the stock trades at a FY27e EV/EBITDAX of 1.8x, reflecting its limited near-term upside relative to more growth-oriented peers.

Overall, the brokerage maintain that PPL and OGDC offer the most compelling risk-reward, with liquidity improvements, production normalization, Reko Diq exposure, and exploration optionality driving potential rerating.

MARI remains attractive for its growth and high-impact exploration, though valuations already price in much of the expected upside, while POL’s defensive profile and yield appeal make it a better fit for income-oriented investors rather than growth-seekers.

Source: KTRADE Research

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