The Pakistan Credit Rating Agency Limited
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Maryam Arshad

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PACRA Maintains Entity Ratings of Spud Energy Pty Limited (Pakistan Branch)

Rating Type Entity
(14-Jan-22 )
(15-Jan-21 )
Action Maintain Upgrade
Long Term A A
Short Term A1 A1
Outlook Stable Stable
Rating Watch - -

Spud Energy Pty Limited (Pakistan Branch) is engaged in the upstream Oil and Gas business in Pakistan. The company is a wholly-owned subsidiary of Jura Energy Corporation, a public company listed on TSX Venture Exchange. The Board of Jura Energy Corporation, comprising six members, was re-elected last year by the shareholders and the incumbent directors continue to duly exercise intensive oversight over the company. The control environment is considered a plus. The company had started reaping further benefits during CY20 from the production of Zarghun South Development and Production lease, augmenting its profitability considerably; however, the gas production from the Zarghun South lease dropped significantly later on. The decline in gas production is attributed to a significant drop in wellhead flowing pressures and excessive formation water production caused by a water breakthrough in the naturally fractured Dunghan reservoir. The high dependence on the Zarghun field and the recently reported impairment charge dragged the bottom line to the loss of PKR 359mln reported for the period under review. However, the rating draws comfort from the management's plans with regards to the installation of a compression facility to augment the production that is expected to be materialized by the end of CY22. As per the initial estimates, the Company's share in the CAPEX involved with this project would remain manageable from a strong liquidity profile. The future potential of the newly awarded Petroleum exploration rights in Nareli Block together with two joint venture partners would provide comfort to the ratings. The strength of the business reflects in the US dollar-based pricing and its collection in US dollars directly into the foreign currency bank accounts. Spud Energy Pty Limited’s (Pakistan Branch) management aims to grow its exploration and production portfolio while simultaneously sustaining the existing producing infrastructure in place. The company has a receivable from a group company, recovery of which is being worked out. In the meanwhile, improving cash flows of the company bode well for covering the outstanding debt amounts.
The ratings are dependent on the sustained competitive positioning of the company, while upholding good governance practices through its parent Company i.e. Jura Energy Corporation. Financial discipline is considered crucial to the ratings, with enduring emphasis on maintaining relevant coverages and fulfilment of debt covenants is being supplemented by the improving revenues and healthy margins. Sustenance and development in the gas and condensate production would remain a key factor.

About the Entity
Spud Energy Pty Limited, a Company with limited liability, was incorporated in Australia on May 2, 1996. Spud Energy operates in Pakistan through a branch office in Islamabad. The BoD of Spud Energy Pty Limited comprises of three members. The decision-making for Spud Energy Pty Limited is carried out by the parent company’s board i.e. Jura Energy Corporation which afterward is disseminated downward to Spud Energy Pty Limited’s board. Jura Energy Corporation’s board comprises of six members, out of which three are independent, two are non-executive and one is an executive director. The management team is led by Mr. Nadeem Farooq as Chief Executive Officer and Mr. Arif Siddiq as Chief Financial Officer. They are assisted by a small and competent team of industry professionals.

The primary function of PACRA is to evaluate the capacity and willingness of an entity to honor its obligations. Our ratings reflect an independent, professional and impartial assessment of the risks associated with a particular instrument or an entity. PACRA's comprehensive offerings include instrument and entity credit ratings, insurer financial strength ratings, fund ratings, asset manager ratings and real estate gradings. PACRA opinion is not a recommendation to purchase, sell or hold a security, in as much as it does not comment on the security's market price or suitability for a particular investor.