Pakistan Petroleum Limited

(PPL) is Pakistans leading exploration and production

(E&P) company in energy sector. PPL Pakistans oldest and largest E&P incorporated on 5th June 1950 with majority stake (70%) were held by Burma Oil Company (BOC) of UK with the main objective of conducting exploration, development and production of Pakistans oil & natural gas resources. In 1997 BOC disinvested in the company and sold its stake to Government of Pakistan (GOP). In July 2004 the GOP sold companys 15% shares to general public by IPO. The current Capital Structure of the PPL is as follows:
S.No (i) (ii) (iii) Shareholders % Government of Pakistan 68.99 Private Shareholders 21.60 Benazir Employees Empowerment Trust 9.41 100.00

PPL is playing a vital role in meeting the countrys energy requirement as well as in countrys economic development and progress since the early 50s and has successfully established itself as a reliable and sustainable partner in providing such hydrocarbon products. This could have become possible with the PPLs giant discovery of natural gas at Sui in 1952 which was world 7th largest reserve at that time and series of other lucrative discoveries. Today, PPL contributes around 26% of the country's total natural gas production besides producing Crude Oil, Natural Gas Liquids (NGL) & Liquefied Petroleum Gas (LPG). It's portfolio of developed and producing assets consists of six operated and eight partner-operated producing fields.
S. No: 1 2 3 4 5 6 7 8 PPL Operated Sui Gas Field Kandhkot Gas Field Adhi Field Mazarani Gas Field Chachar Gas Field Hala 100% 100% 39% 87.5% 75% 65% Non-Operated Miano Gas Field Sawan Gas Field Block-22 Nashpa Block Qadirpur Latif Tal Gambat (PPL Working Interest) 15.16% 26.18% 35.53% 26.05% 7% 33.3% 27.76% 23.68%

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In addition to two new blocks Zamzama south and Nausharofiroz, the PPLs exploration portfolio increases to 33 exploration blocks out of which 19 are PPL-operated and 14 areas, including offshore blocks, are partner-operated. As of June 30, 2010, its net reserves consisted of almost four trillion cubic feet of gas, around 2 million barrels of oil/NGL and 0.33 million tones of LPG. PPL earned Rs 23.32 billion net profit for the year 2009-10 and paid Rs 31.75 billion exchequer to the government during the year.

FUTURE PROSPECTS AND PLANS

PPL had been aggressive in exploration but at the same time, conservative in selecting drilling sites but now PPL has stepped up efforts to increase hydrocarbon production to keep pace with the growing energy needs of Pakistan. In order to achieve this objective, it has devised a dynamic exploration and development strategy with a close focus on enhancing its reserve replenishment ratio, improving drilling to discovery ratio and improving production efficiencies through modern production techniques. In addition to existing exploration blocks, PPL has submitted new applications for the grant of some more exploration blocks. As it is estimated the future demand for gas is likely to increase to 8.6 BCFD in 2020 from 4.8 BCFD in 2010. To tackle the situation of growing demand, the company gets into exploration at large scale to discover reserve and meet demand & supply gap. Besides this the company also shows up interests in THAR coal project and wish to initiate project on gasoline from coal. It seems that the upcoming 2 to 3 years for the company would be tough time but if the company is able to find discoveries that would increase the strength of the company and retain its position as a leading E&P company.

PPL being socially responsible

At PPL, the Corporate Social Responsibility (CSR) program ranks high on its agenda. PPL is serving communities living near its exploration and production sites. Over the years, the Company's CSR program has expanded significantly, focused and organized. PPL Welfare Trust promotes education, provide healthcare facilities, and develop infrastructure in some of the most remote and backward areas of the country. Besides above mentioned CSR activities I

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would like to suggest PPL to look at other dimensions of CSR activities such as retaining rolling stock on CNG at possible level, reducing paper work in the organization, using less energy effective products i.e., Energy Savers etc. and also initiating renewable energy projects as a source of electricity in remote areas. And due to huge destruction in the country I wish PPL to take some initiatives on immediate basis to help the affected people in the country.

INTERNAL AUDIT DEPARTMENT

It is a Statutory Requirement for Listed Companies to have an Internal Audit Department within the organization. This Department adds value to a company by assisting its operating management in achieving companys financial and operating goals. This is achieved by evaluating controls to ensure systems function adequately, by identifying weaknesses, and by providing recommendations directly reports to Board Audit Committee. Through complete and unrestricted access to records, property, and personnel, Internal Audit provides the Company with an additional resource in meeting these goals. With the support of companys management and the Audit Committee, the Internal Audit Department provides the highest quality of auditing services, thus enhancing fiscal control at the Company level. The Internal Audit Department performs a wide range of audit services including Functional audits, Follow up Reviews, Special audits and Transactional audits.

FUNCTIONAL AUDIT
A review of the financial systems, operating procedures and internal controls relating to a specific function of a department in every 2 to 3 years e.g. General review of Operations of Khewali Pump Station.

FOLLOW UP REVIEW
A review regarding the progress achieved in implementing recommendations made by Internal Audit during previous projects such as Functional Review

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SPECIAL AUDIT
The provision of specific assistance to management in developing new systems, overcoming identified weaknesses in internal controls or rectifying deficiencies in financial or management information. These are not included in the Internal Audit plan for a year and are taken up as and when advised/requested by the management e.g. Safe Custody of Document Systems and Procedure

TRANSACTION TESTING
This audit addresses questions regarding accounting and the propriety of financial transactions. A representative sample of transaction large enough to detect error in the sample elected, (i.e., cash and bank audit of Sui Gas Field)

PROCEDURE OF PREPARING AN AUDIT REPORT

A typical audit comprises of four stages: planning, fieldwork, reporting, and follow-up. When an audit is scheduled, a commencement memo is sent to the respective Auditee. An initial meeting is scheduled to discuss the objectives and scope of the audit. At the same time, any concerns or questions about the audit process are discussed. The audit team collects data and documents the procedures, controls and/or activities being reviewed. Based on risk assessment, the audit team then performs various types of tests and concludes on the adequacy of the control system. During the audit and at the conclusion of the fieldwork, the audit team discusses any findings and recommendations noted during the audit process. Next the audit team issues a draft report summarizing the findings and recommendations. The draft report has limited distribution, and the management of the audited department is provided approximately two weeks time to respond to the audit observations/recommendations. The management responses are incorporated in the draft report along with any agreed upon changes, to issue the final report. The final report is distributed to the audited department(s). All audit information is treated as confidential and is reported only to those within the company on need to know basis.

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ment.

Projects Worked
1. Cash / Bank Receipts & Payments
When I joined PPL, the scheduled report on Cash / Bank receipts & payments was being worked out and I was involved in the project. First of all I reviewed the policies of the company regarding cash and bank management in the Accounting Manual. And they guided me throughout the project. When I reviewed the documents, I got idea about the type of payments and receipts are made by the company.

Cash Receipts & Payments:

Objective and Scope: The objective of the audit was to provide assurance to senior
management that cash is controlled, accounted for and deposited in a timely manner and in accordance with the authorities and applicable regulations.

Bank Receipts & Payments:

Objective & Scope: Effective Bank account management, portfolio investment or placement of funds and timely recording of cash flows.

Findings: Following are the findings observed during the review:

1. Delay in payments made to vendors or suppliers 2. Splitting of bills to avoid financial authorization limit 3. Late preparation of Goods Receipt Note (GRN) 4. Double payment made of an invoice 5. Delay in return of retention money 6. Financial authorization limit for approving purchasing orders

2. Review of Financial Statements

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When I had done with my first project I came to know that the report on review of financial statements was going to be worked out. I got charm in the report and on my request I was involved in the project. Before working on the project I reviewed the previous years report. Working on the project gave me detailed understanding of financial accounts and performance of the company..

Following is the analysis of financial statement:

Rupees (Million) Incr/Decr

Reasons for variation

%

Jun10 PROFIT LOSS A/C

Sales 59,962

Jun09

Amount

61,580

(1,618)

(3)

Field expenditure

(18,273)

(13,161)

(5,112)

39

Royalty Profit in BME Oth: Op: Income

(7,076) 60 2,578

(7,463) 69 4,081

387 (9) (1,503)

(5) (15) (13)

Finance cost Oth: Op: Expenses PBT Taxation PAT

(155) 2,568 34,528 (11,208) 23,320

(94) 3,103 41,909 (14,206) 27,703

(61) (535) (7,381) 2,998 (4,383)

(37) 65 (17) (21) (16)

The variation is due to decrease in international oil prices although sales volume is increased from last year. The increase in field exp: is due to increase in material & labor cost, data acquired, capex and annual increase in salaries. Decreased due to sales per unit decrease. Profit in BME decreased by 15% This is largely affected by low interest income & exchange gain. This is increased due to more interest on leasing assets. Reduced due to decrease in PBT i.e. WPPF 5% of PBT PBT decreased by 17% Effective tax rate decreased to 32.5% from 33.3% last year. Net earnings decreased by 16%

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Ratio Analysis of the Company for last 5 years

Fig 1: Profitability Ratios Comparision

Fig 2: Liquidity Ratio Comparison

80
ROE

5 4 3 2 1 0
2006 2007 2008 2009 2010

C.R

60 40 20 0
2006 2007 2008 2009 2010

ROA NPM O.I

Q.R

Figure 1 is showing performance the different profitability ratios from 2006 to 2010. The ratios remain consistent or slightly increase from 2006 to 2009 but in this year all ratios experience significant decline. Return on Equity (ROE) ratio measure how well management performed on shareholders capital and how much earned on Rs. 1 invested. ROE declined due to decline in return whereas equity increased due to increase in retained earnings. Return of Asset (ROA) measures net income returned on each unit. ROA has declined due to huge capex in the year. Net Profit Margin (NPM) measures the percentage earned after taxation on total sales. This is decreased because of low profit earned during the year. Operating income (O.I) has also decrease due to huge field expenditures. Figure 2 is showing the movement of Current Ratio (C.R) along with Quick Ratio (Q.R), which shows both go parallel. The company has maintained sufficient level of C.R. The decline in the ratio in 2008 is due to significant increase in liabilities. Now companys C.R is increased due to increasing trade debts.

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Fig 3: Investor's Ratio Comparison

Fig 4: Asset Management Ratio Comparison

30 25 20 15 10 5 0
2006 2007 2008 2009 2010

5
EPS P/E

4 3 2 1 0
2006 2007 2008 2009 2010

R.T.O

A.T.O

C.T.O

Figure 3 discuss the ratios that are considered by the investors. Both are inversely related. Earnings per Share (EPS) shows positive trend till 2009 but in this year EPS is dropped due to low profits. Price to Equity (P/E) ratio is showing negative trend except last year because the market price of share decreased due to turmoil in KSE. However in 2009 P/E shows significant decline due to record profits of 33%. In this year the price remains consistent but profits are low. Figure 4 discuss the companys asset management ratios. Accounts Receivables turnover (RTO) measures the number of times, company is able to convert receivable into cash. RTO has decreased significantly over time due to increasing overdue debts. Current average collection period (in days) is 185 days.

In addition to given tasks, I also done following additional work: 1. Study Internal Audit Charter 2. Study internal audit and control manual 3. Review of Quarterly progress report 4. Review of report on Risk Management and Insurance coverage 5. Review of report on cash and bank management of Sui gas field 6. Did comparisons in old and new reports

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CONCLUSION:
During the period of six weeks internship program in PPL (Internal Audit Department), I learned a lot of things. I got to see that how things work in practical way. The staff at the department is friendly and highly coordinative. They show sincerity and dedication to work. I gained understanding of the work activities and their functions in the company. Working in the overwhelming environment with an extremely supportive & encouraging staff not only increased my assurance but also motivation to work with devotion. If given an opportunity, I would be more than willing to be a part of PPL team and it would be a great honor to work for a company like Pakistan Petroleum Limited.

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