Republic of the Philippines

CAVITE STATE UNIVERSITY

Don Severino de las Alas Campus
Indang, Cavite, Philippines

FINANCIAL RISK MANAGEMENT POLICY

OF PXP ENERGY CORPORATION

Submitted to: MRS. JEMMALENE VIADO

College of Economics, Management and Development Studies

Cavite State University – Main Campus
Indang, Cavite

In Fulfillment of the Final Requirement in

Financial Analysis and Reporting

Cuadra, Angelica P.
Manguiat, Kristine Shaine B.
Perey, Alvi Mariz M.
Rogador, Jessa J.
Rosanes, Janskin Shanelle C.

JANUARY 2023
 TABLE OF CONTENTS

Page no.

Title Page i

Table of contents ii

List of Figures v

List of Tables v

I. Business Model 1

II. VIP to Know 4

III. Financial Statements 14

A. Statement of Financial Position 14

B. Statament of Comprehensive Income 17

C. Statement of Cash Flows 18

IV. How Assets are Financed 20

V. Profitability 22

A. Return on Sales 22

1. Gross Profit Margin 22

2. Operating Profit Margin 22

3. Pre-Tax Margin 22

4. Net Profit Margin 23

5. Operating Cost Ratio 23

B. Return on investments 23

1. Return on Assets (EBIT) 23

2. Return on Assets (Net Income) 23

3. Return on Equity 24

4. ROE: DU-Pont 3-Level 24

VI. Financial Strength 25

ii
A. Activity Ratio 25

1. Inventory Turnover (ITO) 25

2. Days to Sell Inventory 25

3. Accounts Receivable Turnover (ARTO) 26

4. Days Sales Outstanding 26

5. Accounts Payable Turnover (APTO) 27

6. Days to Pay Accounts Payable 27

7. Operating Cycle (In Days) 28

8. Cash Conversion Cycle (In Days) 28

9. Fixed Assets Turnover (FATO) 29

10. Total Asset Turnover (TATO) 29

B. Liquidity Ratio 30

1. Current Ratio (CA) 30

2. Working Capital (WoC) 30

3. Quick Assets (QA) 31

4. Quick Ratio (QR) 31

C. Solvency Ratio 32

1. Total Debt-to-Total Asset Ratio 32

2. Total Interest-Bearing Debt 32

3. IBD vs Asset Ratio 33

4. Total Debt vs Equity Ratio 33

5. IBD vs Equity Ratio 34

6. Financial Leverage Ratio 34

D. Coverage Ratio 35

1. Times Interest Earned 35

2. OFC vs Total Debt 35

3. OFC vs IBD 36

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 E. Cash Flow Ratio 36

1. Cash to Current Assets Ratio 37

2. Cash to Current Liabilities Ratio 37

3. Cash Flow Ratio 38

VII. Dividends 39

VIII. Absolute Valuation 40

IX. Relative Valuation 42

X. Risk Factors 45

XI. Bull/Bear Case, Hold 46

References 47

iv
 LIST OF FIGURES

Page no.

Figure 1: PXP Energy Corporations’ Board of Directors 4

Figure 2: PXP Energy Corporations’ Compensation of Board of Directors 12

Figure 3: PXP Energy Corporations’ 2019, 2020 and 2021 Capital Structure 20

LIST OF TABLES

Page no.

Table 1: PXP Energy Corporations’ average stock prices for the common 2

shares within the last 4 years and for the first 4 months of 2022

Table 2: PXP Energy Corporations’ 2020 and 2021 corporation sales 13

Table 3: PXP Energy Corporations’ 2019, 2020 and 2021 historical sales 14

Table 4: PXP Energy Corporations’ 2019, 2020 and 2021 Capital Structure in 20

Common Size Analysis

Table 5: PXP Energy Corporations’ 2019, 2020 and 2021 Debt-to-Equity Ratio 20

Table 6: PXP Energy Corporations’ 2019, 2020 and 2021 Assets to Equity 21

Ratio

Table 7: PXP Energy Corporations’ 2019, 2020 and 2021 Working Capital 21

Ratio

Table 8: PXP Energy Corporations’ 2019, 2020 and 2021 Gross Profit Margin 22

Table 9: PXP Energy Corporations’ 2019, 2020 and 2021 Operating Profit 22

Margin

Table 10: PXP Energy Corporations’ 2019, 2020, and 2021 Pre-Tax 22

Margin

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Table 11: PXP Energy Corporations’ 2019, 2020, and 2021 Net Profit Margin 23

Table 12: PXP Energy Corporations’ 2019, 2020, and 2021 Operating Cost 23

Ratio

Table 13: PXP Energy Corporations’ 2019, 2020, and 2021 Return on Assets 23

(EBIT)

Table 14: PXP Energy Corporations’ 2019, 2020, and 2021 Return on Assets 23

(Net Income)

Table 15: PXP Energy Corporations’ 2019, 2020, and 2021 Return on Equity 24

(ROE)

Table 16: PXP Energy Corporations’ 2019, 2020, and 2021 ROE: DU PONT 24

3-LEVEL

Table 17: PXP Energy Corporations’ 2019, 2020, and 2021 Inventory 25

Turnover Ratio

Table 18: PXP Energy Corporations’ 2019, 2020, and 2021 Days to Sell 25

Inventory

Table 19: PXP Energy Corporations’ 2019, 2020, and 2021 Accounts 26

Receivable Turnover

Table 20: PXP Energy Corporations’ 2019, 2020, and 2021 Days Sales 26

Outstanding

Table 21: PXP Energy Corporations’ 2019, 2020, and 2021 Accounts Payable 27

Turnover

Table 22: PXP Energy Corporations’ 2019, 2020, and 2021 Days to pay 27

Accounts Payable

Table 23: PXP Energy Corporations’ 2019, 2020, and 2021 Operating Cycle 28

Table 24: PXP Energy Corporations’ 2019, 2020, and 2021 Cash Conversion 28

Cycle

vi
Table 25: PXP Energy Corporations’ 2019, 2020, and 2021 Fixed Assets 29

Turnover

Table 26: PXP Energy Corporations’ 2019, 2020, and 2021 Total Assets 29

Turnover

Table 27: PXP Energy Corporations’ 2019, 2020, and 2021 Current Ratio 30

Table 28: PXP Energy Corporations’ 2019, 2020, and 2021 Working Capital 30

Table 29: PXP Energy Corporations’ 2019, 2020, and 2021 Quick Assets 31

Table 30: PXP Energy Corporations’ 2019, 2020, and 2021 Quick Ratio 31

Table 31: PXP Energy Corporations’ 2019, 2020, and 2021 Total Debt to Total 32

Assets Ratio

Table 32: PXP Energy Corporations’ 2019, 2020, and 2021 Total Interest- 32

bearing debt

Table 33: PXP Energy Corporations’ 2019, 2020, and 2021 IBD vs Asset Ratio 33

Table 34: PXP Energy Corporations’ 2019, 2020, and 2021 Total Debt vs 33

Equity Ratio

Table 35: PXP Energy Corporations’ 2019, 2020, and 2021 Interest-Bearing 34

Debt vs Equity Ratio

Table 36: PXP Energy Corporations’ 2019, 2020, and 2021 Financial 34

Leverage Ratio

Table 37: PXP Energy Corporations’ 2019, 2020, and 2021 Times Interest 35

Earned

Table 38: PXP Energy Corporations’ 2019, 2020, and 2021 Operating Cash 35

Flows vs Total Debt

Table 39: PXP Energy Corporations’ 2019, 2020, and 2021 Operating Cash 36

Flows vs Interest Bearing Debt

Table 40: PXP Energy Corporations’ 2019, 2020, and 2021 Total Cash 36

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Table 41: PXP Energy Corporations’ 2019, 2020, and 2021 Cash to Current 37

Assets

Table 42: PXP Energy Corporations’ 2019, 2020, and 2021 Cash to Current 37

Liabilities

Table 43: PXP Energy Corporations’ 2019, 2020, and 2021 Cash Flow Ratio 38

Table 44: PXP Energy Corporations’ Price Earnings Ratio 42

Table 45: PXP Energy Corporations’ Price Book Ratio 43

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 I. BUSINESS MODEL

PXP Energy Corporation (PXP), formerly Philex Petroleum Corporation, was

incorporated on December 27, 2007. PXP's primary business is the exploration and production
of crude oil and natural gas, through interests in petroleum service contracts (SCs) and
holdings in resource development companies with interests in petroleum SCs. On August 8,
2016, the Securities and Exchange Commission approved the change in name to the present
one.

PXP Energy Corporation (formerly Philex Petroleum Corporation) (“PXP” or “the

Company”), is a Philippine corporation organized in December 2007 and is listed on the
Philippine Stock Exchange (“PSE”).

The Company has interests in various petroleum Service Contracts (“SCs”) in the
Philippines and a petroleum block in Peru held directly and through its major subsidiaries,
Forum Energy Limited (“FEL”) and Pitkin Petroleum Limited (“Pitkin”).

The Company’s direct interest in Philippine petroleum SCs includes: (1) a 50%
operating interest in SC 75 (NW Palawan); (2) a 70% operating interest in SC 74 (Linapacan);
and (3) a 5.56% interest in SC 6A (Octon); all located in the Northwest Palawan. PXP also
has a 40% non-operating interest in the Department of Energy (DOE) Philippine Conventional
Energy Contracting Program (“PCECP”) Area 7 (Sulu Sea), which is currently under SC
application, and a 100% operating interest in Block A North Recto Bank (Nominated Area No.
6) located in offshore West Palawan.

The Company holds a 79.13% controlling interest in FEL, with 72.33% held directly
and 6.80% held indirectly through a 78.39%-owned subsidiary, FEC Resources, Inc. (“FEC”),
a Canadian public company registered with the US Securities and Exchange Commission, the
Alberta Securities Commission, and the British Columbia Securities Commission and quoted
in North America. FEL, a UK-incorporated company with focus on the Philippines, has: (a) a
70% operating interest in SC 72 (Recto Bank) which covers the Sampaguita natural gas
discovery in offshore West Palawan, held through Forum (GSEC 101) Limited (“FGL”), (b) a
100% operating interest in SC 40 (North Cebu) held through Forum Exploration, Inc. (“FEI”),
and (c) minority interests in the SC 6 and SC 14 sub-blocks in offshore Northwest Palawan,
including a 3.2103%1 interest in the producing Galoc Field, held through Forum Energy
Philippines Corporation (“FEPC”).

The Company also holds a 53.43% controlling interest in Pitkin, an upstream oil and
gas company registered in the United Kingdom with operations in Peru. Pitkin’s asset is a 25%
participating interest in Peru Block Z-38 located in offshore Tumbes Basin, Peru.

1
 The Company owns 100% of Brixton Energy & Mining Corporation (“BEMC”).

Debt Level: PXP has more cash than its total debt.

Reducing Debt: PXP's debt to equity ratio has reduced from 94.5% to 2.3% over the past 5
years.

Subsidiaries:

 Pitkin Petroleum Limited

 Forum (GSEC 101) Limited – Philippine Branch
 Forum Energy
 Forum PH SC72 Project Co, Inc.

Markets

On September 12, 2011, the PSE listed by way of introduction the Company’s shares
at the initial listing price of P=1.20 per share with the Company symbol PXP.

On August 8, 2016, the Philippine Securities and Exchange Commission (“SEC”)

approved the change in the Company’s corporate name from “Philex Petroleum Corporation”
to “PXP Energy Corporation”.

The Company’s public float as of December 31, 2021 is 30.60%.

The average stock prices for the Company’s common shares within the last two years
and for the first 4 months of 2022 were as follows:

Table 1: PXP Energy Corporations’ average stock prices for the common shares within the
last 4 years and for the first 4 months of 2022

The Company’s stock was traded at P=6.15 per share as of December 31, 2021.

Product

The Company’s primary business is the exploration and production of crude oil and
natural gas, through interests in petroleum SCs and holdings in resource development

2
companies with interests in petroleum contracts. Crude oil and natural gas are fossil fuels that
are derived from organic material deposited and buried in the earth’s crust millions of years
ago. Fossil fuels (oil, natural gas, and coal) accounted for 18.7% of the primary energy mix in
the Philippines in 2020 according to the DOE. In the same year, natural gas contributed about
26.9% of the Luzon generation mix alongside other energy sources such as coal, geothermal,
hydro, oil and other renewable energy sources like wind, solar & biomass. It is likely that fossil
fuels will continue to be the major energy source over the next decades, even with the
development of alternative sources of energy.

All of the Company’s revenues are currently sourced from FEPC’s share of revenues
from crude oil production in SC 14 in offshore Northwest Palawan.

The rest of the petroleum licenses are still in the exploration, appraisal, or development
stages and are not yet generating any revenues for the Company. One hundred percent
(100%) of FEL’s share of revenues from crude oil production in SC 14 in 2021 (2020: 100%,
2019: 95%) were from crude oil sales to East Asian markets.

Crude oil sales are transported via marine crude oil tankers which are arranged either
by the customer or the SC operator depending on contract terms.

3
 II. VIP TO KNOW

Figure 1: PXP Energy Corporations’ Board of Directors

Manuel Velez Pangilinan

Position: Chairman PXP Energy Corp.

Mr. Pangilinan graduated cum laude from the Ateneo de Manila University with a
Bachelor of Arts degree in Economics. He received his Master of Business Administration
degree from Wharton School of the University of Pennsylvania in 1968.

Mr. Pangilinan founded First Pacific Company Limited, a corporation listed on the Hong
Kong Stock Exchange, in May 1981. He served as Managing Director of First Pacific Company
Limited since its founding in 1981 until 1999. He was appointed Executive Chairman until June
2003, after which he was named Managing Director and Chief Executive Officer.

4
 In May 2006, the Office of the President of the Philippines awarded Mr. Pangilinan the
Order of Lakandula, rank of Komandante, in recognition of his contributions to the country. He
was named Management Man of the Year 2005 by the Management Association of the
Philippines. Mr. Pangilinan was awarded Honorary Doctorates in Science by Far Eastern
University in 2010; in Humanities by Holy Angel University in 2008; by Xavier University in
2007; and by San Beda College in 2002 in the Philippines. He was formerly Chairman of the
Board of Trustees of the Ateneo de Manila University and was a member of the Board of
Overseers of the Wharton School. He is a member of the ASEAN Business Advisory Council.

Daniel Stephen P. Carlos

Position: President & Executive Director, PXP Energy Corp.

Mr. Carlos obtained his Bachelor of Science degree in Geology from the University of
the Philippines (1984) and holds a Master of Science degree in Petroleum Geoscience from
the Norwegian University of Science and Technology or NTNU (2002). He also has a Diploma
in Petroleum Exploration and Reservoir Evaluation from the University of Trondheim, now
NTNU (1988). He is a licensed Geologist and placed 3rd in the 1985 Geologist Licensure
Examination.

He was with the Department of Energy (1985–1991), Basic Energy Corporation, PNOC
Exploration Corporation, Forum Pacific, Inc., and CGG Multiwave. In February 2007, he joined
Forum Energy Philippines Corporation as Vice President for Exploration and was appointed
President in July 2013. He is currently the Resident Agent in the Philippines of Forum (GSEC
101) Limited, which operates Service Contract 72 or Recto Bank. He is also the President of
Forum Energy Philippines Corporation and Forum Exploration, Inc.

5
 Eulalio B. Austin

Position: Non-Executive Director, PXP Energy Corp.

Mr. Austin graduated from the St. Louis University in Baguio City, with a Bachelor of
Science degree in Mining Engineering, and placed eighth in the 1982 Licensure Examination
for Mining Engineers. He took his Management Development Program at the Asian Institute
of Management in 2005 and his Advanced Management Program at the Harvard Business
School in 2013.

Mr. Austin is a Director of Philex Mining Corporation and Philex Gold Philippines, Inc.
since June 29, 2011. He became President and Chief Operating Officer of Philex Mining on
January 01, 2012, and President and Chief Executive Officer on April 03, 2013.

He previously served Philex Mining as its Senior Vice President for Operations and
Padcal Resident Manager in 2011, Vice President and Resident Manager for Padcal
Operations from 2004 to 2010, Mine Division Manager (Padcal) from 1999 to 2003,
Engineering Group Manager in 1998 and Mine Engineering & Draw Control Department
Manager from 1996 to 1998. Mr. Austin concurrently serves as Chairman and Director of
Silangan Mindanao Mining Co., Inc.

Hon Pong Ng

Position: Non-Executive Director, PXP Energy Corp.

Mr. Ng received an MBA and a Professional Diploma in Accountancy from Hong Kong
Polytechnic University. He is a member of the Hong Kong Institute of Certified Public

6
Accountants, the Association of Chartered Certified Accountants, and the Institute of
Chartered Accountants in England and Wales.

Mr. Ng joined First Pacific Company Limited in 1988 from Price Waterhouse’s audit
and business advisory department in Hong Kong. He was appointed as Associate Director in
April 2019. Prior to that, he was Executive Vice President of Group Finance and served in
several senior finance positions within the First Pacific Group, including as the Head of
Finance of its regional telecom division and a director of a number of its telecom joint ventures
in India, Indonesia, and China. Mr. Ng is also a Non-Executive Director of Philex Mining
Corporation, and a Commissioner of PT Indofood Sukses Makmur Tbk.

Oscar S. Reyes

Position: Non-Executive Director, PXP Energy Corp.

Mr. Reyes received his Bachelor of Arts degree in Economics from the Ateneo de
Manila University and graduated Cum Laude. He holds a Diploma in Business Administration
and a Certificate in Export Promotion from the Waterloo Lutheran University and a Masters in
Business Administration Program (all units completed) at the Ateneo Graduate School of
Business. He took the Business Management Consultancy and Trainers’ Program at the
Japan Productivity Center under the Asian Productivity Organization; the Program for
Management Development at the Harvard Business School, and; the Commercial
Management Program at the Shell International Petroleum Corporation, Lensbury Centre,
London.

Mr. Reyes was formerly the President and Chief Executive Officer of the Manila Electric
Company. He is a member of the Advisory Board of PLDT, Basic Energy Corporation, and
Pioneer Life Inc., and of the Advisory Council of the Bank of the Philippine Islands. He is the
Chairman of Pepsi Cola Products Phils., Inc. and an Independent Director of Cosco Capital
Inc., D.M. Wenceslao & Associates Inc., Sun Life Financial Phils., Inc., Sun Life Prosperity
Funds, Philippine Dealing System Holdings Corp., Philippine Dealing and Exchange Corp.,
Philippine Depository and Trust Corp., Philippine Securities Settlement Corp., Pioneer

7
Insurance & Surety Corporation, Pioneer Intercontinental Insurance Corporation, Team
Energy Corporation, among other firms. He is a member of the Board of Trustees of Pilipinas
Shell Foundation, Inc., and El Nido Foundation, Inc. Mr. Reyes served as Country Chairman
of the Shell Companies in the Philippines, concurrently President of Pilipinas Shell Petroleum
Corporation and Managing Director of Shell Philippines Exploration B.V.

Benjamin S. Austria

Position: Independent Director, PXP Energy Corp.

Dr. Austria received his Bachelor of Science degree in Geology from the University of
the Philippines Diliman in 1965. He earned his Master and Doctorate degrees in Geology from
Harvard University in 1968 and 1975, respectively. Dr. Austria retired in 2011 from the
University of the Philippines (UP) as Professor of Geology after 45 years of service, teaching
courses in Economic Geology, Geochemistry, and Crystallography. The UP National Institute
of Geological Sciences building was completed and inaugurated while he was the Director of
the Institute from 1987 to 1993.

Dr. Austria is a registered Geologist and was recognized as the Outstanding

Professional in the Field of Geology in year 2001 by the Professional Regulation Commission
of the Philippines. He has been a Member of the Board of Geology of the Professional
Regulation Commission since 2016. He was Officer-in-Charge of the Board of Geology from
November 2020 to March 2022. He is a Director and Chairman of the Earth Sciences &
Geography Division of the Philippine Association for the Advancement of Science &
Technology, a non-stock, non-profit corporation. Dr. Austria is a registered Geologist and was
recognized as the Outstanding Professional in the Field of Geology for2001 by the
Professional Regulation Commission of the Philippines. He is currently a Member of the Board
of Geology of the Professional Regulation Commission.

8
 Emerlinda R.Roman

Position: Independent Director

Dr. Roman received her Bachelor of Science degree in Agriculture at the University of
the Philippines Los Baños in 1972. She earned her Master's Degree in Agribusiness
Management in 1977 and her Doctor of Business Administration degree in 1989 from the
College of Business Administration of the University of the Philippines Diliman.

Dr. Roman is the first woman president of UP where she is now Professor Emeritus at
the Cesar E.A. Virata School of Business. She has held various administrative positions in UP
– served as three-time Chancellor of the University’s flagship campus – UP Diliman, Vice-
President, Secretary of the Board of Regents, and finally its President. Dr. Roman was
President when the University celebrated its centennial at which time the university went on
an aggressive fundraising campaign raising more than ₱6 Billion.

Dr. Roman also served as Chair of the Board of Trustees of the International Rice
Research Institute, President of the UP Foundation, Chair of the Friends of UP in America
Foundation, and Chair of the UP Provident Fund.

She sits on the boards of Smart Communications, Inc., Digital Telecommunications

Philippines, Inc., Redondo Peninsula Energy, and One Meralco Foundation. She is also Chair
of the Board of Advisers of Manila Tytana Colleges and a Member of the Board of Trustees of
Akademya Filipino.

9
 Marilyn A. Victorio-Aquino

Position: Non-Executive Director, PXP Energy Corp.

Ms. Aquino was educated at the University of Santo Tomas (A.B.) and University of
the Philippines (LL.B., cum laude). and admitted to the practice of law in the Philippines in
1981.

Ms. Aquino joined SyCip Salazar Hernandez and Gatmaitan Law Offices in the
Philippines in 1980 where she became a partner in 1989. Ms. Aquino’s practice focused on
banking, finance and securities, construction and infrastructure, investments, mergers and
acquisitions, and mining and natural resources. Ms. Aquino is a Director of Philex Mining
Corporation, Philex Gold Philippines, Inc., Silangan Mindanao Mining Company, Inc., Lepanto
Consolidated Mining Company and Maynilad Water Services, Inc. She was also appointed as
Chief Legal Counsel of PLDT in December 2018.

Diana V. Pardo-Aguilar

Position: Non-Executive Director, PXP Energy Corp.

Ms. Pardo-Aguilar holds a Master’s Degree in Business Administration major in

International Business and Finance from Pepperdine University, California (1988) and a
Bachelor of Science in Computer Studies from De La Salle University (1985).

Ms. Pardo-Aguilar a Commissioner of the Social Security System since August 2010.
She was also a director of Security Bank Corporation from November 2010 to April 2016,
Senior Advisor to the Board from July 2016 to April 2017 and Chairperson of the Trust
Committee. She also serves as Chairperson of SB Capital Investment Corporation since

10
August 2016. Ms. Aguilar is an investment banker with extensive experience in capital markets
transactions and an entrepreneur with businesses in the fields of information technology and
electronic payments, retail trade, and property management. Ms. Aguilar holds concurrent
directorships in the fields of investment and commercial banking, social protection, information
technology & e-payments, retail and supply chain, education, and property management. Ms.
Aguilar’s concurrent board positions are Chairperson of the Board of Trustees of La Salle
Green hills since September 2021; Member of La Salle East Asia Boards LEAD Economic
Council and LEAD Investment Board since August 2020; Member of De La Salle Philippines
Investment Committee since July 2018; Member of De La Salle-College of Saint Benilde, Inc.
Executive Finance Committee of the Board since July 2020; Board of Trustees of De La Salle
Medical and Health Science Institute since October 2020.

She also sits as the Chairperson of the Audit Committee of Makati Medical Center
since July 2018; Advisor to the Board of Philippine Seven Corporation since January 2015;
Independent Director of Science Park of the Philippines, Inc., since June 2020; Governor and
Vice President of Employers Confederation of the Philippines since January 2017. Her past
board positions include Chairperson of Finance Committee and Treasurer of LaSalle Green
hills from September 2019 to 2021; Director of Philex Mining Corporation from 2019 to 2021;
Director of Wenphil Corporation from 2012 to 2019; Director of Electronic Commerce
Payments, Inc., from 2004 to 2019; Director of Ionics, Inc., from 2016 to 2019; Treasurer of
De La Salle Santiago Zobel from 2004 to 2017; and Director of Phoenix Petroleum Philippines,
Inc. from 2010 to 2013.

Compensation of Executives

Independent directors and the SSS representative receive per diems of P30,000 per
board meeting and P20,000 per committee meeting attended. While the Company’s By-Laws
provide that the directors shall, at the Board’s discretion, receive as compensation a share in
the Company’s net income before tax, but not to exceed one and a half (1-½%) percent, the
Company has not paid its directors any fees under this provision since its incorporation in
2007. There are no other arrangements as regards directors’ compensation.

Officers of the Company receive such remuneration as the Board may determine upon
recommendation of the Compensation Committee.

The following table shows the compensation of the directors and officers for the past
three completed fiscal years and estimated to be paid for the ensuing fiscal year.

11
 Figure 2: PXP Energy Corporations’ Board of Directors’ Compensation

There are no other arrangements under which the Company’s directors and officers
were compensated, or are to be compensated, directly or indirectly, since the Company’s
incorporation in December 2007, except as described above.

Comparison with other Networks

In the Philippines, there are three leading petroleum corporations: Petron Corporation,
Shell Corporation, and Phoenix Petroleum Corporation. They are all involved in the production
of oil and gas for automobiles in the Philippines. In this industry, nobody wants to be on the
losing end of a game; thus, they create various ways to attract customers. Most people agree
that they stand out in different ways.

In terms of financial statements, the performance of Petron Corporation, and Seaoil

Corporation

History

PXP Energy Corporation is formerly a Philex Petroleum Corporation is an upstream oil

and gas company incorporated in the Philippines in December 2007 as a wholly-owned
subsidiary of Philex Mining Corporation. After the distribution of approximately 36% of Philex
Petroleum shares to Philex Mining shareholders as property dividends, Philex Petroleum listed
its shares on the second board of the Philippine Stock Exchange under the Amended Rules
on Listing by Way of Introduction of the PSE on September 12, 2011.

12
 The Company has interests in various petroleum service contracts in the Philippines
and Peru held directly and through its major subsidiaries, Pitkin Petroleum Plc (“Pitkin”) and
Forum Energy Plc (“Forum”).

Prior to the distribution of the Company’s shares as property dividend in 2011, the
Company had ten stockholders, nine of whom were individuals with one share each.
Subsequently, the number of shareholders totaled to 35,350. The Company's two biggest
shareholders, Philex Mining and First Pacific, are leaders in business and industry in the
Philippines and Asia. Philex Mining is a leader in mining and a pioneer in oil exploration in the
Philippines, and First Pacific is an investment management and holding company with
business interests in Asia relating to Telecommunication, Infrastructure, Consumer Food
Products and Natural Resources.

Sales and Assets

The table below shows the historical corporation sale of goods growth of legacy

in the last two years:

CORPORATION 2021 2020

Philex Petroleum
Corporation 3,094,217 6,755,587
Total 3,094,217 6,755,587
Table 2: PXP Energy Corporations’ 2020 and 2021 corporation sales

The following tables show the historical sale of goods growth for PXP Energy Corp, for
the year 2018 to 2021.

2019 2020 2021

Sales of Good 72,499.0 30,250.0 64,198.0
Sales Growth -32.82% -58.28% 112.22%
Table 3: PXP Energy Corporations’ 2019, 2020 and 2021 historical sales

ss

13
III. FINANCIAL STATEMENTS

14
15
16
17
18
19
IV. HOW ASSETS ARE FINANCED

Figure 2: PXP Energy Corporations’ 2019, 2020 and 2021 Capital Structure

2021 2020 2019

Total Current 55,129 1.78% 24,854 0.37% 74,615 1.09%
Liabilities
Total Non-Current 422,501 13.65% 1,261,782 18.68% 1,274,103 18.56%
Liabilities
Total Liabilities 477,630 15.43% 1,286,636 19.05% 1,348,718 19.65%

Equity 2,616,587 84.56% 5,468,951 80.95% 5,516,561 80.35%

Total Liabilities 3,094,217 100% 6,755,587 100% 6,865,279 100%
and Equity
Table 4: PXP Energy Corporations’ 2019, 2020 and 2021 Capital Structure in Common Size
Analysis

PXP Energy Corporation financial position reveals that the company's total assets for
the years 2021, 2020, and 2019 are 6,865,279, 6,755,587, and 3,094,217, respectively. Both
debt and equity financing is used to pay for the company's assets.

Debt-to-Equity Ratio

2021 2020 2019

0.18 0.24 0.24
Table 5: PXP Energy Corporations’ 2019, 2020 and 2021 Debt-to-Equity Ratio

PXP Energy Corporation debt to equity ratio in 2021 is 0.18 while in the year of 2020 and 2019
they both have 0.24 debt to equity ratio. It means the year 2021 has more debt than the equity.

20
Assets to Equity Ratio

2021 2020 2019

1.18 1.24 1.24
Table 6: PXP Energy Corporations’ 2019, 2020 and 2021 Assets to Equity Ratio

PXP Energy Corporation asset to equity ratio has 1.18 in the year of 2021 and 1.24 for
the year of 2020 and 2019. It shows that the assets 2021 decrease from 1.24 to 1.18 for the
year of 2020 and 2019. Based on the financial statement of PXP Energy Corporation there a
has a large gap between the assets and the equity in 2021,2020, and 2019.

Working Capital Ratio

2021 2020 2019

10.62 7.86 4.06
Table 7: PXP Energy Corporations’ 2019, 2020 and 2021 Working Capital Ratio

PXP Energy Corporation asset to equity ratio has 1.18 in the year of 2021 and 1.24 for
the year of 2020 and 2019. It shows that they can easily pay all their debts. For 3 consecutive
the company has more assets than the liabilities.

21
 V. PROFITABILITY
A. Return on Sales

Gross Profit Margin

2021 2020 2019

36.78% -1.10% 29.68%
Table 8: PXP Energy Corporations’ 2019, 2020 and 2021 Gross Profit Margin

The gross profit Margin ratio of PXP Energy Corporation for 2019 is 29.68%, and for
the year 2020 has decreased to -1.10%. But, in the year 2021 it increased to 36.78%. Ideally,
direct expenses should not exceed 40%, leaving you with a minimum gross profit margin of
60%. Remaining overheads should not exceed 35%, which leaves a genuine net profit margin
of 25%. This should be their aim. A good margin will vary considerably by industry and size of
business, but as a general rule of thumb, a 10% net profit margin is considered average, a
20% margin is considered high (or “good”), and a 5% margin is low.

Operating Profit Margin

2021 2020 2019

-53.71% -198.26% -54.75%
Table 9: PXP Energy Corporations’ 2019, 2020 and 2021 Operating Profit Margin

The PXP Energy Corporation’s OPM decreases from 2019 to 2020. The OPM rations
were-54.75% to -198.26%. However, it increases from 2020 to 2021 which is -198.26% to -
53.71%. This is an indication that the PXP Energy Corporation has inability to control cost.
This business will likely require additional outside funding to remain in operation.

Pre-tax Margin

2021 2020 2019

6401.67% 281.19% 411.56%
Table 10: PXP Energy Corporations’ 2019, 2020, and 2021 Pre-Tax Margin

PXP Energy Corporation’s pre-tax margin decreases from the year 2019 which is
411.56% to 281.19% in the year 2020 and then increases in the 2021 that has 6401.67%. This
means that the company has a high degree of operational profitability in the 2021 than the
past two years.

22
Net Profit Margin

2021 2020 2019

2670.33% 185.46% 375.38%
Table 11: PXP Energy Corporations’ 2019, 2020, and 2021 Net Profit Margin

The net profit of the PXP Energy Corporation in the year 2019 is 375.38% and
it decreases to 185.46% in the year 2020. However, in the year 2021, it increases to
2670.33%. This means that the company is able to effectively control its costs and/or provide
goods or services at a price significantly higher than its costs. It generates more profits from
its sales.

Operating Cost Ratio

2021 2020 2019

90.49% 197.16% 84.43%
Table 12: PXP Energy Corporations’ 2019, 2020, and 2021 Operating Cost Ratio

PXP Energy Corporations earned an operating cost ratio of 84.43% in the year 2019.
The next year the corporation earned 197.16% more and in the year 2021 it decreases to
90.49%. This is slightly better than the previous year because it decreases. An operating ratio
that is decreasing is a viewed as a positive sign, as it indicates that the expenses are becoming
as increasingly smaller percentage of net sales. But the normal operating expense ratio range
is typically between 60% to 80%, and the lower it is, the better. Below 70%, is doing a really
good job of controlling expenses.

B. Return on Investments

Return on Assets (EBIT)

2021 2020 2019

5.18% 1.02% 1.69%
Table 13: PXP Energy Corporations’ 2019, 2020, and 2021 Return on Assets (EBIT)

In the year 2019, PXP Energy Corp has 1.69% return on assets (EBIT) and it
decreases to 1.02% in year 2020. Then it increased to 5.18% in 2021, this means that the
ROA of PXP for the year 2021 is generally considered good.

Return on Assets (Net Income)

2021 2020 2019

55.40% 0.83% 3.96%

23
Table 14: PXP Energy Corporations’ 2019, 2020, and 2021 Return on Assets (Net Income)

In the year 2019, PXP Energy Corp has 3.96% return on assets (Net Income) and it
decreases to 0.83% in year 2020. Then it increase to 55.40% in 2021, this means that the
company has better profit performance than the previous years. The company is using its
assets and working capital efficiently and effectively.

Return on Equity

2021 2020 2019

65.54% 1.03% 4.93%
Table 15: PXP Energy Corporations’ 2019, 2020, and 2021 Return on Equity (ROE)

PXP EnnergyCorp has 4.93% Return on Equity (ROE) ratio in the year 2019 and it
decreases to 1.03% in the year 2020, but in the year 2021, it increases to 65.52%. This means
that in the year 2021, the company has an impressive ROE, but it can also be an indication
that company management has increased the business’ exposure to risk by borrowing against
company assets.

Return on Equity – Dupont Model

2021 2020 2019

65.36% 1.03% 4.91%
Table 16: PXP Energy Corporations’ 2019, 2020, and 2021 ROE: DU PONT 3-LEVEL

Return on Equity – Dupont Model has 4.91% in the year 2019 and 1.03% in the year
2020, but in the year 2021, it increases to 65.36%. This is a very positive sign for the company,
it indicates that the company is more effective at generating profit from its existing assets.

24
VI. FINANCIAL STRENGTH

A. Activity Ratio
1. INVENTORY TURNOVER (ITO)

2021 2020 2019

Cost of Goods Sold (COGS) ₱164,458 ₱36,773 ₱125,532

÷ Invetories ₱4,240 ₱2,925 ₱7,300

INVENTORY TURNOVER 38.79x 12.57x 17.20x

Table 17: PXP Energy Corporations’ 2019, 2020, and 2021 Inventory Turnover Ratio

PXP Energy Corporation takes 17.20 times to turn its inventory into sales in 2019.
However, it decreases in 2020 wherein the company only sold their goods 12.57 times and
the ratio in 2021 rose again with an inventory turnover of 38.79 times. This indicates that PXP
Energy Corporation has weak demand and insufficient supply of inventories in 2020 that might
be due to the pandemic happened. In the year 2019 and 2021, the company has a high
turnover ratio showing that the company has sufficient inventory to support strong sales.

2. DAYS TO SELL INVENTORY

2021 2020 2019

365 days 365 days 365 days 365 days

÷ Invetories Turnover (ITO) 38.79x 12.57x 17.2x

DAYS TO SELL 9 days 29 days 21 days

INVENTORY

Table 18: PXP Energy Corporations’ 2019, 2020, and 2021 Days to Sell Inventory

In the year 2021, PXP Energy Corporation takes 9 days to sell its inventory and it is
the least number of days among three years that the company operates. This means that the
sales are good, and the inventories are being held at the right level. However, in the remaining
years, the average increases up to 29 days to sell its inventories which may indicate that the
company has too much inventory on hand, and it is hard for them to sell its inventories to
generate profit.

25
 3. ACCOUNTS RECEIVABLES TURNOVER (ARTO)

2021 2020 2019

Net Sales ₱64,198 ₱30,250 ₱72,499

÷ Receivables (A/R) ₱28,952 ₱32,838 ₱33,516

A/R TURNOVER (ARTO) 2.22x 0.92x 2.16x

Table 19: PXP Energy Corporations’ 2019, 2020, and 2021 Accounts Receivable Turnover
PXP Energy Corporation collected its receivables 2.16 times on average in 2019.
However, in 2020, it significantly drops to 0.92 times which indicates a slower collection
process of accounts receivables. This decreasing trend didn’t continue because in 2021, the
corporation was able to convert its receivables into cash 2.22 times, implying that PXP Energy
Corporation has efficiently collected its accounts receivables and the customers pay off their
debts.

4. DAYS SALES OUTSTANDING

2021 2020 2019

365 days 365 days 365 days 365 days

÷ A/R turnover (ARTO) 2.22x 0.92x 2.16x

DAYS SALES 164 days 397 days 169 days

OUTSTANDING

Table 20: PXP Energy Corporations’ 2019, 2020, and 2021 Days Sales Outstanding

The day sales outstanding ratios during the three-year period of PXP Energy
Corporation is quite high. It ranges from 164 days up to 397 days from 2018 to 2020 in
collecting payments of receivables for a sale. A high DSO number indicates that the company
is likely suffering payment delays which may cause a cash flow issue. However, since PXP
Energy Corporation was included in the fuel industry, fast payment may be crucial, so it is
relatively common to have long-term payment.

26
 5. ACCOUNTS PAYABLE TURNOVER (APTO)

2021 2020 2019

Cost of Goods Sold (COGS) ₱164,458 ₱36,773 ₱125,532

÷ Trade and other payables ₱45,790 ₱24,287 ₱63,053

A/P TURNOVER (APTO) 3.59x 1.51x 1.99x

Table 21: PXP Energy Corporations’ 2019, 2020, and 2021 Accounts Payable Turnover

In 2019, PXP Energy Corporation has paid its average accounts payable balance 1.99
times during that period. During the year 2020, the ratio has decreased resulting in accounts
payable being paid 1.51 times. It may indicate that the company is quite struggling to pay its
bills. In the next year, 2021, the corporation has paid its creditors and suppliers 3.59 times. It
implies that the company has satisfied its accounts payable obligations quickly. Higher figures
indicate that the company is more prompt in making its payments, which results in less debt
being recorded.
6. DAYS TO PAY ACCOUNTS PAYABLE

2021 2020 2019

365 days 365 days 365 days 365 days

÷ A/P turnover (APTO) 3.59x 1.51x 1.99x

DAYS TO PAY A/P 102 days 242 days 183 days

Table 22: PXP Energy Corporations’ 2019, 2020, and 2021 Days to pay Accounts Payable

PXP Energy Corporation takes 183 days to settle accounts payable to the creditors in
2019. It has increased in 2020 resulting in accounts payable to be settled within 242 days. In
2021, it took 102 days to pay its bills and invoices to its trade creditors. In the first two years,
the company has high days to pay accounts payable that indicate the company has delays on
making payments or inability to pay. However, having high figures could be interpreted that
the company is using its available cash to generate more working capital in order to pay its
accounts payable obligations.

27
 7. OPERATING CYCLE (IN DAYS)

2021 2020 2019

Days to sell inventory 9.41 days 29.04 days 21.22 days

(+)Days sales outstanding 164.41 days 396.74 days 168.98 days

OPERATING CYCLE (IN 173.82 425.78 190.2

DAYS) days days days

Table 23: PXP Energy Corporations’ 2019, 2020, and 2021 Operating Cycle

The operating cycle of PXP Energy Corporation for 2019 is 190.20 days and the
growing trend continues to increase by 425.78 days in 2020. This indicates that the company
takes a longer operating cycle to buy goods, sell them and receive cash from the sale of said
goods. In 2021, the operating cycle was dropped to an average of 174 days to turn its
inventories into cash. This year was the shortest operating cycle than the previous years,
implying that the company generates its cash faster. However, to shorten the operating cycle,
it could be suggested that they collect receivables and pay off outstanding debt

8. CASH CONVERSION CYCLE (IN DAYS)

2021 2020 2019

Days to sell inventory 9.41 days 29.04 days 21.22 days

(+)Days sales outstanding 164.41 days 396.74 days 168.98 days

(-) Days to pay A/P 101.67 days 241.72 days 183.42 days

CASH CONVERSION 72.15 days 184.06 days 6.78 days

CYCLE (IN DAYS)

Table 24: PXP Energy Corporations’ 2019, 2020, and 2021 Cash Conversion Cycle

PXP Energy Corporation’s Cash Conversion Cycle (CCC) is 6.78 days in 2019. It has
a lower ratio of CCC that could indicate that the company is efficiently converting its invested
cash in the inventory into high return. In the next two years of PXP Energy Corporation, the
CCC ratios were increased and took up to 184.06 days to complete a cycle. The longer CCC
means the company takes a longer time to generate cash from its investments in inventory
and other resources.

28
 9. FIXED ASSET TURNOVER (FATO)

2021 2020 2019

Net Sales ₱64,198 ₱30,250 ₱72,499

÷ Property, Plant, and ₱1,850 ₱2,125 ₱18,725

Equipment

FIXED ASSET 34.70x 14.24x 3.87x

TURNOVER (FATO)

Table 25: PXP Energy Corporations’ 2019, 2020, and 2021 Fixed Assets Turnover

It is shown in the table that PXP Energy Corporation’s fixed asset turnover ratio
continued to grow from 3.87x up to 34.70x within three years of operating. This indicates that
the company is efficiently using substantial assets and its existing assets to generate revenue.

10. TOTAL ASSET TURNOVER (TATO)

2021 2020 2019

Net sales ₱64,198 ₱30,250 ₱72,499

÷ Total Assets ₱3,094,217 ₱6,755,587 ₱6,865,279

TOTAL ASSET 0.0207x 0.0045x 0.0106x

TURNOVER

Table 26: PXP Energy Corporations’ 2019, 2020, and 2021 Total Assets Turnover

PXP Energy Corporation’s total asset turnover ranges only from the average of 0.00
to 0.02 in the year 2019 to 2021. It shows that the company has too much asset based but it
doesn’t generate much revenue. This could imply that the company is not using its assets
efficiently and may have internal problems.

29
 B. Liquidity Ratio

1. CURRENT RATIO (CR)

2021 2020 2019

Total current assets ₱585,41 ₱195,338 ₱302,571

6

÷ Total current liabilities ₱55,129 ₱24,854 ₱74,615

CURRENT RATIO (CR) 10.62x 7.86x 4.06x

Table 27: PXP Energy Corporations’ 2019, 2020, and 2021 Current Ratio
In 2019, PXP Energy Corporation’s current assets were 4.06 times the value of its
current liabilities. Compared to 2020, the current ratio was increased to 7.86 times and the
growing trend continued in 2021 wherein the current ratio jumped to 10.62 times. This could
indicate that the company has the ability to cover up its current liabilities by the current
assets and can meet its short-term debt and obligations. However, the company might also
have too much unsold inventory or cash on hand.

2. WORKING CAPITAL (WoC)

2021 2020 2019

Total current assets ₱585,41 ₱195,338 ₱302,571

6

(-) Total current liabilities ₱55,129 ₱24,854 ₱74,615

WORKING CAPITAL ₱530,28 ₱170,484 ₱227,956

(WoC) 7

Table 28: PXP Energy Corporations’ 2019, 2020, and 2021 Working Capital

The results of PXP Energy Corporation’s working capital shows that the company has
greater current assets than its current liabilities. This indicates that the company can fund its
current operation and has more than enough current assets to pay off its short-term debt. Even
though the working capital is quite high due to having excess cash, PXP Energy Corporation
is liquid enough to cover its current liabilities.

30
 3. QUICK ASSETS (QA)

2021 2020 2019

(+)Cash and cash ₱529,47 ₱143,008 ₱245,954

equivalents 2

(+)Receivables (A/R) ₱28,952 ₱32,838 ₱33,516

(+) Other current assets ₱22,752 ₱16,567 ₱15,801

QUICK ASSETS (QA) ₱581,17 ₱192,413 ₱295,271

6

Table 29: PXP Energy Corporations’ 2019, 2020, and 2021 Quick Assets
The quick assets of PXP Energy Corporation for the year 2019 is ₱295,271 but it
decreases to ₱192,413 in 2020 and an increase happens in the year 2021 with a quick asset
of ₱581,176. This collected data indicates that the company has the capacity to pay its current
debts and obligations that are due within a year through its most liquid assets excluding the
inventories.

4. QUICK RATIO (QR)

2021 2020 2019

Quick Assets ₱581,176 ₱192,413 ₱295,271

÷ Total current liabilities ₱55,129 ₱24,854 ₱74,615

QUICK RATIO (QR) 10.54x 7.74x 3.96x

Table 30: PXP Energy Corporations’ 2019, 2020, and 2021 Quick Ratio

In 2019, PXP Energy Corporation’s quick ratio is 3.96x. It was the lowest ratio
compared to other years. However, it significantly increased in the next two years with a quick
ratio of 7.74x and 10.54x in 2020 to 2021. The ratio indicates that the company is completely
stocked with exactly enough assets that might be promptly liquidated to cover its current
liabilities without selling its inventories.

31
C. Solvency Ratio

1. TOTAL DEBT TO TOTAL ASSET RATIO (D/A RATIO)

2021 2020 2019

Total debt ₱477,630 ₱1,286,6 ₱1,348,71

36 8

÷ Total assets ₱3,094,2 ₱6,755,5 ₱6,865,27

17 87 9

D/A RATIO 0.15x 0.19x 0.20x

Table 31: PXP Energy Corporations’ 2019, 2020, and 2021 Total Debt to Total Assets Ratio
PXP Energy Corporation’s total-debt-to-total-asset ratio decreased from 0.20 times in
2019 and 0.19 times in 2020 to 0.15 times in 2021. This ratio implies that the company is
financially sound wherein there’s a track record of low debt and higher assets. It also indicates
that PXP Energy Corporation is good in managing funds and in financing its assets using debt.

2. TOTAL INTEREST-BEARING DEBT (IBD)

2021 2020 2019

(+) Trade and other ₱45,790 ₱24,287 ₱63,053

payables

(+) Lease liabilities ₱609 ₱553 ₱503

(+) Current Portion of

finance Lease liabilities
₱4,447 ₱4,654 ₱4,791

TOTAL INTEREST-
BEARING DEBT (IBD)
₱50, 846 ₱29,494 ₱68,347

Table 32: PXP Energy Corporations’ 2019, 2020, and 2021 Total Interest-bearing debt

In 2019, PXP Energy Corporation’s total interest-bearing debt (IBD) of ₱68,347

decreased from ₱29,494 in 2020. Following the increased IBD ratio of ₱50,846 in 2021. This
ratio indicates that the company doesn’t have that much liabilities to settle and it can still be
financed by its assets.

32
 3. IBD VS. ASSET RATIO (IBD/A RATIO)

2021 2020 2019

Total interest-bearing debt ₱50,846 ₱29,494 ₱68,347

÷ Total assets ₱3,094,2 ₱6,755,5 ₱6,865,27

17 87 9

IBD/A RATIO 0.02x 0.00x 0.01x

Table 33: PXP Energy Corporations’ 2019, 2020, and 2021 IBD vs Asset Ratio

PXP Energy Corporation’s IBD/A ratio ranges from 0.00 to 0.02 in 2019,2020, and
2021. This low IBD/A ratio indicates that the ratio does not capture the company’s entire set
of cash obligations and is still financially flexible.

4. TOTAL DEBT VS. EQUITY RATIO (D/E RATIO)

2021 2020 2019

Total debt ₱477,630 ₱1,286,6 ₱1,348,71

36 8

÷ Total stockholders' equity ₱2,616,5 ₱5,468,9 ₱5,516,56

87 51 1

D/E RATIO 0.18x 0.24x 0.24x

Table 34: PXP Energy Corporations’ 2019, 2020, and 2021 Total Debt vs Equity Ratio

In 2019 and 2020, the PXP Energy Corporation’s D/E ratio is 0.24 times. In 2021, the
ratio decreases to 0.18 times which may indicate that in three consecutive years, the company
is becoming less leveraged and is using less debt to finance its operations. This implies that
the company is in sound financial condition and is producing adequate cash flow to pay its
debts.

33
 5. IBD VS. EQUITY RATIO (IBD/E RATIO)

2021 2020 2019

Total interest-bearing debt ₱50,846 ₱29,494 ₱68,347

÷ Total stockholders' equity ₱2,616,5 ₱5,468,9 ₱5,516,56

87 51 1

IBD/E RATIO 0.02x 0.01x 0.01x

Table 35: PXP Energy Corporations’ 2019, 2020, and 2021 Interest-Bearing Debt vs Equity
Ratio

The IBD/E ratio of PXP Energy Corporation in the years 2019 and 2020 is 0.01x and
in 2021, the ratio increased by 0.02 times. The ratio above was very close to each other. This
may indicate that the company doesn’t have much interest-bearing debt to finance its assets
rather than equity and it may implies that the company is not on risk.

6. FINANCIAL LEVERAGE RATIO (FL RATIO)

2021 2020 2019

Total assets ₱3,094,2 ₱6,755,5 ₱6,865,27

17 87 9

÷ Total stockholders' equity ₱2,616,5 ₱5,468,9 ₱5,516,56

87 51 1

FINANCIAL LEVERAGE 1.18x 1.24x 1.24x

RATIO

Table 36: PXP Energy Corporations’ 2019, 2020, and 2021 Financial Leverage Ratio

PXP Energy Corporation’s financial leverage ratio is 1.24 times in the years 2019 and
2020. The ratio decreases to 1.18 times in 2021. This is an ideal financial leverage ratio for
the company that indicates the portion of the company's assets are financed with equity.

34
D. Coverage Ratio

1. EBIT VS. INTEREST EXPENSE COVERAGE | TIMES INTEREST EARNED

(TIE)

2021 2020 2019

(+) Gross profit (GP) -₱100,260 -₱6,523 -₱53,033

(-) Other Operating ₱2,021 ₱2,712 ₱2,176

expenses

(+) Other Operating income ₱10,257 -₱10,236 -₱14,656

(=) Operating Income (EBIT) -₱87,982 -₱14,047 -₱65,513

÷ Interest expense or -₱504 -₱1,135 -₱1,003

finance cost

COVERAGE | TIMES 174.57x 12.38x 65.32x

INTEREST

Table 37: PXP Energy Corporations’ 2019, 2020, and 2021 Times Interest Earned

PXP Energy Corporation’s EBIT to interest expense in 2019 is 65.32x and it decreases
to 12.38x in 2020. A massive increase of 175.57x in 2021 which indicates that a higher ratio
could show the company has better financial performance and a high ratio means that the
company’s earnings are enough to cover interest expenses.

2. OCF VS. TOTAL DEBT

2021 2020 2019

Operating cash flow (OCF) -₱1,972 - -₱3,405

₱106,044

÷ Total debt ₱477,63 ₱1,286,6 ₱1,348,71

0 36 8

OCF VS. TOTAL DEBT -0.00x -0.08x -0.00x

Table 38: PXP Energy Corporations’ 2019, 2020, and 2021 Operating Cash Flows vs Total
Debt

35
 The data in the table above shows that PXP Energy Corporation’s ratio was all
negative which indicates that the company suffered loss through operations and has not
generated enough cash from its business operation to cover its near-term obligations. It is
suggested that the company could efficiently use the excess assets and improve sales to
maximize the profit.

3. OCF VS. IBD

2021 2020 2019

Operating cash flow (OCF) -₱1,972 - -₱3,405

₱106,044

÷ Total Interest-bearing debt ₱5,056 ₱5,207 ₱5,294

OCF VS. IBD -0.39x -20.37x -0.64x

Table 39: PXP Energy Corporations’ 2019, 2020, and 2021 Operating Cash Flows vs
Interest Bearing Debt

The result of OCF to Total Debt ratios are still negative from the years 2019 to 2021.
This implies that the company’s operating cash flow is not enough to pay off its interest-bearing
debt. It is recommended for the company to use its assets and invest in its operating cash
flow.

E. Cash Flow Ratio

1. TOTAL CASH

2021 2020 2019

Cash and cash equivalents ₱267,95 ₱140,313 ₱152,394

9

(+) Marketable Securities ₱261,51 ₱2,695 ₱93,560

3

TOTAL CASH ₱529,47 ₱143,008 ₱245,954

2

Table 40: PXP Energy Corporations’ 2019, 2020, and 2021 Total Cash

PXP Energy Corporation’s total cash is ₱245,954 in 2019. It decreases in 2020 with a
total cash of ₱143,008 and increases again in 2021 with a total cash of ₱529,472. This

36
indicates that the company has more assets than liabilities and they are performing well in
terms of converting their inventories into cash and collecting their receivables.

2. CASH TO CURRENT ASSETS RATIO

2021 2020 2019

Total cash ₱529,47 ₱143,008 ₱245,954

2

÷ Total current assets ₱585,41 ₱195,338 ₱302,571

6

CASH TO CURRENT 0.90 0.73 0.81

ASSETS RATIO

Table 41: PXP Energy Corporations’ 2019, 2020, and 2021 Cash to Current Assets

PXP Energy Corporation’s cash to current assets ratio is considered lower than the
required ratio. From 2019 to 2021, the company’s highly liquid assets are smaller than the
total current assets. This may indicate that not all the current assets are in the form of cash,
and it may depend on other forms of current assets to cover its debt.

3. CASH TO CURRENT LIABILITIES RATIO

2021 2020 2019

Total cash ₱529,472 ₱143,008 ₱245,954

÷ Total current liabilities ₱55,129 ₱24,854 ₱74,615

CASH TO CURRENT 9.60 5.75 3.30

LIABILITIES

Table 42: PXP Energy Corporations’ 2019, 2020, and 2021 Cash to Current Liabilities

The ratio of the cash to current liabilities ratio in 2019 is 3.30. It continues to
increase in the year 2020 and 2021 with a ratio of 5.75 and 9.60. This indicates the
creditworthiness of PXP Energy Corporation which implies that the company can comfortably
covered its current liabilities by the company’s most liquid assets.

37
 4. CASH FLOW RATIO

2021 2020 2019

Operating cash flows (OCF) -₱1,972 -₱3,405 -₱22,748

÷ Total current liabilities ₱55,129 ₱74,615 ₱2,159,57

4

CASH FLOW RATIO -0.04 -0.05 -0.01

Table 43: PXP Energy Corporations’ 2019, 2020, and 2021 Cash Flow Ratio

The cash flow ratios of PXP Energy Corporation are -0.01 in 2019, -0.05 in 2020, and
-0.04 in 2021. All the ratios are negative indicating that the company is not generating sufficient
revenues from its business operations. As a result, the company needs to generate additional
positive cash flow through financing or investment activities.

38
VII. DIVIDENDS

Dividends Policy

PXP Energy Corporations’ dividends policy distributes up to 25% core net

income and to pay cash dividends within thirty (30) calendar days to shareholders of record
from date of declaration. The company’s By-laws provide that dividends shall be declared and
paid out of the unrestricted retained earnings which shall be payable in cash, property or stock
to all shareholders on the basis of outstanding stock held by them, as often and at such times
as the Board may determine and in accordance with law and applicable rules and
regulations.

The company has not previously paid any dividends and at that moment, there is no
information about whether it is going to pay them in the future. There is no assurance that PXP
Energy Corporation will pay dividends in the future. No fractional shares shall be issued from
any declaration of stock dividends.

Historical Annual Dividend Payout Ratio

PXP Energy Corporation has not declared dividends for the past years;
therefore, dividend payout ratio cannot be computed.

Historical Dividend Yield

PXP Energy Corporation has not declared dividends for the past years;
therefore, historical dividend yield cannot be also computed.

39
VIII. ABSOLUTE VALUATION

Based on data computed using the discounted cash flow method, PXP Energy Corp. has
an unexpectedly low intrinsic value per share of -0.0002537 or -0.000. According to some
research, a stock's intrinsic value cannot be negative unless there are influencing factors. In
this case, the factors influencing PXP Energy Corp. are the outstanding shares of the company
because they are too high. This low FCF signifies that the company has more outgoing than

40
incoming money, and it also indicates that the firm has not generated enough revenue to cover
its costs or investment activities. The company can also improve its FCF in other ways, such
as through investments or stock sales. In this case, the investor must dig deeper to assess
why the company's costs or investments exceed its revenue. If the company will not improve
its FCF, their investors or future investors may pull out or not invest in the company at all,
considering the company's status.

41
 IX. RELATIVE VALUATION

Price Earnings Ratio (PXP Energy Corp)

Formula:

Price Earnings Ratio = Market Price of Share ÷ Earnings per Share

Given:

MPS = 6.800

EPS = - 0.88

Solution:

Price Earnings Ratio = 6.800 ÷ - 0.88

P/E Ratio = -7.73

Price Earnings Ratio (Petron Corp)

Formula:

Price Earnings Ratio = Market Price of Share ÷ Earnings per Share

Given:

MPS = 2.500

EPS = 0.55

Solution:

Price Earnings Ratio = 2.500 ÷ 0.55

P/E Ratio = 50

PXP ENERGY CORPORATIONpPe PETRON PETROLEUM CORPORATION

-7.73x 50x
Table 44: PXP Energy Corporations’ Price Earnings Ratio

PXP Energy Corp.’s Price Earnings Ratio of -7.73x is lower or undervalued than Petron
Corp., indicating that the stock is less costly than their competitors’. So, due to the price,
consider not selling the stocks since the price of PXP Energy Corp’s stocks may go down in
the future.

42
Price Book Ratio (PXP Energy Corp)

Formula:

Price Book Ratio = Market Price per Share ÷ Book Value per Share

Given:

MPS = 6.800

BVPS = 0.86

Solution:

Price Earnings Ratio = 6.800 ÷ 0.86

PER = 7.91

Price Book Ratio (Petron Corp)

Formula:

Price Book Ratio = Market Price per Share ÷ Book Value per Share

Given:

MPS = 2.500

BVPS = 8.75

Solution:

Price Earnings Ratio = 2.500 ÷ 8.75

PER =0.29

PXP ENERGY CORPORATION PETRON PETROLEUM CORPORATION

7.91x 0.29x

Table 45: PXP Energy Corporations’ Price Book Ratio

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 PXP Energy Corporations’ Price Book Ratio is overvalued with 7.91x than Petron Corp.
with 0.29. Not the same with the result in P/E ratio. PXP Energy Corporations’ stock is more
expensive than its competitors’ stock, so consider selling the shares.

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 X. RISK FACTORS

PXP Energy Corporation, like all companies, is subject to a variety of risk that could
potentially impact its performance and financial stability. The risk identified in the company are
failure to fund its expenditures and investments for exploration and development activities.
The company has excess assets that is not efficiently used for its operations. Oil and gas
resources require a lot of capital to explore and develop. The availability and terms of external
financing, the ability to generate cash flow from the Group's production, and the extent to
which work commitments can be modified under the relevant SCs and similar agreements are
just a few of the variables that will determine the Company's ability to finance such
expenditures and investments. The Group will need to change its business plans and
strategies if it is unable to secure the necessary financing, which could be detrimental to the
Company's prospects, market value, and operational outcomes.

The Covid- 19 pandemic may have a significant impact on the energy market of PXP
Energy Corporation. It affects the operation activities by delaying the issuance of licenses and
limiting the flow of workers and equipment in which the majority of it will be arriving from
outside the Philippines. Countries all across the world implemented social distancing
measures to mitigate the impact of the outbreak. The company’s policies with regards to
Covid-19 pandemic have disrupted economic activity and corporate operations which led to
macroeconomic uncertainty over the supply and demand for oil and gas products as well as
the volatility in the price of crude oil.

The Covid-19 pandemic also have an effect on the company’s earnings, cashflow, and
financial situation because the sales and revenues significantly dropped in 2020 compared to
the previous year. However, the future production of oil and gas exploration assets will be
expected to be normalize.

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 XI. BULL/ BEAR CASE

PXP Energy Corporation is a Philippine-incorporated upstream oil and gas firm. PXP
Energy Corporation's financial statements show that the company has a low chance of being
at the top of all the gas stations.

Based on the capital structure of PXP Energy Corporation, they used more of their
equities than debts to finance their assets. The company is less profitable and successful than
its other competitors, like Seaoil Corporation, Shell Corporation, and Phoenix Petroleum
Corporation. For three consecutive years, gross profit margin, operating profit margin, pre-tax
margin, net profit margin, operating cost ratio, return on assets, and return on equity have all
decreased in 2020 because of the COVID-19 pandemic. However, they are gradually
recovering in 2021. When it comes to its financial strength, which includes Activity, Liquidity,
Solvency, Coverage, and Performance Ratio, most of its scope or under was drastically
decreased, which greatly influenced the result of its financial strength. The dividend payout
ratio and historical annual yield are cannot be computed because the corporation has not
declared any dividends.

When it come to absolute valuation, the PXP Energy Corporation has low FCF and it
signifies that the company has more outgoing than incoming money, and it also indicates that
the firm has not generated enough revenue to cover its costs or investment activities.
According to the relative valuation of PXP Energy Corporations’ the Price Earnings Ratio of -
7.73x is lower or undervalued than Petron Corp., indicating that the stock is less costly than
their competitors’. So, due to the price, consider not selling the stocks since the price of PXP
Energy Corp’s stocks may go up in the future that the investors that would not want to buy
company shares avoiding to. On the other hand, PXP Energy Corp’s Price Book Ratio is
overvalued with 7.91x than Petron Corp. with 0.29. PXP Energy Corporations’ stock is more
expensive than its competitors’ stock price. The investors will sell its share because the
company’s stock price is overvalued.

Based on the result of the fundamental analysis, including the ratios, dividends, and
valuation, the analysts decided that it's not the right time to buy company stock. Thus, the
investors will sell.

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 REFERENCES

Corporation, P. E. (2017). PXP Energy Corporation (formerly Philex Petroleum Corporation).

Retrieved from PXP Energy Corporation: https://www.pxpenergy.com.ph/
Corporation, P. E. (2020, July 14). PXP Energy Annual Report 2019. Retrieved from PXP
energy Corporations: https://www.pxpenergy.com.ph/investor-relations/annual-
report/pxp-energy-2019/

Corporation, P. E. (2021, June 23). PXP Energy Annual Report 2020. Retrieved from PXP
Energy Corporation: https://www.pxpenergy.com.ph/investor-relations/annual-
report/pxp-energy-2020/

Corporation, P. E. (2022, May 13). Company Disclosure. Retrieved from PXP Energy
Corporation: https://www.pxpenergy.com.ph/company-disclosure/financial-
reports/2021-yearend/

Corporation, P. e. (2022). Financial Reports. Retrieved from Edge PSE:

https://edge.pse.com.ph/companyPage/financial_reports_view.do?cmpy_id=136

Corporation, P. E. (2022). Financial Reports 2021. Retrieved from Edge PSE:

https://edge.pse.com.ph/companyPage/financial_reports_view.do?cmpy_id=628

Corporation, P. E. (2022, June 21). PXP Energy Annual Report 2021. Retrieved from PXP
Energy Corporation: https://www.pxpenergy.com.ph/investor-relations/annual-
report/pxp-energy-2019/

Corporation, P. e. (2023). PXP Energy (PHS:PXP) WACC %. Retrieved from Guro Focus:
https://www.gurufocus.com/term/wacc/PHS:PXP/WACC%20Percentage/PXP%20En
ergy

Corporation, P. (2023). PXP Energy Corporation. Retrieved from WSJ Market:

https://www.wsj.com/market-data/quotes/PH/PXP/financials

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