E&P firms threaten to suspend oil, gas production operations

ISLAMABAD: Even after the massive gas tariff surge up to 193 percent effective from November 1, 2023 and then up to 67 percent hike from February 1, 2024, the Sui companies’ non-payment to Exploration and Production (E&P) companies have increased to Rs1,500 billion as of March 15, 2024, hindering further exploration and production activities in the country.

The E&P companies have threatened to reduce or suspend production operations, leading to a massive shortage of gas if the corrective action for speedy payments by SNGPL and SSGC is not taken by the government authorities.

This has been disclosed in a letter written on April 17, 2024 by the Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) to Petroleum Minister Dr Musadik Malik, seeking his attention to the liquidity crisis of E&P firms that touched new highs because of no required payments by Sui gas companies even after massive hike in gas tariff.

The letter also mentions the data highlighting that despite a significant increase in consumer prices, the gas utility companies have not even paid the actual monthly invoices for the period post the gas price increase. “This situation calls for the government to immediately provide funds to the gas utility companies to improve the liquidity position of these technically bankrupt entities. More importantly, payment to foreign oil and gas companies is backed by sovereign guarantees.”

The severe cash flow crisis is pushing E&P companies to drastically cut exploration and development activities. Till February 2024, out of the planned (23) exploration wells for the year, only (9) were spud. Currently, only (19) out of the available (42) rigs are operational in the country and there is a substantial reduction in seismic activities.

So much so, development wells are being put on hold as companies are reluctant to bring additional gas volumes to market. This loss of activity has already curtailed around 300 MMscfd of gas production.

The total payments the gas companies owe E&P companies have increased to Rs2.84 trillion ($1.2 billion). The outstanding receivables from SSGC and SNGPL currently stand at a staggering Rs1,500 billion of which over $600 million is payable to foreign companies. These delayed payments are becoming a significant barrier to the upstream companies’ ability to invest in their assets. However, the gas companies need to pay the local E&P companies the amount of Rs1,343 billion.