Govt to auction 16 blocks for hydrocarbon discovery

KARACHI: The government has planned to offer up to 20 new onshore oil and gas concessions during the current fiscal year of 2016/17, a minister said on Monday, in a bid to boost hydrocarbon discovery.

Shahid Khaqan Abbasi, minister petroleum and natural resources said 15 to 20 exploration blocks will be put on auction.

“The NOC (no objection certificate) from the ministry of defence is awaited,” he said. “We hope to announce the auction in a couple of months.”

An official said the number of blocks to be put on auction depends on the clearance from the ministry.

It is expected that the auction will be announced by the end of this year, the official said.

Sources said four of the 16 blocks will directly be offered to state-run oil and gas exploration firms.

Pakistan’s oil production averaged 87,000 barrels per day (bpd) during the last fiscal year as against 95,000 bpd in the preceding fiscal year. On the contrary, total gas production stood flat at an average 3,939 million metric cubic feet per day in 2015/16 over 2014/15. Hence, cumulative local hydrocarbon production remained flat at an average 789,000 barrels of oil equivalent per day.

As energy-deficient country meets more than 80 percent of its energy requirements through imports, including about $8 billion worth of crude and petroleum products a year, the government has been encouraging domestic and international firms to increase exploration activities.

However, global oil majors have been cautious about investing in Pakistan on poor security conditions at the onshore fields while most offshore wells drilled in the country have turned out dry.

Pakistan has awarded 50 exploration blocks at a licencing round in 2014. However, the country failed to attract foreign oil and gas exploration companies, and majority of the licences were awarded to the state-owned companies, including Oil and Gas Development Company and Pakistan Petroleum Limited.

According to official estimates, Pakistan has 27 billion barrels of estimated oil reserves, of which only three percent have been explored. The country also has an estimated 280 trillion cubic feet of natural gas reserves, of which only 42 percent has been explored so far.

Minister Abbasi said multinational exploration companies have investment interest in the country and, “they would likely to participate (in the auction).”

Khurram Schehzad, chief commercial officer at JS Global Capital termed the government’s move as “a good omen’. He hoped that local as well as foreign investors would participate in the auction.

“The oil prices are not likely to surge any further from the current levels,” Schehzad said. “The country needs to tap indigenous resources and for this purpose the blocks have to be put on auction.”

The analyst said the security situation in the country is a concern, “but things are persistently improving in the last couple of years.”

“The new petroleum policy is offering better prices and we can expect the participation from foreign companies,” Schehzad said.

Mohammad Sohail, chief executive officer at Topline Securities agreed that the country’s investment environment has improved.

“The investors’ confidence on the government has developed,” Sohail said. “(However) the participation of foreign companies depends on the potential (reserves) and the location of these blocks. But, whoever wins, it will bode well for the country.”

Pakistan’s oil requirement is rising fast amid a worsening of gas shortage, and imports are a heavy burden on the country’s external balances. Foreign donors say infrastructural development and the power sector are two areas where the country is deficient.