Local oil, gas exploration firms vying to acquire abandoned fields

Foreign investors relinquished blocks

KARACHI: Pakistan’s local exploration and production (E&P) companies are vying to acquire several relinquished blocks by the foreign oil and gas investors on low crude prices and slowing global demand, industry officials said on Thursday.

The country’s energy sector has seen a string of asset cuts in the recent months, with companies reeling from crude prices that have improved little since hitting a 12-year low in January. Several multi-national E&P and drilling companies have finalised their departure from Pakistan.

An official, requesting anonymity, said at least four foreign companies have confirmed their divestment from Pakistan, including the UK-based Tullow and Premier Oil, Anglo-Australian BHP Billiton and Austrian OMV.

“Mari Petroleum (MPCL), with aggressive expansion plans and annual exploration budget of $110 million at hand, has finalised acquisition of two blocks from Tullow,” the official said.

“MPCL is acquiring operatorship and 20 percent stakes in Bannu West as well as Block 28 in Dera Bugti from Tullow.”

The MPCL is also acquiring Shahbandar and Kotri blocks from the Pakistan Petroleum Limited (PPL). 

Sources said a number of drilling companies have already stopped working. “One such company working for the PPL, OGDCL (Oil and Gas Development company Limited) and UEP (United Energy Pakistan Ltd) has stopped working and (are) leaving the country without even clearing its liabilities towards the employees,” one source said.

The source said despite the grant of licenses to E&P companies, many prospective areas are still awaiting commencement of exploration, which could only be undertaken once safe and trouble-free access is granted. 

There are, however, some areas wherein state-owned E&P companies have indeed commenced operations. The E&P companies have been asked to make their own security arrangements through paramilitary Frontier Constabulary, police and the locals. “This has led to a substantial increase in the drilling cost, thereby undermining the projects’ economics,” another official said.

Industry officials said low oil prices could mark the beginning of a long-term drop in investment in upstream sector. 

“Oil prices reflect supply and demand balances, with increasing prices often suggesting a need for greater supply,” an industry official said. “Greater supply, in turn, typically requires increased investment in E&P activities. Lower prices reduce investment activity.”

Sources in the Petroleum Ministry revealed that the E&P sector had been facing a number of issues over the last two years without having any resolution despite the fact that various representations at different levels of the ministry were made.

The government had announced the long-awaited bidding round in 2013, but new or even existing foreign companies did not express any interest in participating in the bidding process. This forced the government to grant most of those over 50 licences to the two state-owned companies. 

Despite having all the incentives in the 2012 policy aimed at attracting foreign and local investment, the government remained unable to attract any further investment in oil and gas sector in the country primarily on account of its inability to implement such incentives.