Pakistan-Saudi Arabia to create a refinery

Four Pakistani state-owned petroleum companies (SoEs) have signed on Thursday a memorandum of understanding (MoU) to facilitate US$10 billion Saudi investment in a new oil refinery at Gwadar, Baluchistan with a refining capacity of 300,000 barrels per day – the first in more than a decade and the largest in the country.

The government is reportedly in the advanced stages of negotiations with Saudi giant Aramco to execute the Greenfield refinery project at the strategic Gwadar Port and wanted to complete the initial paperwork before its tenure ends in two weeks.

Oil and Gas Development Company (OGDCL), Pakistan State Oil Company (PSO), Pakistan Petroleum (PPL), and Government Holdings (GHPL) signed the MoU to join hands and provide comfort to the Saudi firm to enter Pakistan with a major investment. The four SoEs would join the project through equity participation.

The project envisions setting up an integrated refinery petrochemical complex with a crude oil processing capacity of a minimum 300,000 bpd along with a petrochemical facility. The integrated complex shall comprise various components such as marine infrastructure, petrochemical complex, storages for crude oil and refined products, pipeline connectivity etc.

According to the Petroleum Division, despite being integral to the growth of the economy, no new refinery project has materialized in Pakistan for more than a decade and only two refineries have been added in the last 40 years. Compared to the 20 million tons of refining capacity, the actual capacity utilization is at around 11 million tons.

This is mainly due to the decreasing furnace oil demand in the country as a result of a change in the energy mix in the power sector and the fixed production slate of refineries that cannot produce just petrol and high-speed diesel and all products are produced simultaneously. Thus, as furnace oil demand declines, refineries have to lower their overall production and struggle to maintain their throughput at optimal levels.

This is despite the fact that independent consultants forecast Pakistan’s demand for petrol and diesel to grow beyond 33 million tons per annum by 2023.

To facilitate the Saudi investment in refining, the government has recently passed a new policy under which a new deep conversion oil refinery of a minimum 300,000 bpd achieving financial close of the project within five years shall be eligible for a customs duty of 7.5% for 25 years on petrol and diesel of all grades produced effective from the date of commissioning of the refinery.

The said refinery shall also enjoy a 20-year tax holiday and would also be entitled to exemption from levy of customs duties, surcharges, withholding tax, general sales tax, any other ad valorem tax or any other levies and duties on import of any equipment to be installed, or material to be used in the refinery projects without any precondition for obtaining certification by the Engineering Development Board.

These fiscal incentives and other facilitation would be recorded and protected under the project agreements between the project company, the key sponsors, investors and the concerned government and would be protected through a grant to Special Economic Zones Act.

Minister for State Musadiq Malik, who witnessed the MoU signing ceremony, said the Saudi oil firm showed a willingness to inject the entire equity into the multibillion-dollar refinery project, leading the Pakistani government to decide on a joint venture with key SoEs.

 

 

Why Pakistan fails in boosting local production of crude oil and gas?

The report filed by Kazim Alam in Dawn should be an eye opener the policymakers and law enforcing agencies of Pakistan. The first and most important point is that production of oil and gas is constantly on the decline and E&P companies have not been able to increase production.

The second point is the real cause of concern, despite the fact that the country has a drilling success rate that’s notably higher than the international average (Every third drilling is successful in Pakistan as against one in five internationally; the average wells drilled in the country remains low.

Kazim has raised a pertinent point, whom to blame for the poor state of E&P in Pakistan: nature or bad governance? In my opinion the Government of Pakistan has to accept its inadequacy. It has failed in attracting foreign companies as well as providing security cover to the staff of E&P companies working in remote areas.

Since shifting blame to others is common the quote of an executive burst me into laughter. Citing the example of Kekra, a field located near Iran, he said the prospects seemed so good that E&P companies went all in, committing as much as US$140 million, or more than Rs28 billion at the current exchange rate. But they found nothing there. The supposedly huge reserves accumulated over hundreds of thousands of years had already slipped away in the intervening period.

The conclusion is that discoveries are small the efforts have to be accelerated by allocating more funds for drilling more wells. One of the most painful observations is that most of the E&P companies operating in public sector are made to pay huge dividend rather than spending money on drilling of new wells.

Some analysts say that in Pakistan people with vested interest often prevail over, they make big money in the purchase of crude oil as well as finished products. In case indigenous production of crude and POL increases, they will go bankrupt.

If any one does not agree with me should peep into the history. Excluding the output of OGDC, the share of all other companies is disappointingly low.
No ‘green’ refinery has been established after PARCO. Byco may be a good addition, but it is based on outdated technology. Other refineries have also failed major revamping and continue to produce low value added products.

To conclude it is sufficient to say only the Government of Pakistan can play a lead role by: 1) bringing in foreign E&Ps into the country, 2) offering new leases throughout Pakistan and 3) Encouraging OGDC to form new joint ventures.

Pakistan awards exploration blocks to state-run Exploration & Production companies

Reportedly, the Government of Pakistan has awarded six petroleum exploration blocks in Sindh, Baluchistan and Punjab to state-run oil and gas exploration and production companies.

The exploration licences (ELs) and petroleum concession agreements (PCAs) were signed by Petroleum Secretary and Director General of Petroleum Concessions on behalf of the GoP and Managing Directors of Oil and Gas Development Company (OGDCL), Mari Petroleum Company (MPCL) and Pakistan Petroleum at a ceremony witnessed by newly appointed Minister for Energy.

These included Block No. 3068-6 (Killa Saifullah) and Block No. 3067-7 (Sharan) in Baluchistan with OGDCL and MPCL; Block No. 3069-9 (Suleiman-Balochistan) with OGDCL and PPL; and Block No. 2467-17 (Sujawal South) in Sindh, Block No. 3273-5 (Jhelum) and Block No. 3272-16 (Lilla) with OGDCL.

Director General, Petroleum Conces­sion reported that minimum firm work commitment for these blocks was US$24.68 million for a period of three years. The companies are obligated to spend a minimum of US$30,000 per year in each block on social welfare schemes. Annual social welfare obligation in respect of these six blocks is US$180,000.

The Killa Saifullah block covering an area of 2421.96 sq-km is located in Killa Saifullah district, while the Sharan block covering an area of 2497.89 sq-km is situated in Killa Saifullah and Zhob districts. The Suleiman block covering an area of 2172.89 sq-km is located in Musakhel, Zhob, Killa Saifullah and Loralai districts. The Sujawal South block covering an area of 1914.1 sq-km is located in Sujawal district of Sindh. The Jhelum block covering an area of 1524.65 sq-km is located in districts of Jhelum, Gujrat and Mandi Bahauddin, while the Lilla block covering an area of 2361.12 sq-km is situated in Chakwal, Jhelum and Khushab districts.

OGDCL is a public limited company engaged in exploration and production (E&P) activities in the country for the last four decades. The Company holds the largest share of 41% in oil and 36% in gas out the total reserves in the country. Its percentage share of total oil and gas production in Pakistan is 47% and 29%, respectively. OGDCL is the operator of 41 exploration licences and working interest owner in six other exploration blocks operated by various E&P companies. OGDCL is currently produces 35,805 barrel oil per day (bopd) oil, 1,012 million cubic feet per day (mmcfd) gas, 761 tons LPG and 53 tons of sulphur per day.

PPL is also a public limited company engaged in exploration and production activities in the country. It is Pakistan’s oldest and largest E&P Company incorporated in 1950. Its percentage share of total oil and gas production in Pakistan is 13% and 19%, respectively. PPL is the operator in 26 exploration licences and working interest owner in 17 other exploration blocks operated by various E&P companies. PPL currently produces 10,076 bopd Oil, 673mmcfd gas and 238 million tons LPG.

Mari Petroleum is an integrated exploration and production company currently managing and operating Pakistan’s largest gas reservoir at Mari gas field in Daharki, Sindh. MPCL is the second largest gas producer in the country with 753mmcfd gas and 1,722bopd oil. MPCL is the operator in six development and production leases, 11 exploration licences and working interest owner in seven other exploration blocks operated by various E&P companies.

The Energy Minister expressed the hope that licences would benefit the country in the form of additional hydrocarbon reserves over the next few years. He said the execution of ELs and PCAs would not only enhance investment in the petroleum sector but also contribute to bridging the gap between demand and supply of energy in the country.

Pakistan: Divestment of Government Holding in Pakistan Petroleum

In an attempt to accelerate privatization process in Pakistan, the incumbent government had decided to divest its holding in UnitedBank Limited (UBL), Pakistan Petroleum Limited (PPL), Oil and Gas DevelopmentCompany Limited (OGDC) and other state owned enterprises (SoEs).

The recent offer to divest the Government of Pakistan (GoP) holding in United Bank Limited (UBL) attracted enormous response as the amount received was almost twice the initial estimate. Sale of 19.8 percent shares of UBL was through a book building process. The deal was struck at US$387 million, of which 80 percent shares on offer went to foreign investors, which helped GoP in mobilizing around US$310 million. The proceeds have already been received by the GoP on June 20, 2014. More than 40 leading global equity funds, including Templeton, Wellington, Everest, Lazard, Morgan Stanley, Blackrock and others, participated in this transaction.

Encouraged by the outcome, the GoP has decided to divest over 70.05 million shares out of its holding in Pakistan Petroleum Limited (PPL). The offer would be open to both international and domestic institutional investors and high net worth individuals through a book building process, to be completed in the last week of June 2014. It has also been approved to offer 7 million shares to the general public with preference to existing employees of PPL through a subsequent subscription process within next few months.

PPL has been a frontline player in the energy sector since mid fifties. As a major supplier of natural gas, PPL today contributes over 20 percent of the country’s total natural gas supplies besides producing crude oil, Natural Gas Liquid and Liquefied Petroleum Gas.

The company’s history can be traced back to the establishment of a public limited company in June 1950, with major shareholding by Burmah Oil Company (BOC) of the United Kingdom for exploration, prospecting, development and production of oil and natural gas resources.

In September 1997, BOC pulled out itself from exploration and production worldwide and sold its equity in PPL to the GoP. Subsequently, the government reduced its holding through an initial public offer in June 2004, which was further decreased with the initiation of the Benazir Employees Stock Option Scheme (BESOS) in August 2009 when PPL employees were allotted 12 percent shares from the government’s equity.

Currently, the company’s shareholding is divided among the GoP, which owns about 71 percent, PPL Employees Empowerment Trust that has approximately 7 percent — being shares transferred to employees under BESOS — and private investors hold nearly 22 percent.

Lately, PPL has acquired 100 percent shareholding of MND E&P Limited, a company incorporated in England and Wales. The name of the subsidiary has been changed to PPL Europe E&P Limited. It has also established a wholly-owned subsidiary, PPL Asia E&P B.V. with corporate seat in Amsterdam, Kingdom of Netherlands. The subsidiary will focus on exploration and production of oil and gas in the region. PPL has assigned its interest in Block 8, Iraq, under the Exploration, Development and Production Service Contract with Midland Oil Company, Iraq to PPL Asia E&P B.V.

PPL operates six producing fields across the country at Sui (Pakistan’s largest gas field), Adhi, Kandhkot, Chachar, Mazarani and Hala and holds working interest in fifteen partner-operated producing fields, including Qadirpur the country’s second largest gas field.

PPL together with its subsidiaries has a portfolio of 47 exploration assets of which the company operates 27, including one contract in Iraq, while 20 blocks, comprising three offshore leases in Pakistan and two onshore concessions in Yemen, are operated by joint venture partners. 

Daily gas production of PPL from its operated and partner-operated fields stands at around one billion cubic feet (bcf) of gas per day, which translates into over 20 percent of the country’s total gas production. The company’s major clients are Sui Southern Gas Company Limited (SSGCL), Sui Northern Gas Pipelines Limited (SNGPL) and Water and Power Development Authority.

On March 31, 2014, PPL’s proven recoverable reserves were 2.267 trillion cubic feet (Tcf) of natural gas, 40.293 million barrels (MMbbl) of oil/ NGL and 412,557 tonnes (tons) of LPG.

Oil and Gas Production in Pakistan

Some of the quarters are adamant proving that there are low prospects of finding oil and gas in Pakistan, which is nothing but a gross distortion of the fact. The country has huge reserves, but either the companies have not been allowed to undertake exploration in ‘right’ areas or liquidity crunch is the prime reason for drilling fewer wells.  It may not be wrong to say that since independence ‘Oil and Gas Exploration Policy’ of the (GoP) has remained subservient to super powers. Even after more than six and half decades subdued drilling activities are mainly due to inadequate allocation of funds and ‘political’ unrest in major oil producing areas, Baluchistan and Khyber-Pakthunkhwa provinces.
Major oil and gas exploration and production companies operating in Pakistan are Oil& Gas Development Company, Pakistan Petroleum, Pakistan Oilfield, Mari Petroleum and OMV Pakistan. All these companies have an enviable success record as these have hit oil or gas from every exploratory well drilled, the quantities may not be very high.
For details visit shkazmik.com