(Bloomberg) — Pakistan’s state-owned companies are spending record amounts on energy exploration, including in areas more known for separatist insurgency, as old fields start to dry up.
While global producers negotiate on further production cuts, Oil and Gas Development Co., the nation’s largest explorer, has more than doubled seismic activity, and Pakistan Petroleum Ltd. has almost doubled wells drilled in the past two years as it becomes cheaper after the global crude plunge.
“In exploration, there is absolutely no let up,” Zahid Mir, chief executive officer at OGDC, said by email on July 27. “Cost of services has come down. We see an opportunity here to do things a bit cheaply.”
The need for greater energy security and to end chronic shortages is key to the re-election prospects of Nawaz Sharif’s ruling party ahead of the national poll next year. Sharif stepped down as prime minister after the Supreme Court last month ordered his disqualification from office with a caretaker leader set up until his brother, Shehbaz, takes the helm.
As South Asia’s second-largest economy imports most of its fuel and its oil refining sector depends mainly on overseas crude supplies, any drop in local crude output will further stress a current account deficit that has doubled to $12 billion in the year ended June. Pakistan spent $11 billion, or a fifth of the total import bill in the past fiscal year, on petroleum products.
Despite a reduction of power shortages since Sharif came to power in 2013, Pakistan continues to deal with daily blackouts. The government is trying to bolster its generation capacity, with China financing the construction of power plants fueled by coal or imported liquefied natural gas.
Pakistan has also ramped up oil production by about 32,000 barrels-a-day, that is about a third of the nation’s total output, and also added 944 million cubic feet a day of gas in the past four years, according to petroleum minister in the Sharif government and interim Prime Minister, Shahid Khaqan Abbasi. Most of Pakistan’s oil and gas fields are old and the new findings are replacing natural declines, he said.
That need is becoming critical as Pakistan hasn’t made a discovery as large as 1 trillion cubic feet of gas in decades. Sui, the nation’s largest gas field in the restive province of Balochistan, was discovered in 1955. At that time its reserves were 8 trillion cubic feet, which was third largest in the world, Khalid Zaki, director at the Petroleum Institute of Pakistan said in an interview in Karachi.
Investment by the national oil companies is likely to be sustained but this will not be matched by international counterparts, which are increasingly choosing to disengage from Pakistan in favor of higher-priority assets elsewhere, according to BMI Research. Pakistan ranks behind smaller, emerging markets such as Timor-Leste, Cambodia and Papua New Guinea due to severe safety and logistical challenges, a poor legal environment, unfavorable licensing terms and inefficient bureaucracy, BMI Research said in a note on July 28.
Premier Oil Plc sold its business to Al-Haj Energy Ltd. this year while Tullow Oil Plc offloaded stakes in many blocks to Mari Petroleum Ltd. last month but both are small players in terms of production.
BMI Research forecast Pakistan’s gas output to drop 1 percent annually for the next decade but concedes there are upside risks to the estimate due to the active exploration projects pipeline, which is one of the most robust in Asia-Pacific, according to the BMI note. Gas makes the largest part of the nation’s energy mix.
Pakistan’s exploration companies have also become more aggressive with higher gas prices offered by the government for new discoveries. Those have almost doubled to $6 per million British thermal units in 2014 from $2.4-$3.7 in 2001, said Wajid Rizvi, energy analyst at Fortune Securities Ltd.
“Activity has to go up substantially,” Syed Wamiq Bokhari, chief executive officer at Pakistan Petroleum, the nation’s biggest gas producer, said in an interview in Karachi. “When you are living off gas fields from the 50s and 60s you are at the trailing end. You can’t be happy whipping a dead horse.”
‘Wild Cat’ Areas
Bokhari plans to enter “wild cat areas” in Balochistan now that the province has become more accessible after the military pushed back against a long-running militant and separatist insurgency. The impetus came after China announced two years ago its intention to build a trading route through Pakistan to the Arabian Sea, using Balochistan’s port in Gwadar as part of its vast ‘One Belt, One Road’ project. Pakistan Petroleum plans to drill 12 new wells in the region by end of the next fiscal year.
Copyright 2017 Bloomberg News.
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.