Mazhar_farooq Enhancing Exploration Activity

8/2/2019 Mazhar_farooq Enhancing Exploration Activity

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Enhancing Exploration Activity through FurtherIncentives and Building

Investor Confidence

Mazhar Farooq

Secretary GeneralPPEPCA

Pakistan Petroleum Exploration & Production Companies Association


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H ydrocarbon PotentialBasins Overview

Sedimentary Basins


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H ydrocarbon Potential

Do we have a 3 rd party authentic estimate of the possiblehydrocarbon potential of the unexplored areas including the foldbelt?Figures that have been quoted give estimates of about 282 Tcf gas and 27Billion barrels oil. Have these been revised downwards?How much of the Tight gas which has been indicated as 35 Tcf at the 2008seminar can be recovered?What is the possible potential of Shale gas and CBM in Pakistan?What could be the possible offshore oil & gas reserve potential ?Is it possible to determine the possible size of future individual reserves,both in the explored and unexplored regions?Solution: To market an authentic reserves estimate for potential investorsthe Government should commission a reputable international consultant tocarryout a fast track marketable independent assessment of the possiblereserves and potential reserve size estimates.


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Basin Gas, Tcf (N - 950) Oil mmbbl

Potwar - Kohat 3.2 414

Sulaiman- Kirthar 18.0 52

Middle Indus 18.0 0.0

Lower Indus 6.0 366

West Balochistan 0.0 0.0

Offshore 0.0 0.0

Total 45.2 832

Oil & Gas Discovered - By Basin

N ote: Potwar and Lower Indus basins are now mature and declining. Energy Year Book


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R eserveBcf

No. of Discoveries

Avg. DiscoverySize, Bcf

Less than 50 77 16

50-100 13 81

100-200 9 125

200-300 6 260

300-400 2 334

400-500 2 435

500-1000 3 543

Over 1000 12 3.62

Field Sizes by Year of Discovery

0.01

0.1

1

10

100

1980 1990 2000

Discoveries & Reserve size

Trends of Mature Basins

M

M

b

oe

Declining field size trends indicate futurediscoveries of less than 10 MMboe (57 Bcf)in mature basinsGo for deeper horizons and infill drilling?H ow to make smaller fields commerciallyattractive?

Source: Energy Year Book 2009


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Major Issues of E&P Companies

SECURITY

STABILITY OF CONTRACT PROVISIONS

CLEAR POLICIES ON REGULATION

COMPETITIVE GAS PRICING

The Fraser Global Survey 2010 also highlights some of the majorirritants to investment in Pakistan.


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F r a

s er

S ur v

e y-

C om

p ar i s

on

of F

a c t or s

0 %

1 0 %

2 0 %

3 0 %

4 0 %

5 0 %

6 0 %

7 0 %

8 0 %

9 0 %

1 0 0 %

Fiscal Terms

Taxation Regime

Local Natural Gas Price

Cost of RegulatoryCompliance

Regulatory Uncertainty

EnvironmentalRegulations

Local ProcessingRequirements

Trade Regulations

Labor Regulations

Local PublicInfrastructure

Business Infrastructure

Geological Database

Labor Availability

Aboriginal Land Claims

Political Stability

E n c o ur a g e s I nv e s t m

en t

N o t D e t er r en t t oI nv e s t m

en t

Mi l d D

e t er r en t t oI nv e s t m

en t

S t r on gD

e t er r en t t oI nv e s

t m en t

W o ul d

P ak i s t an S

p e c i f i c

S o ur c e :

G l o

b a l P

e t r o l e

um S

ur v e

y

F r a

s e r I ns


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Pakistan India Comparison

Figure-8: Pakistan - India Comparison Investment Climate Survey

0%

20%

40%

60%

80%

100%

L o c a

l N a t u r a l

G a s

P r i c e

( P a k

i s t a n

)

L o c a

l N a t u r a

l

G a s

P r i c e

( I n

d i a )

P o

l i t i c a l

S t a b i l i t y

( P a k

i s t a n

)

P o

l i t i c a l

S t a b i l i t y

( I n

d i a )

S e c u r i

t y

( P a k

i s t a n )

S e c u r i

t y ( I n

d i a )

Encourages Investment Not Deterrent to Investment Mild Deterrent to Investment Strong Deterrent to Investment Would Not Invest

Figure-8: Pakistan - India Comparison Investment Climate SurveyFigure-8: Pakistan - India Comparison Investment Climate Survey

0%

20%

40%

60%

80%

100%

L o c a

l N a t u r a l

G a s

P r i c e

( P a k

i s t a n

)

L o c a

l N a t u r a

l

G a s

P r i c e

( I n

d i a )

P o

l i t i c a l

S t a b i l i t y

( P a k

i s t a n

)

P o

l i t i c a l

S t a b i l i t y

( I n

d i a )

S e c u r i

t y

( P a k

i s t a n )

S e c u r i

t y ( I n

d i a )

Encourages Investment Not Deterrent to Investment Mild Deterrent to Investment Strong Deterrent to Investment Would Not Invest

PPEPCA Paper 2010


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SECURITY

International perception - Pakistan is a high risk country in the worlddue to the threat of terrorism/militancy.

It is becoming exceedingly difficult to get E&P companies,international contractors and service companies to work in Pakistan.

How does the Government plan to mitigate the perceptions andthreats?


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Security Way Forward

Clear definition of the obligations of the Government and State - how this isimplemented?

Companies should be made aware at the pre-bid stage of the security, triballocal problems and no-go areas that they can encounter.

Issue security guidelines to E&P companies and their contractors to reducerisk to lowest acceptable levels

Define obligations of law enforcing agencies in the areas of operation

Lay-down policies and Standard Operating Procedures at Federal, Provincial& D istrict levels. All should be on the same page.

Fast track issuance of N OC and security clearances for expatsImproved co-ordination and co-operation between the various concernedMinistries.

Security Policy should not contravene U N Charter and other such principlesto which Govt. of Pakistan is also a signatory


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Security - Solutions

Government to counter wrong perceptions and hype created against actualground realities.

Finalize and implement a viable Security Policy & Guidelines in consultationwith all stake-holders

Politically manage expectations of local population in concession areas

Government to bear cost of security personnel of law enforcement agenciesetc.

Granting status of Key Point Installation to Production Facilities. What should this deliver on the ground?


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Stability of Contract Provisions

Globally the flow of investment capital is determined largely by therate of return available to investors and the policy, regulatory framework and security considerations. On the basis of the commitmentmade, contracts with guarantees are executed.

In Pakistan also, contracts executed have stability provisions, which when

flouted causes a serious dent on the credibility of the country and shakes theinvestors confidence.

Signed PCAs have the following provisions: All the rules, laws, regulations in effect on the Effective D ate, including the Workers

Welfare Fund Ordinance 1971 and the Companies Profits (Workers Participation) Act 1968 shall apply to the Agreement, throughout the term, whether or not subsequently

amended or revised. The Rules, Income Tax ordinance 1979, Regulations of Mines and Oilfields and Mineral

D evelopment (Government Control) Act 1948 and other laws that are in force on theEffective D ate shall remain applicable for the purposes hereof, whether or not the sameare subsequently amended or revised.


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Stability of Contract Provisions

What have we witnessed during the last five years?

Taxation cases have been opened up after year 2005 relating tohigher tax rate & depletion allowance incl. concerning contractssigned 20 years ago.

Other provisions such as levy of fees on gas price notifications havebeen violated.Cases are now pending adjudication at tribunal and High court level. This in addition to adding to the cost of doing business is alsoscaring investors and eroding their confidence in the system.While the Petroleum Ministry is aware of the pitfalls it has for future

investment, other Ministries and departments including provincialgovernments are not really aware of the results.

As someone said investors are like pigeons, scare them and they will fly awayen block, but have to be wooed back one by one


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Clear Policies on Regulation

Investors would not like to negotiate with more than one authority such negotiation is time consuming and tends to never close-out.

Investors are comfortable with a one-window operation.

Government should have very clear cut policies on the role andresponsibilities of the federal and provincial governments lack of clarity will have a negative impact on future investment.

N eed to have a strong and independent federal regulator with rolelike OGRA, N EPRA etc.

The interpretation of the constitution and the division of fiscalbenefits etc. should be sorted out between the provinces and thefederation without making E&P companies a party.


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Elements of Successful Petroleum Regulation

S uccessfulPetroleumRegulation

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Mazhar_farooq Enhancing Exploration Activity

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