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KPOGCL striving to bring E&P of oil and gas upfront to make Pakistan self-reliant

KPOGCL — A source of the paradigm shift in oil and gas sector of Pakistan

Interview with Mohammad Raziuddin (Razi) – CEO, Khyber Pakhtunkhwa Oil & Gas Company Limited (KPOGCL)

PROFILE

Mr. Raziuddin (Razi), CEO of KPOGCL is equipped with Masters in Engineering from Michigan and MBA from New York, USA, with over forty five (45) year experience in Upstream, Midstream and Downstream Oil & Gas Industry, nationally & internationally. He held top management positions in large public & private energy sector companies. He has over twenty (20) years of experience as CEO/MD/Advisor in major/large energy companies. He worked as Advisor Energy & Power Orion Group Bangladesh. He also worked as MD/CEO NLC Energy, OGDCL and Attock Refinery, Advisor- Royal Commission, Chief Energy Wing. Mr. Raziuddin (Razi) has assisted the Government of Pakistan in the capacity of Chairman, Vision 2025 Working Group on Energy and Chairman, 11th Five-Year Plan Working Group on Energy. Recently he developed Curricula at University of Engineering & Technology Peshawar (UET) for “Masters in Energy Management & Sustainability” – accepted by UET Board of Studies and Arizona State University.

SYNOPSIS OF MR. RAZIUDDIN (RAZI) EXPERIENCES AS FOLLOWS:

  • Crisis, Change & Contingency Management.
  • National Policy Development & Budgeting, National Energy Security Plan & Vision.
  • Financial engineering/re-structuring, structuring, Financial Close, Privatization & Deregulation, Energy Economics, Pricing.
  • Oil & Gas Exploration and Production, Crude Oil Refinery, Petroleum Products & Oil Marketing and Trading, Petroleum Products & Oil Logistics & Storage.
  • Joint Venture formations, Interaction/hired international legal advisors, financial advisors and insurance advisors.
  • Interaction/hired international PMC and Owners Engineers, Project Management, EPC LSTK of mega projects on fast track.
  • International Investment Induction (Debt & Equity).

Also Worked as International Energy Consultant

  • Exploration & Production (on shore, off-shore, swamps).
  • Oil Refining (BMRE, Greenfield), Petroleum products marketing, IPPs.
  • LNG Terminal with Power Plant, Mega-Projects development.
  • National policies/studies/Plans.

Mr. Raziuddin (Razi) has working with numerous national and international companies in Pakistan, Egypt, Saudi Arabia, Nigeria, UK & UAE. Such big names included but not limited to OGDCL, LMKR, Landmark Graphics, Hampson & Russell, TGS/Guide, Spectrum Geo UK, Fecto-LPEB/CNPC China, POL Pakistan and KJO Saudi Arabia for Project Management, seismic services setup/operations. Key Expertise include: Seismic Data Processing, Data Acquisition, Data Management, Interpretation, E&P Blocks Evaluations, Prospect Generation, Advisory role, QA & QC, etc. He is an accomplished team player with successful proven track record at offices/ fields and at remote projects while managing multi-tasking teams. Help almost all E&P companies in Pakistan for many success wells.

PAGE: WOULD YOU PLEASE COMMENT ON OVERALL EXPLORATION ACTIVITY IN KPK AND THE SHARE OF KPOGCL?

MOHAMMAD RAZIUDDIN: The province of Khyber Pakhtunkhwa is blessed with enormous reserves of hydrocarbon. According to estimates KP has approximately 1.1 Billion Barrels of Oil and 16 Trillion Cubic Feet (TCF) of natural gas of potential resources. In order to extract the unexplored hydrocarbons, the Government of KP formed KPOGCL (KP Government fully-owned and Provincial Holding Company (PHC)) in 2014 under the pretext of 18th, 2010 Constitutional Amendment of Pakistan and Petroleum Policy 2012 with the mandate:

1. Investment in Petroleum Blocks (operator and non-operator JV partner)
2. Oil and gas services/consultations
3. Security facilitation

KPOGCL foundation and policies has been developed to the mark of international standards with priority given to transparency, accountability, corporate governance and corporate code of conduct.

KPOGCL operations started in 2014 in oil and gas sector in KP and within no time the province of KP became the epicenter of oil and gas activities in Pakistan. Persistent efforts of KPOGCL in transforming KP from “Red Tape to Red Carpet” has created an enabling environment for oil and gas companies which is apparent from the production figures in the table below.

Sr. #

Commodity

2013

2017

2025 (Vision)

1.

Crude Oil

30,000 (BPD)

53,122 (BPD)

200,000 (BPD)

2

Natural Gas

330 (MMCFD)

443 (MMCFD)

2,000 (TPD)

3

LPG

10 (TPD)

550 (TPD)

3,000 (TPD)

Comparing the production levels in 2013 to 2017 it is apparent that KPOGCL is the catalyst for the paradigm shift in production levels of Pakistan especially that of KP. KPOGCL not only provided enabling environment and one window facilitation services to investors but also increased their confidence level. In the near future, the province of KP will have foreign investment inflows of $2 billion in form of refineries and other mega projects. Only a few years ago, in absence of KPOGCL, expatriates in areas of KP was a dream but due to tenacious efforts and facilitation of KPOGCL currently expatriates are camping for days in the southern belt of KP. In 2013, only two seismic crews were active in KP while in 2017 six seismic crews are operating in KP. Another indicator of KPOGCL being the source of the paradigm shift in oil and gas sector is apparent from the fact that in 2013 only three drilling rigs were operational in KP while in 2017 a total of seven drilling rigs are operational. Such results are apparent from the fact the only in 2013 only In very short period, KPOGCL has out shine other oil & gas exploration & three (03) blocks were operational out of a total of twenty one (21) blocks while in 2017, twenty seven (27) blocks were active out of twenty eight (28) blocks.

PAGE: YOUR COMMENTS ON THE OUTLOOK OF INVESTMENT IN OIL AND GAS EXPLORATION IN KPK?

MOHAMMAD RAZIUDDIN: KPOGCL has estimated some Rs. 10 Trillion worth of oil and gas in KP based on today’s technology, knowledge and low prices; however, it may considerably rise. Some 1.1 Billion Barrels of Oil and 16 Trillion Cubic Feet of Natural Gas can bring additional GDP to Khyber Pakhtunkhwa of over Rs. 150 Trillion during the next 15 years. In other words, Khyber Pakhtunkhwa-GDP can be increased by $ 100 Billion/year for next 15 years; Pakistan GDP is $250 Billion (2017-IMF) and KP GDP is $ 25 Billion (2017-Wiki). Therefore, it is prudent to devise a new strategy for the financial woes of KPOGCL.

KPOGCL being a KP provincial holding company has effectively taken its initiative in a very short span of time. Those blocks that were ignored by the other Oil & Gas companies are once again taken in consideration for Extraction of Oil & Gas by KPOGCL. Many blocks are done with Geological Surveys. The blocks in hand for further drilling are Lakki, Nowshera, Charssadda, DIK West, DIK East, Peshawar Block, & Miran Blocks. Besides Exploration activities KPOGCL is at forefront for establishment of Technical lab, Institute of Petroleum Technology, Construction of Oil Refinery, Oil Marketing Company, Pipeline and Storage. MOUs with different foreign companies are signed in this regard.

PAGE: ENERGY SHORTAGE IS A COMMON PROBLEM THROUGH THE COUNTRY, WHAT IS THE SITUATION IN KPK, WHAT STEPS ARE BEING TAKEN TO OVERCOME THE ENERGY ISSUES IN KPK?

New Blocks Identified by KPOGCL

KPOGCL in a very short span of time and with limited funding identified 8 new blocks, namely, (1) Lakki (2) Nowshera (3) D. I. Khan East (4) D.I. Khan West (5) Miran (6) Charssadda (7) Khushal & (8) Zindan . KPOGCL got security clearance from MOD for Lakki, Nowshera, D.I. Khan East, D.I. Khan West and Miran ahead of time so that once long awaited Exploration Licenses are issued, not a single moment could be lost. New blocks are needed for sustainability of oil and gas production confidence for secondary mega-investments, such as oil refineries, power plants, urea Fertilizer plant & petro-chemical and general industries.

Confidence of National & International Companies to Invest with KPOGCL

Real success test of a company is when national and international companies are willing to invest in that company, not millions of Rupees but millions of Dollars. It is yet surprising that national and international companies are willing to invest in KPOGCL, but the Government is not. These companies are investing after ‘grilling’ KPOGCL because they have confidence in professionalism and expertise of KPOGCL. Some big names have been convinced to work and/or invest in KP, such as Rosgeo (Russian), Halliburton (largest service company), Saudi Aramco, Engro, FFC, OGIL, POL, FWO, GE, Siemens, CCK, Jereh, Eriell Oil Field Services etc. The coming of these large companies has increased the stature of Government of KP.

Dormant Fields brought back to Life by KPOGCL

Oil and Gas exploration was stagnant in KP from 2006 after the killing of a Polish geologist in and/Punjab on way to Marwat Block. In 2015, KPOGCL opened exploration in KP by getting Regular Platoon and Quick Response Force (QRF) from Frontier Corps, WB – 300 Jammers from NTRC, Weapons from POF and Weapon License (100 Automatics) for Frontier Corps from the Home Department. Under no circumstances private sector companies could have gotten the aforementioned fire-power and these blocks would have remained dormant for many years. KPOGCL fool proof on-hand security measures and SOPs enabled successful completion of Seismic Data Acquisition Projects in Kohat, Baratai and Paharpur to the extent that Chinese expatriates spent more than a year in areas like Sheikhan and Usterzai District Kohat, without any security lapse. Kohat, Latambar, Wali, Gurgolot and Peshawar Blocks were lying dormant for some 10 years; it is because of KPOGCL’s push that work started. Zindan Block could not be drilled due to local issues but on the request of DG PC, KPOGCL intervened and within 3 weeks PPL was able to mobilize its drilling rig.

The increased E&P activity is apparent from the fact that in 2013, only two (02) seismic crews were active while in 2017 six (06) seismic crews are operating in Khyber Pakhtunkhwa. Another indicator of KPOGCL being the source of the paradigm shift in oil and gas sector is apparent from the fact that in 2013 only three (03) drilling rigs were operational while in 2017 a total of eleven (11) drilling rigs are operational. KPOGCL efforts contributed in restoration and transformation of security paradigms to promote KP as a land of Exploration & Production activity and tranquility. Such results are apparent from the fact that in 2013, in very short period, KPOGCL has out shine other oil & gas exploration & production companies. In 2013 only three (03) blocks were operational out of a total of twenty one (21) blocks while in 2017, twenty seven (27) blocks are active out of twenty eight (28) blocks. Summarizing:

COMPARISON OF RIGS, SEISMIC CREWS AND BLOCKS BETWEEN 2013 AND 2017

SR. #

DESCRIPTION

2013

2017

1

Rigs

3

11

2

Seismic Crew

2

6

3

Active Blocks

3

27

4

Total Blocks

21

28

NOC for Visits to KP in a Day with Full Protection

Prior to 2014 it used to take months for expats to get NOC to visit the exploration fields. KPOGCL with the help of Home and Energy & Power Departments devised a system that NOC is issued within 48 hours along with full security escorts and jammers. This raised the confidence level of oil and gas companies.

KPOGCL envisioned creating an enabling environment as a prerequisite for promoting, accelerating and increasing oil and gas exploration and production activities. Within no time KPOGCL’s efforts were fruitful and Khyber Pakhtunkhwa became the epicenter of oil and gas activities in Pakistan. KPOGCL’s persistent efforts on different platforms transformed Khyber Pakhtunkhwa from “Red Tape to Red Carpet” and ultimately created an optimal enabling environment for oil and gas companies through which Khyber Pakhtunkhwa production of crude oil, natural gas and LPG increased by 77%, 34% and staggering 5,400% from 2013 to 2017. With this growth rate, KPOGCL will achieve its vision and mission well ahead of time. Actual production figures depicted below:

COMPARISON OF PRODUCTION FIGURES OF CRUDE OIL, NATURAL GAS AND LPG BETWEEN 2013 & 2017 AND KPOGCL VISION FOR 2025

SR. #

COMMODITY

2013

2017

2025 (VISION)

1.

Crude Oil (BPD)

30,000

53,122

200,000

2.

Natural Gas (MMCFD)

330

440

2,000

3.

LPG (TPD)

10

550

3,000

Apart from creating an enabling environment and single window facilitation services KPOGCL has also increased investors’ confidence level. KPOGCL has lured in foreign investment inflows in three (03) oil refineries of 160,000 barrels/day, three (03) power plants project of 675 MW and one (01) fertilizer plant of 500,000 tons per year. The total investment inflow is estimated to be to the north of $2 Billion. In comparison no other Provincial Holding Company has been able to achieve such results and yet no funds for KPOGCL to reap more profitable projects.

The Government of Khyber Pakhtunkhwa is investing aggressively in oil and gas. The objective is to extract more and more indigenous oil, gas and LPG not only to fuel its once fragile economy but also that of fuel guzzler Punjab. A 24 inch gas pipeline is being built from Kohat to Gali Jagir in the heartland of Punjab to carry newly successful wellheads.

Some 54,000 barrels per day (bpd) of crude oil daily worth Rs. 300 Million is also being transported from Khyber Pakhtunkhwa to Punjab for refining every day. Two years ago crude oil production was less than 33,000 bpd thus a whopping over 75% increase in two years. The annual foreign exchange saving increased by Rs. 45 Billion under depressed oil prices scenario thus helping to overcome the energy issues of KPK and Inshallah someday the whole Pakistan.

PAGE: THE ENERGY MIX IN PAKISTAN IS HEAVILY COMPRISED OF GAS CONSUMPTION WHICH IS OVER 50 PERCENT OF THE TOTAL ENERGY MIX IN PAKISTAN, WHAT IS CONTRIBUTION OF GAS PRODUCTION IN KPK AND UPCOMING GAS FIELDS?

MOHAMMAD RAZIUDDIN: Khyber Pakhtunkhwa is the third largest province of Pakistan in terms of size and yet it contributes 54% of crude oil, 15% of natural gas and 25% of LPG to the national grid. Khyber Pakhtunkhwa’s such contribution is based on only 4% explored area and while the greatest potential lies hidden in yet to be explored terrains that comprises of 96% of the land. Experts have estimated the true hydrocarbon potential of Khyber Pakhtunkhwa at approximately 1.1 Billion barrels of crude oil and 16 Trillion cubic feet of natural gas which can easily be translated into today’s monetary value of $102 Billion USD or Rs. 10.2 Trillion PKR. Sui, Pakistan’s blood line and natural gas provider since 1952 has an estimated reserves of 4 Trillion cubic feet while Khyber Pakhtunkhwa has reserves four (04) times that of Sui. If Sui can be a major contributor to boosting Pakistan’s economy imagine what extraction of Khyber Pakhtunkhwa’s resources would do for Pakistan!

Given the high success rate of drilling i.e. 1:2.8 gives the Exploration & Production an impetus to enter Khyber Pakhtunkhwa. The world average is 1:7 and that of Pakistan 1:3.5 thus, the Province offers low risk opportunity for Oil and gas exploration coupled with IRR in the vicinity of 30%.

PAGE: THE GOVERNMENT HAS EMBARKED UPON IMPORT OF LNG AS A SHORT TERM SOLUTION TO MEET THE GAP IN DEMAND AND SUPPLY, WHAT IS YOUR VIEW ON IMPORT OF LNG IN PAKISTAN?

MOHAMMAD RAZIUDDIN: As we are moving forward working on making our country energy efficient and bring it to the level where we can say that our energy level is sustained we need cheaper and efficient alternatives to tackle the issues. LNG is considered clean and environment friendly unlike furnace oil and diesel which are in fact relatively expensive as compared to LNG to fuel power stations thus the import of LNG can help us save a lot of cost keeping our state of energy in check. It is cheaper, cost effective and a more efficient alternative. But this strategy would be feasible for short term to meet the gap in demand and supply, for a more sustainable source indigenous solutions should be sought.

PAGE: YOUR VIEWS ON FUTURE OF CPEC FOR KPK?

MOHAMMAD RAZIUDDIN: CPEC is the paradigm of power shifting towards the East from the West. CPEC project symbolizes the growing mutuality of interest and the vision of a shared politico-economic future on the part of China & Pakistan. It creates a new framework of interaction on the basis of economic connectivity and regional cooperation which will have far reaching positive implications for both countries.

The proposed CPEC project recognizes the new realities of global and regional politics by cultivating a more systematic, up-graded and need-based interaction for socio-economic, industrial, energy and trade development.

KPOGCL being Oil & Gas E&P Company took advantage of CPEC by proposing & presenting different Energy related projects in Beijing Road Show, China. Many Chinese companies were attracted towards the feasibilities of projects and as a result four (04) MOUs were signed on the spot with Chinese Companies after which meetings were held later on. The proposed projects were of 15,000 BPD Oil Refinery in Kohat, Oil Marketing Company, Pipeline & Storage.

PAGE: WHAT ARE YOUR VIEWS ABOUT FUEL PRICES FY 2017 GOVT HAS BEEN STOP FURNACE OIL ENERGY DEVELOPMENT?

MOHAMMAD RAZIUDDIN: It goes without question that lower oil prices hurt the bottom lines of large oil companies directly involved in the exploration and production of oil as their costs of production are fixed while the price they charge for oil is dictated by the market.

Lower oil prices will result in a redistribution of resources. Gains will likely be spread across many economies, while losses may be concentrated among a few. The beneficiaries of persistently low oil prices are likely to be the oil-importing nations, because of improved household consumption spending, business investment as production costs fall and profits increase, and external accounts. Low oil prices also provide these nations an opportunity to cut down energy subsidies, which improves fiscal balance overall but reduces the benefits accrued to households and businesses.

Manufacturers and industrial companies that supply materials and equipment for building and expanding oil field operations will also likely suffer. Steel manufacturers, machine and machine parts fabricators, as well as heavy equipment builders and suppliers will all be hurt by the low price of oil and consequent downturn in oil production.

The world’s economies were already slowing and that we can expect a moderation in growth of crude demand over the next several years. The supply overhang will moderate but not disappear in 2017 as non-OPEC countries cut their production investments.

Pakistan being a developing nation has both positive & negative impact of low crude price. The Public sector companies of Pakistan may have chance to get the benefit from these low prices as operation & maintenance cost decreases and they can spend more money on exploration instead of paying huge amounts. The National exchequer has also been greatly compensated by foreign debt reduction as 70% of oil & gas is being imported. The National & public sector companies should opt the policy for free economic zones and should identify such terms and policies to produce and consume the indigenous resources which can be vital role in GDP growth and reduction in long standing International Debt.

Oil prices surged during 2003–08 due to an unexpected global economic boom, especially in emerging Asian economies such as China and India, while oil producers failed to keep up with the rising demand. Post May 2007, rising inventories in anticipation of increasing demand added to the existing demand pressures. Within a year, oil prices nearly doubled, reaching $113 dollars in May 2008.

After a brief fall in oil prices during the 2008 financial crisis, prices quickly picked up by mid-2009 on the back of strong growth in some of the emerging nations. The political uprising and civil wars in a few Middle East countries resulted in intermittent oil supply disruptions. Oil prices reached $100 per barrel in 2010 and remained steady at $90–120 per barrel during 2011–14.

All this changed, however, when oil prices dropped over 70 percent between June 2014 and January 2016, as supply outstripped demand. New oil fields and advancing technologies in the United States enabled US oil producers to increase production. Post 2014, Libya and Iraq’s faster-than-expected resumption of oil production; US energy companies’ resilience in continuing supply despite falling prices; and increased production by Canada, Russia, and, lately, Iran after sanctions were lifted led to a sustained increase in oil supply.

It is concluded with current scenario that a steady rise will take place around 2018-19 and demand will be surplus than supply by growing & under developing countries.

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