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What 2018 may bring for the E&P sector of Pakistan?

The OPEC and non-OPEC production cuts and the rising demand have been in play, which has lifted the crude oil prices to over $60 a barrel. This increase in crude oil prices will be celebrated by the oil and gas E&P companies around the world that have been investing in the low price – and hence low-cost era. Though prices are expected to rise in 2018, they are likely to set in a range of $60-70 per barrel. And while better oil price scenario has worked in the interest of these firms, the industry has also received another boost from PKR depreciation.Since oil and gas prices in Pakistan are benchmarked to global crude oil prices which are on the rise, the depreciation would lift the rupee-based oil prices and hence the revenues and profits for the companies will increase.

While 2017 was a year of strong capital investments for the E&P companies, 2018 is when these firms will focus on boosting their returns. E&P companies will be aiming for profitable growth within existing oil acreage and cash flow, with improvement favoring companies with the greatest exposure to the best acreage. During the low oil price period, E&P companies invested in some key drilling and exploration. The local giants invested in carrying geological survey, acquiring seismic data along with fast-track exploration plans due to lower costs. PPL and OGDCL ramped up their efforts in Balochistan and Khyber Pakhtunkhwa (KPK) fields as well that were previously untouched due to security threats. With prices up, it’s time to reap the benefits, which would come in shape of greater profitability and higher hydrocarbon production. Though the present government’s interest in the E&P sector has been meagre, they are now also looking to auction new blocks that include some of the untapped areas.

 

As most large, accessible reserves of hydrocarbons in Pakistan are already discovered and are, in fact, mostly in decline, the major challenge for the E&P industry is to replenish depleting reserves to secure a sustainable energy future for the country. This imperative is eminently pertinent in Pakistan’s case, where only about 40 percent of available acreage is tapped, of which barely one-fourth is under active exploration. Practically, this means a huge part of the country’s prospective region remains unexplored. The only way to counter this is to venture into less-explored frontier areas, including offshore basins, even if it entails higher business risk and cost. Moreover, the presence of sizable unconventional reserves presents another potential opportunity to improve the reserve base. To this end, we need sharper focus on technical enablement, especially through capacity building, and collaboration between local and foreign partners.

After improvement of the law and order, various areas were now open for exploration which were unsafe in the past. Last three years proved to be historic for the energy sector of Pakistan as the country had replenished its reserves by successfully making around 100 discoveries. A lot more is yet to be done as the country would require more energy to achieve its growth targets. Pakistan is fast moving towards energy mix exploiting its potential in coal, wind and hydro sectors. It has become a growing energy market and looks forward for greater efforts in E&P sector as more discoveries means lesser import for the country.Last year has already seen LNG’s import, while work on TAPI began in December 2016 (although future is uncertain). Similarly, the IP project will hopefully commence this year after amendment in the gas-sale purchase agreement with Iran (Russia wants to lay gas pipeline from Iran to India via Gwadar). If these projects materialize, Pakistan is well poised to become self-sufficient in energy during 2018.

The writer is a Karachi based freelance columnist and is a banker by profession. He could be reached on Twitter @ReluctantAhsan

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