Pakistan has witnessed extraordinary growth in petroleum sector during the past four years as the credit goes to the present government who encouraged oil and gas Exploration and Production companies by providing them maximum incentives to step up exploration activities in potential areas across the country, official sources quoted as saying. Oil and Gas Exploration and Production companies drilled over 179 exploratory and 194 appraisal wells resulting in one hundred and one new discoveries during the past four years, which is eighty percent higher than the finds made during the same period of the previous government. According to the official data these activities registered an increase by 80 percent with 40 percent success rate.
Pakistan has received investment of around Rs1.6 trillion in the oil and gas exploration sector in a very short span of time. A total of 82 oil and gas discoveries had been made during the last three fiscal years. Production from 45 out of the 82 discoveries has already begun, whereas necessary work on 37 discoveries is being carried out by the Exploration and Production companies in order to start production.
Pakistan’s oil and gas discoveries touch record. Drilling had increased by 46 percent along with 36 percent increase in the 2D and 3D explorations. Despite the decrease in the prices of petroleum products at the international level, Pakistan was expected to continue receiving investment in the oil and gas sector which would help explore indigenous resources in the country. The local production of crude oil has surged to 100,000 barrels per day, which meets 15 percent of the country’s requirement.
Exploration activities have also been expedited; especially in Khyber Pakhtunkhwa (KPK) province, which has led to some important discoveries. The government was encouraging investors to establish new refineries in the country and two would be established soon. “Establishment of refineries in Karachi and Balochistan would also help reduce the import bill of refined products”, sources further said.
With the introduction of gas from new discoveries and establishment of the second LNG terminal, the situation of gas demand and supply would be better. About 46 new blocks have been awarded under the Petroleum Policy 2012 to expedite exploration activities, while clearance process has been initiated for awarding 32 new exploration blocks to the E&P companies through a bidding process. Also, the producer gas price under the Petroleum Policy 2012 has been increased from 31 percent to 68 percent for different zones.
Pakistan witnessed an increase of around 79 percent in Oil and Gas exploration activities in different potential areas during the last four years. In order to achieve self-sufficiency in the energy sector, the government took a number of initiatives, which resulted in drilling of 179 exploratory wells and 194 appraisal/development wells in potential areas by different E&P companies. The exploration and production (E&P) companies made 98 new oil and gas discoveries with 40 percent success rate. During the same period of the previous government, 100 exploratory and 172 appraisal/development wells were drilled, which resulted in just 39 oil and gas discoveries.
The sources termed increased number of discoveries a ‘record’ set by the government in a short span of four years, which so far added 944mmcfd gas in the transmission network across the country and 32,343bopd in the domestic production.
The government granted 46 exploration licences and 33 leases, carried out 25,568 L.km 2D and 19,478 sq.km 3D seismic surveys, besides it made 1,073,283 metre drillings, which is 52 percent higher than the previous government’s tenure. With around two dozen oil exporters agreeing to extend their deal to limit their production through 2018, crude oil prices are set to spike significantly over the next several months.
Pakistan Oilfields Limited (POL) profit increased 33.8 percent to Rs9.67 billion in fiscal year 2016-17. Increasing earnings are still below market expectations due to reportedly high exploration costs and unimpressive sales. The oil exploration and production firm had booked a profit of Rs7.23 billion in the preceding fiscal year. Earnings per share (EPS) increased to Rs40.92 from Rs30.58, slightly lower than the street consensus which predicted a higher EPS for the company’s shareholders. The company’s board of directors also recommended a final cash dividend of Rs25 per share. The company’s oil sales increased 9.13 percent to Rs29.871 billion in fiscal year 2017, up from Rs27.37 billion last year. On a quarterly basis, earnings grew by 59 percent year-on-year led by improved oil prices. POL reported consolidated earnings of Rs18.3, up 1 percent year-on-year in 4th quarter of fiscal year 2017.
Moreover, they credited higher Arab Light crude prices and improved oil and gas production for the increase in profit. Oil sales increased to average 7,100 barrels per day (bpd). Year-on-year increase in earnings is attributable to 28 percent year-on-year decline in exploration costs, lower financial charges and 9 percent increase in share of profit from associates. Significant exploration and development costs and unexpected field shutdowns as key risks for POL.
Country’s oil import bill likely to jump
Global oil prices rallied to more than a three-year high of $70 a barrel. Prices have edged up faster than analysts had expected. Oil has gained almost five per cent since the start of this year, and is forecast to move up further. The country’s energy import bill has already risen so much as global oil prices have spiked by almost a third in the last several months. It is likely to increase considerably going forward. The upward journey of crude prices can be expected to go on for some time. Pakistan’s energy import bill grew 30 percent year-on-year to $5.2 billion during the first five months of the present financial year.
The current-account deficit almost doubled to $6.43 billion during the period, indicating it would go far higher than the full-year target of $9 billion. Half-yearly trade gap also surged to almost $18 billion. Net official foreign exchange reserves fell to below $14 billion. Rising oil prices will add to pressure on the country’s forex reserves, widen trade gap as Pakistan spend more on the energy import bill, push domestic power prices, increase the already high cost of doing business affecting export competitiveness, expand budget deficit, increase inflation and limit household incomes.
Salman Shah, former finance minister in the Musharraf government said that “higher oil prices will prove to be a major drag on the economy already facing serious headwinds.” Higher oil prices pose a major risk to external-sector stability in the present circumstances when current account is growing on surging imports.
The country heads towards new elections in late summer this year, with the PML-N government facing serious challenges from its opponents. It reminds it of the consequences of absorbing the impact of oil price increase because it would lead to significantly higher subsidy burden on the budget. There is little the government can do about the surge in global oil prices. But it can mitigate the possible losses to the economy by passing on its real impact on electricity consumers and motorists instead of subsidizing them in an election year. One cannot offset the impact of higher crude, but can reduce the damage to the economy by passing on its impact to consumers.