PPL INVESTS ABROAD, WHILE THE COUNTRY REELS FROM GAS SHORTAGE
Aug 20 - Sep 2, 2012
Last month, Iraq signed a gas exploration deal with Pakistan Petroleum Limited (PPL), the country's largest exploration and production company that won a contract in May for a 6,000 square kilometer block containing natural gas in the central Iraqi provinces of Diyala and Wasit. The deal, which was signed on July 15 between the Iraqi oil ministry and the state-owned PPL, is aimed at increasing the war-torn country's oil and gas reserves. It is not only Iraq but the PPL has invested in Yemen where it has a 43.75% participating interest and is a non-operating partner with OMV of Austria in Block 29. Critics say that PPL should first accelerate exploration activities at home where it has not found any lucrative opportunities, but looking for investment opportunities abroad at a time when the country is facing chronic energy shortages despite having vast energy resources.
The country direly needs to enhance exploration activity to overcome the energy shortage which has stifled the industry and inflamed public anger due to long and frequent power outages. The analysts believe that the PPL's Iraq venture is likely to meet the same fate of that of Yemen where all exploration activities are on hold as operating and service companies have left the country due to the poor law and order situation. It was due to the security reasons that Chinese firm Zhenhua decided not to partner and invest with PPL in Iraq.
Under the deal, the PPL agreed to a remuneration fee of $5.38 per barrel of oil-equivalent eventually extracted.
"We are now initialling a contract between the Iraqi oil ministry and Pakistan Petroleum," AFP reported Abdul Mehdi al-Amidi, the head of the ministry's contracts and licensing department as saying.
In April, PPL and Zhenhua of China had entered into a joint venture to participate in Iraq's fourth licensing round for exploration blocks and were expected to make an investment of $200 million if their bid would have been accepted. Under the deal, PPL would have to have 49% interest and Zhenhua 51% share. Zhenhua also had the right to increase its share up to 70%. The Chinese firm however in May walked away from the Iraq venture with PPL due to security concerns.
PPL is one of the pioneer exploration and production (E&P) companies in the Pakistan oil and gas sector. It was incorporated in June 1950 with the Burmah Oil Company and Government of Pakistan as its principal shareholders. The company operates major oil and gas fields including Sui gas field in Balochistan and has non-operating interests in other fields and has an interest in an exploration portfolio onshore and offshore. The company is now planning international exploration in partnership mode. The PPL secured the KSE (Karachi Stock Exchange) top 25 companies award during the year 2011.
Iraq is rich in oil and gas resources with proven reserves of 143.1 billion barrels of oil and 3.2 trillion cubic meters of gas. On May 31, PPL won the bid for a 6,000 square kilometer exploration block when Iraq closed a landmark auction of energy exploration blocks with just three contracts awarded out of a potential 12. It was the first auction that invited international oil companies to explore Iraqi territory for energy deposits since the 2003 US-led attack.
A consortium led by Kuwait Energy with Turkey's TPAO and Dubai-based Dragon Oil won the 900 square kilometer block in the southern province of Basra, while consortium of Russian energy giant Lukoil and Japan's Inpex won a contract for a plot covering Muthanna and Dhi Qar provinces in the south.
Security will be the key issue for PPL, which will not be able to carry out its operations in Iraq due to poor law and order situation. PPL and OMV signed an agreement in April 2008 for the Yemen venture. Block 29 of Yemen had been given to PPL and OMV for exploration for four years effective March 17, 2009.
Astonishingly, the PPL is expanding its operations abroad at a time when the country needs extensive exploration activity to overcome its worsening energy crisis. PPL is the operator of the country's oldest Sui gas field in Balochistan where production is rapidly declining.
Pakistan is currently facing an acute gas shortage. The official estimates indicate a serious gas shortage in the next few years which could lead to critical energy shortfalls unless the supply is augmented by two billion cubic feet per day (BCFD). Presently, the gas shortfall reached its record high in the south Asian country, with a gas demand of around 4050 million cubic feet per day (MCFD) and the supply around 3110 MCFD. The industry and domestic consumers are facing gas load-shedding. The shortfall of compressed natural gas (CNG) and its load curtailment has increased the petrol demand in the country.
The country's southwestern Balochistan province is rich in oil and gas resources. The PPL has been dominating the arena of oil and gas exploration for many decades in the province. In 1952, the company discovered a huge natural gas field at Sui in Bugti tribal area. The gas reserves discovered in Sui were to the tune of 9.625 trillion cubic feet. It was the seventh largest gas field in the world and the biggest in Pakistan at that time. Commercial exploitation of the field began in 1955.
The Sui field produces 977 million cubic feet of gas per day, about 25 percent of the country's total production. It is one of most troubled gas fields in the insurgency-hit Balochistan.
The federal government had taken over more than 63 per cent shares of the PPL in 1997 to raise its ownership to about 94 per cent. Later, it decided to privatize the company but the Balochistan Assembly adopted a resolution asking the federal government to give its ownership to the province. Since then, Balochistan has been demanding of the federal government to transfer the entire ownership of the PPL to the province on the ground that the provincial energy resource had kept on feeding the country's energy requirements since independence. The federal government however did not accept Balochistan's demand regarding the ownership of PPL.