FOREIGN STAKES IN PAKISTAN ENERGY SECTOR

SYED FAZL-E-HAIDER, QUETTA
Aug 06 - 12, 2007

Though Pakistan still faces an image problem, yet the overall situation with reference to foreign investment in the country has improved over last five years. Presently energy sector is fuelling the fire of Pakistan's economic growth as well as investors' interest, both direct and portfolio.

The petroleum sector has witnessed a speedy growth during the last few years. Islamabad's new petroleum policy entails lucrative incentives for the prospective local and foreign investors in the onshore and offshore oil & gas exploration. Pakistan has a vast onshore and offshore sedimentary area of 827000 sq kms out of which only 25 percent is under exploration. The government plans to open 17 new blocks in offshore and onshore areas, which would boost the oil & gas exploration activities in the south Asian country. Over two dozens foreign oil companies are currently operating in Pakistan. The new and existing oil companies are now increasing their investment in oil and gas exploration in the country. Some reputed foreign energy firms operating in Pakistan energy sector include Rally Energy Corporation of USA, British Petroleum, Austria's OMV, Hungary's MOL Group, Canada's Jura Energy Corporation, Eni of Italy and the Cougar Energy Company of Australia.

1- RALLY ENERGY CO. OF USA

Pakistan has allowed Rally Energy Corporation of USA to start natural gas production at its Salsabil Field project in the country. The approval has been given for the period up to November 30, 2007. The company holds 30 percent stake in the Safed Koh block It will feed natural gas production into the Sui northern gas pipeline system. Initial production from one well has been measured at 9.5 million cubic feet per day and is expected to rise to 20 million cubic feet per day.

Rally is based in Calgary but mainly runs operations in Egypt, where it has a full interest in the Issaran Oilfield. It expects an eventual 1,000 barrels of oil equivalent net to the company when a second well is connected to the system later this week

2- BRITISH PETROLEUM

British Petroleum (BP) has acquired 42 percent working interest of Occidental Petroleum Pakistan and Occidental Oil & Gas Pakistan. The acquisition of these two companies by British Petroleum is part of the bigger deal under which the latter will swap its West Texas pipeline system in the United States in exchange for Occidentals' interest in Pakistan. The deal between the British Petroleum and two Occidentals, which are originally based in the United States, is being considered in Pakistan industrial circles as a big bang in the whole petroleum industry. These Occidental companies are currently working as joint venture partners with British Petroleum in Badin and Mehran concession licenses in the Pakistani province of Sindh where the British Petroleum has the operational rights. British Petroleum plans a seismic survey for offshore exploration in three acquired blocks this month and all the arrangements have been finalized in this regard.

3- HUNGARY'S MOL GROUP

MOL Group, a Hungarian company, is the leading integrated oil and gas company of central and eastern Europe. Its. subsidiary company, MOL Pakistan has made significant hydrocarbon discoveries in the south Asian country. Pakistan is one of MOL's core exploration and production regions. The company discovered the Pakistan's third largest gas reserves from Manzali-1 well in Gurguri Field in District Karak of NWFP province. Situated in 270 kilometers southwest of the capital Islamabad, the Manzalai Well-1 has the capacity to produce one million cubic meters daily. Last year, the company had started supplying more than 50 mmcf of natural gas per day from this well to Sui Northren Gas Pipelines Limited (SNGPL).

The operating profit of the MOL Group in Pakistan has risen by 31 percent during FY 2005-06. Its net income has improved by US$97.8 million to US$236.6 million in the first quarter of the current year. Its operating profit saw an increase to US$141.7 million up 23 percent when compared to the same period last year. The group's financial performance improved across all segments of the business apart from exploration & production and gas transmission. Similarly petrochemical business also posted record profits. Last year, the net income grew by 35 percent to $1.5743 billion with an increase of $410.9 million, reflecting the strong operating performance of the company's key businesses, and the gas transaction gain.

MOL Pakistan is the operator of Tal block in NWFP province. The TAL block is composed of three districts- Kohat, Karak and Hangu and is commonly called TAL block. The company has been researching oil and gas in TAL since 1999. It has been successful in exploring significant hydrocarbon reserves in the area. Three dimensional seismic tests carried out by MOL in the year 2000 resulted in valuable natural gas inflow. The first test results yielded a daily production of 550,000 cubic meters of natural gas and condensate production of 229 barrels per day. The second test results produced a daily production of 193,000 cubic meters of natural gas and condensate production of 51 barrels per day. The company has recently announced successful completion of tests for the third and fourth wells, Manzalai-2 and Manazalai-3 in the block.

MOL is set to expand its operations in Pakistan by drilling more exploratory wells.

It has also shown interest in the privatization process of Pakistan Petroleum Limited (PPL), Sui Northren Gas Pipelines Limited (SNGPL) and Sui Southern Gas Pipelines Limited (SSGPL). Last November, MOL signed Petroleum Concession Agreements with Pakistan on two new exploration blocks- Margala and Margala North, situated in the eastern part of the productive Potwar Basin of northern Pakistan, in the vicinity of Islamabad. Margalla and Margalla North cover an area of 1387 and 1562 sq km respectively. Though, 100% of the blocks are currently owned by MOL, yet the company is committed to involve local Pakistani qualified partners to take up a minimum of a 15% share in both blocks on a ground floor basis. Under the agreement, the MOL is committed to allocate US$ 2.1 million budget for each block in two year exploration programme.

4- AUSTRIA'S OMV

OMV is Austria's largest oil-producing, refining and gas station operating company. It is also the largest oil and gas group in Central Europe, being active in 13 central European countries. The company has been involved in the oil & gas exploration activities in district Khairpur of Pakistani province of Sindh. It invested $450 million and produced about 550 million cubic feet gas daily. The company has also shown interest in new blocks bidding, which is currently under evaluation.

Presently, OMV is the largest foreign gas producer in Pakistan with production of more than 500 million cubic feet per day. In 2002, the production at the Miano field, 300 miles northeast of Karachi, came fully on stream with an initial output of 90 million cubic feet per day. Miano's output is meant entirely for domestic consumption. It has a 17.7 percent stake in the consortium developing Miano field.

OMV has also a 19.7 percent stake in the consortium developing Sawan- another Pakistani gas field. The combined production of the two fields is estimated at around 800 billion cubic feet. Sawan came on stream in May 2003, with an initial daily output of 170 million cubic feet. Sawan's production doubled under a second phase of development to reach 340 million cubic feet per day in 2004. The company has boosted gas output by around 15% from its Sawan field after completing a successful expansion project that takes the field's capacity to 400 MMcf/d, up from 340 MMcf/d.

5- CANADA'S JURA ENERGY CORPORATION

Listed on the Toronto Stock Exchange, the Jura Energy Corporation is an oil and gas exploration and development company. It has interests in seven exploration and development projects in Pakistan. The seven interests cover a total area of 1,287,548 acres in Sindh, with four interests being located in the prolific Central Gas Basin, two interests in the Lower Indus Gas and Oil Basin and one in the northern oil bearing Potwar Basin.

Canadian Frontier Holdings, a subsidiary of Jura Energy Corporation recently entered into a partnership with a local firm, Petroleum Exploration Limited (PEL) for acquiring working interests in seven concessions held by the PEL in Pakistani province of Sindh. The venture has drawn up plans to invest $ 120 million in oil and gas sector. The two sides will also collaborate on the establishment of a 120 MW power plant at Sukkur in Sindh province., utilizing the natural gas of Kandra Gas Fields. This alone entails an additional joint investment of over US$ 100 million.

Frontier Holdings and PEL are presently reviewing a number of development options for the Kandra Gas Field geared towards power generation including the possible refurbishment of the Sukkur Power Station. The development of Kandra gas field resources of 3.4 trillion cubic feet would be main source of gas supply to the power facility. The partners have also planned the drilling of development wells with a view to ensuring a sustained gas supply to power plant by investing $160 million, which is expected to be commissioned in 2009 involving further investment of $60 million. Frontier will incur and pay 75% of the cost of the first six development wells up to an amount of US$2 million each. The development & production licence area covers 71,383 acres. The Kandra gas field received development approval by the government of Pakistan in January 2006. The field is located approximately 25 kms away from the city of Sukkur whose current electricity demand is being partially met by the Sukkur Power Station. Last year, Jura Energy Corporation commissioned a technical report in respect of the company's 37.5% participating interest in the Kandra Gas Field.

6- ENI OF ITALY

With a net share of 55,000 barrels of oil equivalent per day, Italy energy giant Eni is the largest foreign gas producer in Pakistan. It has been in the country since 2000. It has interest in 7 producing fields, all with growth potential, and in 12 onshore exploration blocks, 5 of which are operational. Eni recently acquired 3 offshore exploration blocks in Indus Delta.

Eni plans to invest $170 million in Pakistan in next 3 years, mainly on development activities and $110 million for new exploration. One of its latest successes relates to Tajjal 1 exploration well, which reached new gas in Gambat Exploration Licence, in Sindh province. Gambat Licence is managed by joint venture composed of Eni (30 percent), OMV (35 percent Operator), PPL (30 percent) and GHPL (5 percent). The exploration well has been drilled south of Sawan producing field, reaching total depth of 3,845 m and encountering gas at different sand levels. Eni recently drilled Kadanwari 18 well, finding a gas-bearing formation at depth of about 3,400 m, in a rock formation independent from main field.

7- COUGAR ENERGY COMPANY OF AUSTRALIA

The Cougar Energy Company of Australia is currently planning to establish power plants with latest technology for utilizing huge Thar coal deposits in the province of Sindh. The company plans to generate electricity through underground gasification system (UGS). The 0UGS is cost effective and saves huge amount for making coal-mines. In this system, coal is being burnt underground and the exertion of gases utilized for power generation.