OFF-SHORE DRILLING BEGINS IN PAKISTAN
International Players Involved In Offshore Exploration
Oct 22 - 28, 2007
Having a potential of 300 mmbbl oil, the much awaited drilling in Pakistan's ultra-deep offshore region commenced recently. While Shell is carrying the exploration campaign, OGDC and PPL have respectively 30% and 20% stake in the field.
Though the Shell is tight lipped about the off-shore drilling, yet sources said that exploration potential in Pakistan's offshore is believed to be high, however reserve potential is yet to be established.
The offshore region is relatively under-explored in Pakistan so far. A total of 15 offshore wells have been completed with no commercial discoveries to date and two sub commercial discoveries. However, energy experts are attaching high hopes with the current offshore drilling efforts and if turned successful that would yet another energy rich province to the landscape of the country. the high potential offshore drilling has already attracted many big names such as ENI, BP, Petrobras, Shell in Pakistan.
Actually, the offshore terms are attractive Under Production Sharing Agreement (PSA) of offshore package in Petroleum Policy 2001, the government's share in profit and royalty payments are back loaded (increase in later years) allowing a rapid recovery of investment.
OIL & GAS RESERVES
The current estimates of proven reserves of oil and gas resources in Pakistan are for 14.4 years for oil and 22.1 years for gas, said energy experts.
The balance recoverable oil and gas reserves stood at 353million barrels and 32.4trillion cubic feet, respectively. E&P activity in the country yielded net addition of 53.4million barrels of oil and 1.26tcf of gas during Financial Year 2007. There was also some upward as well as downward revision in the oil and gas reserves of already discovered fields.
The new additions in the list of oil fields include Chak-66 NE, Dars Deep, Mela, Nim, Nim West, Unar.
Interestingly, all these fields belong to OGDC, which is the most aggressive E&P giant in the country. Additions in gas reserves were mainly due to the inclusion of Bahu, Chak-66 NE, Chandio, Dars Deep, Nim, Nim West and Unar. Again OGDC is the operator in all these fields. Amongst the already discovered fields, major addition was witnessed in the reserves of OGDC with the inclusion of Chanda, Kunnar, Qadirpur, Pasahki oil reserves.
While in case of gas, the upward revisions in the reserves were seen in Bobi, Dahkni, Qadirpur and Nandpur. OGDCL made ten new oil and gas discoveries during the year.
One measure of E&P performance is the "reserves replacement ratio" (RRR) that is the ratio of new reserves to oil produced. In FY07, the reserve replacement ratio for hydrocarbons is worked at 218% versus last 5-year average of 117%. This ratio is calculated by dividing the sum of changes to estimated crude oil reserves from revisions, improved recovery and discoveries during financial year 2007 by production of 24.5million BOE. In case of gas, the RRR for financial year is arrived at 86% as compared to the average 252% in previous 5-years.
It is worth to mention that amongst the listed E&Ps, OGDC was solely responsible for the reserve addition during FY07. In this regard, the most significant discovery was Mela-1. The original recoverable reserves of this field were quoted at 15.87million barrels oil and 46.5bcf. The reserve replacement ratio of OGDC in FY07 was significantly higher than other E&Ps.
The current estimates reveal that OGDC's balance recoverable reserves as of Jun 30, 2007 stood at 159.17m barrels of oil and 10.87tcf of gas. This is due to the aggressive exploration strategy of OGDC, which is bearing fruits for it. No major change was observed in the reserves of POL as Tal Block and Pindori fields' reserve estimates were unchanged during FY07. In case of PPL, the recent discoveries by JV, OMV at Latif, Tajjal and Hala were not assessed and therefore are included in the end- June 2007 reserves.
RISING ENERGY NEEDS
Rising energy needs of the world particularly that of emerging countries, geopolitical risk of oil rich countries, weakening of US currency and declining reserve capacity urged us to believe that global oil prices will remain strong as well as extra volatile in the short run. According to a report, the outlook on oil prices has become more subjective than ever. At present, the risk of supply disruption has transpired as the most dominant driver of oil prices with geopolitical risk in Middle East. About 60% of recoverable oil reserves lie in the Middle East where threat of oil disruption is ever increasing amid US presence in Iraq. Following the US invasion of Iraq in 2003, oil exports from northern Iraq through Turkey has remained quite disturbed amid frequent bombings of Iraq's northern pipeline.
Oil prices have more than quadrupled since 2001 as strong demand for oil from Asia, the Middle East and the United States has outpaced the supply additions by the producers. Thus, with little spare production capacity, the oil markets have become more volatile. According to some estimates, current oil prices incorporate US$8-10/barrel of supply risk premium in it. It is pertinent to mention that in inflation-adjusted terms prices are getting close to peaks last seen in 80s.
Healthy earnings growth is expected for OGDC and PPL in financial year 2008 due to production hikes and higher realized prices of oil and gas. For POL, the rising crude oil levels could offset the impact of declining production from Pindori while the major production additions would arrive in financial year 2009.