TULLOW OIL TO QUIT ITS OPERATIONS IN PAKISTAN

SYED FAZL-E-HAIDER
Feb 25 - Mar 02, 2008

The worsening law and order situation in Pakistan has forced Tullow Pakistan, a subsidiary of Tullow Oil PIc of UK, to quit its operations in the south Asian country. The company recently put its blocks and other assets up for sale due to the security concerns. The ministry of petroleum has however alleged the company for fleeing without paying Rs 488 million dues outstanding against it and moved to the High Court to stop its exit from the country. The company, on the other hand, denies the allegation calling it a part of the campaign launched for defaming the company.

This is not for the first time that a foreign oil company has decided to stay away from more business in Pakistan for security concerns. Earlier, three major Chinese oil and gas service companies including the Great Wall and BGP have also refused to sign new contracts for conducting seismic survey due to law and order problems in the country. Tullow Oil has so far invested billion of rupees since 1990 when it commenced its operations in Pakistan. It however now deems it impossible to continue its operations amid deteriorating law and order situation in the country. Pakistan already faces an image problem and the way government has reacted to the company's decision to exit, does not send a positive signal to the potential foreign investors.

Tullow Oil has interests mainly in three Pakistani provinces- NWFP, Sindh and Balochistan. Sindh, the home province of Benazir Bhutto is currently in political turmoil and recently witnessed incidents of rioting, burning and violence following the killing of Bhutto on December 27. Balochistan is facing an insurgency-like situation for the last three years and a military operation is currently underway against Baloch militants. In NWFP, the government is trying to establish its writ, which has been challenged by the religious extremists. Suicide attacks on security forces by extremists have become a routine in the province. In the given circumstances, Tullow has valid justification to feel its assets insecure and to leave the country.

Tullow Oil Plc is a leading independent international oil and gas exploration and production company in Europe. It has interests in over 120 exploration and production licences spread over 23 countries, with operations mainly in UK North Sea, West Africa and South Asia. Last January, it completed 595 million acquisition of Hardman Resources Limited, which enhanced its operations in Mauritania and Uganda. Headquartered in London, it is quoted on the London and Irish stock exchanges and is a member of the FTSE 250 index. In South Asia, the company has interests in Pakistan, Bangladesh and India.

With an office in Islamabad, Tullow Oil has been in Pakistan for the last 17 years and during this period it got 8 licences for carrying out its operations in a range of exploration, development and production blocks. It has acquired over 2500 km of seismic data and has drilled 11 exploratory and six development wells. By the end of year 2006, Tullow had invested $180 million in oil and gas exploration and production activities in the country. As an operator, the company has been successful in making at least five discoveries in Pakistan. It holds working interests in five exploration licences, two in NWFP province and three in Balochistan province.

In October 2002, Pakistan awarded a petroleum exploration licence to a consortium led by Tullow Oil with a 45% share. Under the deal, Tullow Pakistan agreed to explore an area of 900 square miles in Nawabshah in Sindh province, with an investment of $6.2million. In March, 2003, Pakistan granted a petroleum exploration licence to a four-member joint venture of local and foreign companies headed by Tullow Pakistan with 48.18 per cent shares over an area of 770.29 sq. kilometer in district Ghotki and Rahimyar Khan of Sindh and Punjab respectively. The joint venture was obligated to carry out geological and geophysical studies and reprocessing with an expenditure of around $2 million.

In April 2005, Tullow was awarded interests in two exploration licences - Bannu West and Kohat in NWFP province. In September 2006, government and Sui Northern Gas Pipelines Limited (SNGPL) signed a gas sale and purchase agreement with a joint venture of Tullow Pakistan and GHPL. Under the deal, the joint venture agreed to supply 30 million cubic feet per day (MMCFD) gas from Chachar field to SNGPL by December 2006. The utility will supply gas to Gaddu thermal power station of Water and Power Development Authority (Wapda), easing pressure on oil import. The joint venture has invested over $6.5 million in exploratory efforts and is implementing a development plan with an estimated cost of $25 million.

Tullow Oil is the operator of Chachar gas field in Jacobabad district of Sindh province. It holds 75 percent working interest of the field while the remaining 25 percent is held by Government Holdings (Private) Limited (GHPL). It has been supplying gas to the Guddu power station since 1999. The development project on Chachar is well advanced with two new development wells and the original discovery well prepared for production. By the end of last year, the construction of the production facility had reached near completion.

It is true that overall situation with reference to foreign investment in the country had improved in the last five years and over two dozens foreign oil companies are currently operating in Pakistan. The petroleum sector has witnessed a speedy growth during last five years. But in last one year, the country has been in political turmoil and particularly after the situation erupted following assassination of Benazir Bhutto on December 27, foreign firms consider it risky to continue their operations in the country. The worsening security situation has raised security concern among foreign firms operating in Pakistan. It is actually this state of affairs that today Pakistani President is on a visit to Europe and he is trying to restore Pakistan's image. He has addressed the security concerns of the foreign firms and assured them of protecting their assets and interests in Pakistan.

Last month, President Pervez Musharraf met in Devos with Goldman Sachs Group Inc of USA, Royal Dutch Shell and ENI's Chief Executives Officers {CEOs) and convinced that Pakistan was a promising destination for investors due to attractive incentives and multinational companies should prefer it over other developing countries for investing their money. Pakistan needs to improve its image by ensuring foolproof security to foreign firms and their personnel and assets in the country. Today security is No.1 issue and the primary reason raising concern among the foreign firms that have already invested in the country. Otherwise, the cost of doing business in Pakistan is less than other countries of the region and skilled labor is available for all sectors for more production with better quality to help the producers compete in international market.