Dec 7 - 13, 2009

Foreign oil companies are facing grave risks to their operations in Pakistan's northwest where the security situation has significantly worsened after a full-fledged military operation was undertaken by the country's armed forces against Taliban insurgents in South Waziristan in October.

London-based Tullow oil Plc and Budapest-based Millennium Oil Limited (MOL), Hungary's largest oil refiner are unable to continue their operations in north western frontier province (NWFP), as they are facing security threats amid rising incidents of violence in the province.

Suicide attacks on security forces and public places by extremists have become a routine in the province. MOL has started gas production from its Manzalai field in the terror-hit NWFP province after making an initial investment of $500 million.

Analysts believe that the country direly needs overseas investment to bolster an economy that grew two percent in the last fiscal year but the rising violence would not only hamper the Islamabad's efforts to attract foreign investment but also force the foreign firms, to quit their operations in the south Asian country. Today security is No.1 issue and the key reason raising concern among the foreign firms that have already invested in the country.

"Cost and security reasons led oil developer Tullow to hand over control of a drilling project at Kohat, near Orakzai, to its local partner," Bloomberg recently quoted George Cazenove, the company's spokesman as saying. "Because they are no longer the operator, the number of Tullow employees in Pakistan has been reduced significantly."

With an office in Islamabad, Tullow Oil has been in the country for the last 19 years and during this period it got at least 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 the country. It holds working interests in five exploration licences, two in NWFP province, and three in Balochistan province.

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. 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.

Tullow Oil has interests mainly in three Pakistani provinces- NWFP, Sindh, and Balochistan. In April 2005, Tullow was awarded interests in two exploration licences- Bannu West, and Kohat in NWFP province.

Pakistan is one of MOL's core exploration and production regions. In the year 2006, the company's 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. The company has been researching oil and natural gas with the consortium in the country's exploration field in TAL since 1999. The company 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.

TAL Block is a major natural gas discovery in NWFP province and MOL Pakistan is the operator of Tal block. Block 3370-3 is composed of three districts in Kohat, Karak, and Hangu and is commonly called Tal block.

Last February, the provincial government of NWFP and MOL entered into a land acquisition agreement for exploration of gas in Tal Block. MOL has a 10% share as the operating partner of a consortium with Pakistan companies- Pakistan Oilfields Limited (POL), Pakistan Petroleum Limited (PPL), and the Oil and Gas Development Company Limited (OGDCL).

Transformed from being merely a Hungarian company, MOL Group is presently a leading international conglomerate comprising of the leading Hungarian chemical companies, TVK, the Slovakian oil company Slovnaft, the Austrian retail and wholesale company Roth, and a strategic partnership with the Croatian company. MOL's core activities are exploration and production of crude oil, natural gas and gas products, refining, transportation, storage, and distribution of crude oil products in retail and wholesale markets, as well as import, transportation, storage, and wholesale trading of natural gas and other products.

The MOL discovered the country's third largest gas reserves from Manzali Field in District Karak of NWFP province. Situated in 270 kilometers southwest of the capital Islamabad, the Manzalai Well-1 is a joint venture by MOL, OGDCL, PPL, and POL.

The project has entered in production stage. Initial output of 250 million cubic feet of gas a day is expected to be increased 40 percent to 350 million cubic feet by 2013.

In fact, security of foreign investors has today become the biggest challenge for Islamabad. The investors are concerned over the prevailing law and order situation in the northern parts of the country. The country witnessed a fall of 53.2 percent in foreign direct investment during the first four months of the current fiscal year. The government has set a Gross Domestic Product growth rate of 3.3 per cent for the current fiscal year 2009-10, while the IMF has predicted a 2 per cent growth.

Some analysts believe that revival of growth would require an improvement in the country's security environment, as the army is attacking the northwestern strongholds of the militants, who have responded with suicide bombings in towns and cities.

Pakistan's frontline role in US-led global war on terror has not been without social, economic, and human costs, which are mainly born by the common people. The analysts believe that the frustration with the current socio-economic and unemployment situation is creating a breeding ground for social unrest and militancy in the country.