July 25 - 31, 20

Rising oil import bill has become Pakistan's most contentious issue. Growing import volume due to depleting supply of gas and hike in international prices of crude oil are acting as double-edged sword.

Since the country has not been able to exploit alternate sources of energy, its dependence on fossil oil is on the rise. It is feared that if nothing is done to exploit alternate sources of energy, Pakistan may once again face default like situation. Added to this has been the lust of the government to enhance collection of oil and gas levies to meet the budget deficit.

Though energy consumption has been growing above 10 per cent per annum, little has been done to improve indigenous production. In fact, crude oil production has declined over the years.

Despite discovery of new gas fields, supply is falling short of demand. Installed electricity generation capacity has also not registered any significant increase. Due to reduction in dependable capacity, daily electricity outages in urban areas go beyond 12 hours in urban areas and exceed 20 hours in some of the villages and small towns. Similarly, many of the industries, particularly in Punjab get gas for less than four days and CNG stations remain closed for three days during the week, at least.

Experts are of the view that if the situation prevails longer then achieving even two per cent GDP growth rate may not be possible.

According to the IMF's condition, the country must achieve 4.5 per cent GDP growth rate. It is not a question of meeting or not meeting the conditions as rate lower than that is inverse growth because Pakistan's population is growing above three per cent per annum.

A point may also be noted that this is an understated population growth rate. Karachi's population is growing at five per cent per annum and other mega cities of the country also have around similar population growth rate mainly because of massive migration from rural to urban areas.

The situation would have not been so precarious had the concerned authorities taken timely actions. They have failed in adding new electricity generation capacities and increasing oil and gas productions despite discoveries of some mega size fields.

Production from some of the newly discovered fields cannot be commenced because of ongoing litigation. Experts say that if these litigations are resolved the country can get additional 1,000mmcfd gas, which is slightly more than the gas shortfall in the country.

According to a report, drilling activity remained subdued during FY11. Against a target of 80 wells only 49 wells could be drilled, a 61 per cent of set target. Of the total wells drilled, 15 were exploratory and 34 development/appraisal wells, indicating that the focus in FY11 was on enhancing production from existing fields rather than drilling more exploratory wells.

Performance of private sector companies remained subdued as they drilled only 25 wells out of planned 51. In the public sector, only Pakistan Petroleum was able to surpass its target as it drilled four wells against a target of three.

OGDC also accelerated its drilling efforts and managed to drill 20 wells against a target of 26. Out of total 10 exploratory wells planned by OGDC, only six could be drilled in the last quarter of the financial year 2010-11.

Despite subdued exploration efforts, exploration and production companies were able to make four new discoveries during FY11. All of which were made by the private sector companies.

Prominent discoveries included Makori East-1 (Tal block operated by MOL) and Domial-1 (Ikhlas block operated by POL), both of which were predominantly oil and would largely benefit POL.

According to the details, oil and gas production remained almost flat during FY11, slightly skewed towards oil given additional flows from Adhi, Mamikhel and Maramzai fields.

Likewise, oil production was up marginally by two per cent YoY to 65,000bpd while gas production was 4,000mmcfd, declining marginally by 0.6 per cent YoY. Additional output from Tal was mostly off set by decline in production from Sui, Zamzama and Qadirpur fields. Current production of 500mmcfd would increase to 600mmcfd after completion of two development wells at Qadirpur by 3QFY12.

Experts anticipate that drilling activity will gain further momentum especially in areas where large discoveries have been made during FY11. The E&P companies plan to drill 12 wells during 1QFY12. Out of these, five will be exploratory. Prominent additions include MOL's Makori East-2 appraisal (where drilling has already commenced) and Sadrial-1 exploratory well to be drilled in Ikhlas block by POL.

Among existing wells, drilling at Domial-2 appraisal is nearing completion, while Domial-1 is undergoing extended well tests. Production from Makori-East and Domial is anticipated to stabilize over the next three months based on test results.

Slow pace of drilling can be attributed to two factors, lingering inter-corporate debt and precarious law and order situation in the areas where E&P companies are operating. The government also pressurizes the state owned energy companies to pay exorbitantly high dividend. Such hemorrhages impair ongoing drilling activities. PPL was made to pay out a huge interim dividend.

The situation seems most disgusting because Pakistan has an enviable success track record in gas production. As against world average of 1:10, the success rate in the country is 1:4 and for OGDC the historic average has been 1:2. Therefore, draining out cash from E&P companies is outright hindrance in their activities. Public Accounts Committee must discourage such practices.