Nov 12 - 18, 2012

Last week, Iraq signed a five-year gas exploration deal with State-owned Pakistan Petroleum Limited (PPL), the country's largest exploration and Production Company. Under the deal, the PPL will invest at least $100 million to explore a 6,000 square kilometer block containing natural gas in the central Iraqi provinces of Diyala and Wasit. The deal is aimed at boosting energy output of Iraq with proven reserves of 143.1 billion barrels of oil and 3.2 trillion cubic meters of gas. Security in the volatile Diyala, which remains one of Iraq's most violent province, is however the biggest issue is. It was due to the security concerns that Chinese firm Zhenhua decided not to partner and invest with PPL in Iraq. Critics say that PPL should first accelerate exploration activities at home where it has not found any lucrative opportunity, but looking for investment opportunity abroad at a time when the country is facing chronic energy shortages despite having vast energy resources.

The PPL won the contract in May the block in a public auction. Under the deal, the PPL agreed to a remuneration fee of $5.38 per barrel of oil-equivalent eventually extracted.

PPL chief executive Asim Khan said, the oil production (and) the gas production from this block will not only help the Iraqi economy, it will also help the Pakistani economy. He also said that it will be a step forward from this project to other projects at national level. Inshallah (God willing), this is the beginning and we would like to see more projects.

It is not only Iraq but the PPL has invested in Yemen where it has a 43.75 per cent participating interest and is a non-operating partner with OMV of Austria in Block 29. Local analysts believe that the PPL's Iraq venture is likely to meet the same fate of that of Yemen where all exploration activities are on hold as operating and service companies have left the country due to poor law and order situation.

PPL is one of the pioneer exploration and production (E&P) company in Pakistan's oil and gas sector. It was incorporated in June 1950 with the Burmah Oil Company and Government of Pakistan as its principal shareholders. The company operates major oil and gas fields including Sui gas field in Balochistan and has non-operating interests in other fields and has an interest in an exploration portfolio onshore and offshore. The company is now planning international exploration in partnership mode. The PPL secured the Karachi Stock Exchange (KSE) top 25 companies award during the year 2011.

In April, PPL and Zhenhua of China had entered into a joint venture to participate in Iraq's fourth licensing round for exploration blocks and were expected to make an investment of $200 million if their bid would have been accepted. Under the deal, PPL would have to have 49 per cent interest and Zhenhua 51 per cent share. Zhenhua also had the right to increase its share up to 70 per cent. The Chinese firm however in May walked away from Iraq venture with PPL due to security concerns.

On May 31, PPL won the bid for a 6,000 square kilometer exploration block when Iraq closed a landmark auction of energy exploration blocks with just three contracts awarded out of a potential 12. It was the first auction that invited international oil companies to explore Iraqi territory for energy deposits since the 2003 US-led attack.

A consortium led by Kuwait Energy with Turkey's TPAO and Dubai-based Dragon Oil won the 900 square kilometer block in the southern province of Basra, while consortium of Russian energy giant Lukoil and Japan's Inpex won a contract for a plot covering Muthanna and Dhi Qar provinces in the south.

Security will be the key issue for PPL, which will not be able to carry out its operations in Iraq due to poor law and order situation. PPL and OMV signed an agreement in April 2008 for the Yemen venture. Block 29 of Yemen had been given to PPL and OMV for exploration for four years effective March 17, 2009.

Astonishingly, the PPL is expanding its operations abroad at a time when the country needs extensive exploration activity to overcome its worsening energy crisis, which has stifled the industry and inflamed the public anger due to long and frequent power outages. The official estimates a serious gas shortage in the next few years which could lead to critical energy shortfalls unless the supply is augmented by two billion cubic feet per day (BCFD).

Presently, the gas shortfall reached its record high in the south Asian country, with a gas demand of around 4050 million cubic feet per day (MCFD) and the supply around 3110 MCFD. The industry and domestic consumers are facing gas load-shedding. The shortfall of compressed natural gas (CNG) and its load curtailment has increased the petrol demand in the country.

PPL is the operator of the country's oldest Sui gas field in southwestern Balochistan province where production is rapidly declining. The PPL has been dominating the arena of oil and gas exploration for many decades in the province. In 1952, the company discovered a huge natural gas field at Sui in Bugti tribal area. The gas reserves discovered in Sui were to the tune of 9.625 trillion cubic feet. It was the seventh largest gas field in the world and the biggest in Pakistan at that time. Commercial exploitation of the field began in 1955. The Sui field produces 977 million cubic feet of gas per day, about 25 per cent of the country's total production. It is one of most troubled gas fields in the insurgency-hit Balochistan.

The federal government had taken over more than 63 per cent shares of the PPL in 1997 to raise its ownership to about 94 per cent. Later, it decided to privatize the company but the Balochistan Assembly adopted a resolution asking the federal government to give its ownership to the province. Since then, Balochistan has been demanding of the federal government to transfer entire ownership of the PPL to the province on the ground that the provincial energy resource had kept on feeding the country's energy requirements since independence. The federal government however did not accept the Balochistan's demand regarding the ownership of PPL.