E&P needs investment and attention

On the very day when the SBP released the FDI data for FY17 which shows a continuation of marked drop in E&P sector, the federal minister for petroleum and natural resources was quoted saying that $10 billion were invested in Pakistan’s E&P sector in four years. Truth be told – the $10 billion figure seems inflated, to say the least.

Granted that the state owned E&P companies have defied the odds in recent years and continue to spend heavily on capital expenditure. This is commendable considering the oil prices which have remained under pressure for quite some while. But even the biggest player, OGDCL has over last four years invested not more than $2 billion in terms of capital expenditure. And the OGDCL accounts for nearly half of all E&P activities in Pakistan. The numbers just do not add up to even close to $10 billion. But that could be left for some other day, as the E&P sector demands some much needed attention, on many fronts.

First and foremost, is the continuous decline in foreign investment in the sector? To quite an extent, this is too specific to Pakistan as the fall in global crude oil prices has compelled major global E&P players to cut their spending on drilling and exploration. A Barclays report had earlier pointed out that oil and gas exploration companies could cut their spending by around 40 percent for the next three years, should oil fail to move beyond $60 per barrel. And this is exactly how the FDI in Pakistan has panned out to be – from an average of over $500 million per annum three years back to as low $160 million in FY17.

A big concern is the lack of activity on ground, despite having an astounding success ratio of 1:3. Only one-fourth of the sedimentary area under license is being worked on in Pakistan, which is surely not enough. With growing demand and ever depleting reserves, Pakistan would continue to play the catch up game. The focus, unfortunately, seems heavy on meeting all needs via imported sources.

Secondly, however small the contributions from foreign players maybe in terms of volume and market share, the significance in terms of joint ventures and expertise cannot be undermined. Pakistan needs to explore more in frontier areas which could be a game changer. Another trick could be to exploit the already develop areas, and look for easy but small wins. Offshore and shale exploration are focus areas too, but that would require huge investments, and major foreign presence.

Credit must be given to the authorities for having a lucrative enough policy incentive for investors in the sector.

That said, much more needs to be done to bring the sector back on track, especially in terms of increased foreign presence. Merely quoting incorrect inflated investment figures reflects complacency. Pakistan can do well without it.