Despite contained sector profitability, there is one vivid and positive trend in the domestic oil and gas exploration and production sector—oil and gas companies, especially the national giants here at home seem to be jacking up their drilling efforts. Meanwhile, global producers have been scaling back on E&P investments in the past two years.
E&P firms across the globe have been under siege of multi-year low crude oil prices. And now with more than half of 2017 over, it seems that not much would change at the price front. These dynamics have been controlling the global investment in the sector with producers negotiating further production cuts. However, the E&P companies in the country have had a golden opportunity to turn things their way, and some of them have.
The national giants like Oil and Gas Development Company Limited (OGDCL) and Pakistan Petroleum Limited (PPL) that have high government stakes have been seen aggressive in the field. This was made possible because of lower service costs, which made exploration and drilling activity cheaper.
A look at OGDCL’s seismic activity shows that the firm has increased its 2D and 3D seismic survey. The five year CAGR for 2D seismic survey is around 29 percent, while the 3D seismic survey has a CAGR of 39 percent. Similarly, PPL has had record drilling activity with highest number of wells in the recent times.
The impact of the extended oil price downturn also has long-term effects on the industry’s capital allocation strategy. Bloomberg recently highlighted that while the domestic oil and gas exploration and production counterparts will continue to sustain, the international players might not stay back. This is because they are finding better and higher priority assets and are digging into projects with shorter lead times and shorter cycles. The Bloomberg news report highlights the venturing of the national E&P giants into areas that were once considered impossible due to improved security situation in Pakistan.
Where the sector is facing FDI related issues, domestic producers are expected to lift local production as they become more aggressive. Fuel oil production in the country improved by over three percent year-on-year in FY17 due to additional flows from developed fields and commissioning of new projects.
The listed E&P companies like OGDC, PPL, POL MPCL have had growth in production of over 10 percent year-on-year in FY17.