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The upstream oil and gas sector in Pakistan has been a constant contributor to the total foreign direct investment coming into the country. However, the share of the E&P sector in total FDI has been erratic and declining from an average of 34 percent between FY12-FY15 to 6 percent in FY18 and 13 percent in FY21.

While one would like to assume that the country’s reliance on fossil fuels has declined, key factors that have resulted in slowdown in investor interest have been the depleting oil and gas reserves and ageing fields amid rising demand. And though the domestic oil and gas exploration and production companies have kept themselves busy in the drilling and exploration activities, the foreign investment picture of the sector has become dull in recent years

Another key factor is the overall decline in FDI in the country. Foreign investment in the country has been struggle with some respite offered by CPEC. But now that the early harvest projects under CPEC are also complete, FDI has been failing to keep up. COVID pandemic also kept the local and foreign investors at bay. And then comes the most crucial factor: oil prices. The oil and gas E&P sector gains and loses its shine with the fluctuation in crude oil prices – especially in terms of investment in the sector. The last couple of years have seen significant swing in crude oil prices from record lows to record highs.

Overall, the sector’s profitability also defines the existing player’s investment and drilling activity. The listed sector’s performance in FY20 was substantially affected by 4QFY20, which coincided with the first three months of the coronavirus pandemic. Overall in FY20, the listed E&P sector saw its earnings decline which was brought by decline in overall revenues as well as other income that came down due to currency devaluation. In FY21, the listed sector’s revenues were flat and profitability posted improvement. And in 1HFY22, revenues were seen growing while profitability was primarily boosted with the reversal in crude oil prices as global economy started opening up and easing Covid restrictions. And also significant currency devaluation lifted annual earnings through other income. However, the sluggishness in volumetric sales continued due to weak production volumes of natural gas and only slight recovery in crude oil production.

While the earnings of the sector are back on an upward trajectory, FDI in the sector is sluggish for which the government must take steps to revisit the existing petroleum policy. In a bid to reverse the decline in production oil gas and oil, the government needs to take aggressive steps to attract and facilitate new exploration especially in security-hit areas.

Comments

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Ali Abdullah Mar 16, 2022 02:35pm
There is no such investment in the downstream sector either. It is like famine of interest from the government authorities. Even the equipment upgrade is at halt or very slow.
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