Moving into deep waters

While the foreign investment side has remained slow for the oil and gas exploration and production sector in Pakistan (Also read: “E&P sector foreign investment – lukewarm”, published on March 13, 2018),

local activity in the country has been sanguine. Oil and gas drilling and exploration activity in the country picked up noticeably in the last few years, which came primarily due to low oil price environment; E&P companies around the world including the giants in Pakistan have been investing in exploration and prospecting activities in that low cost era to reap benefits of higher profitability now – in increasing oil price environment. And with depleting old and conventional fields, the state-owned players have been specially focusing on those “wildcat areas” where security situation has not let firms enter previously.

While going into these high-risk areas in definitely a good sign for the sector, the situation also opens up space for other untapped areas like offshore drilling. Though Pakistan has two offshore regions, offshore drilling largely remains unexplored and challenging in the country to date. On the contrary, the world is focusing on offshore drilling much more today now that the oil prices are buckling up. A quarter of the world’s oil supply comes from offshore, and the global companies are now incurring lower costs with simplified processes and systems in offshore drilling.

There are 2 offshore basins in the country: Indus and Makran, both holding acknowledged potential. At present, Government Holdings Pakistan Limited has Production Sharing Agreements (PSAs) in around 16-17 offshore licenses with firms like Eni, OGDCL, PPL, UEPL etc. in the Indus basin, while the Makran basin is less explored. OGDCL has two operated offshore exploration licenses while three non-operated licenses. PPL has three offshore leases operated by joint venture partners. ENI – the unlisted E&P player also has PSAs in the offshore basins. And in a recent positive development, Exxon Mobil – the US energy giant has entered the country’s E&P sector with 25 percent stake in the offshore drilling, which has brought down the 33 percent share of OGDCL, PPL and ENI each to 25 percent each.

The entry of a US energy giant will surely open up opportunities for the local sector. Amid very optimistic recoverable offshore reserves as estimated by various international organisations, however, much facilitation is still needed to bolster this side of exploration and production. There is a need to revisit the policy and the regulatory side to attract foreign investment as this is a much more capital intensive field than onshore exploration and production of oil and gas.