Production inertia

Stocks of the domestic exploration and production companies are usually the volume leaders, but little of their performance at the bourse has to do with their production stats. The domestic oil and gas exploration and production sector might look busy in drilling and prospecting activity – FY19 was one active year - the bottomline is that the production volumes have been in a state of indolence for a long time.

Monthly crude oil average production has been on a decline while gas production volumes that averaged around 4 billion cubic feet per day for long have also started to topple since the beginning of 2019. Crude oil production for 1HFY20 averaged around 80,000 barrels of oil per day, which is 9 percent lower than 88,818 BPD in 1HFY19.  Natural gas average production stood at only 3.6 BCFD in 1HFY20 versus almost 4 BCFD in 1HFY19.  These contractions in domestic productions are met with crude oil, petroleum products and RLNG imports so much so that around 80 percent of these are imported today.

Streaks of narcissism are seen here too as the sector boasts a success ratio of 1:2.9 versus a global success ratio of 1:10. However, what is categorized as success is often criticized for its sheer size as there is no set standard for what amount of a discovery is considered a success. Moreover, the country’s drilling density is historically very low at around one well per 1000 sq. km versus the global average of 10 wells.

Natural gas production has significantly remained static for years due to depleting conventional fields, whereas decline has been propelled due to no significant or sizable find to compensate for the contraction. Crude oil that saw some traction from some discoveries too has come down on the slippery downward slope. Where the latest petroleum policy is considered the most incentivizing, but the practice of applicability of the policy at the time of the discovery makes the older fields less lucrative. Yet these are bigger fields producing a significant chunk of total gas.

And despite a relatively attractive petroleum policy and high - equity returns, FDI in the sector has also seen going south. In the last bidding round held in late 2018, little to no interest was shown by the foreign companies. Where security and law and order situation has played its role in keeping investors at bay – especially in KPK and the unexplored Balochistan basin – falling number of discoveries, smaller discoveries, and declining reserves has made little sense for taking bigger risks in riskier fields – unless further incentivized. Most accessible fields have been exhausted while those the that are perceived to have significant recoverable reserves are those that are in the riskier areas of Balochistan and KPK.