"The notorious circular debt along with heightened security concerns has forced the oil and gas exploration companies in Pakistan to curtail their exploration and development (E&D) activities," an analyst said. The drilling activity depicted a significant decline of 40 percent, as only 30 wells have been spudded during the nine months of FY11 against 50 wells in the same period last year.
Further bifurcation of the numbers reveals the gravity of the situation, as only seven exploratory well were drilled against 18 wells last year, with major activity conducted by one operator (MOL) in its two blocks. "The slowdown in the activity bodes negatively for country''s hydrocarbon reserve replacement and thus increasing country''s reliance on the exogenous resources", Nauman Khan, an analyst at Topline Securities said.
As per Pakistan Petroleum Information Services (PPIS), only 30 E&D wells were drilled in the nine months of FY11 achieving on 37 percent of the full year target of 80 wells. Last year during the same period they achieved 50 percent target by drilling 50 wells against the target of 100 wells.
"Even more daunting is that the activity has been skewed towards developmental activity rather than exploration of new reserves", he said. During the period under-review, only 7 exploratory wells (against a target of 29) have been drilled, with major activity concerted in two blocks Tal and Margalla by single operator MOL.
He said there were two major reasons for their underperformance. First is the unending circular debt, which has proven to be strained of cash position on the capital intensive E&P sector and second are the heightened security concerns particularly in rich hydrocarbon basins of Balochistan and KPK (Khyber Pakhtunkhwa). In the period under-review, no exploratory wells were drilled in Balochistan while, only two well even that in single block were drilled in KPK.
Amongst the listed companies, OGDC has drilled only one exploratory well against the target of 10 wells. PPL and POL did not drilled any new well of their own during the year, but are expected to benefit from its exploration activity of their JV partners.Out of seven exploratory wells drilled during the nine months of FY11, two discoveries have been made so far. The work on one well is being carried, while the residuals were either found dry or are currently suspended. "The said translate into success ratio of 28 percent, which is below our historical average of 33 percent", Nauman added.