Circular debt hits E&P companies

KARACHI: The rising circular debt has even hit the oil and gas exploration sector, where drilling activities dropped by 22 per cent during the first eight months of the current fiscal owing to the liquidity crunch, an official of the ministry of petroleum said on Wednesday.

Only 67 wells have been drilled so far, including carry-over wells, compared will 86 wells during the same period last year, said the official, requesting anonymity. He said if carry-over wells of the last year are excluded from this total, the number of new wells remains only 40 this fiscal — 11 wells lower than last year.

Oil and Gas Development Company (OGDCL), which covers 30 per cent of the country’s exploration area, drilled 27 wells as an operator, including carry-over wells, compared with 41 wells last year. Pakistan Petroleum (PPL) drilled only one development well as the company largely operates through joint ventures.

Currently, circular debt has risen to a whopping Rs250 billion to-date, said the official, who attended the Senate Standing Committee meeting on Finance. “Last year, the government issued term finance certificates worth Rs175 billion to resolve the circular debt issue and improve the financial health of the state-run companies,” he added by saying the issue remained unresolved.

During the last year, the combined receivables of the major listed companies OGDC, POL and PPL rose by around Rs24billion, he said.

Had this amount not withheld by the refineries and gas-marketing companies, these companies would have drilled 35-40 more wells, the official said. This is assuming — average daily appraisal/development cost of $30-35,000 and an average of 150 days to complete a well, officials say.

Farhan Mehmood, head of research at Topline Securities, said developing existing reserves remains as important as finding new hydrocarbon reserves. “Out of 50 development/appraisal wells targeted for FY10, companies drilled only 27 wells during the first eight months of this fiscal.

Last year, 37 wells were drilled during the same period,” he said. “On the exploration side, performance was at par relative to last year.” Industry sources said that poor law and order situation in parts of Pakistan, especially Balochistan and northern parts of the country, were also hampering new drillings.

Farhan, however, said persistent liquidity crunch, led by circular debt, has become a new factor to hit the drilling activity. During this period, eight oil & gas discoveries have been made compared with the five of last year.