OGDC likely to give up rights in two exploration areas

ISLAMABAD: Amid rising oil and gas shortage in the country, the state-owned Oil and Gas Development Company Limited (OGDCL) is likely to partially give up its exploration rights in two prospective oil and gas areas of Sindh and Balochistan under unusual circumstances, sources told Dawn on Friday.
 
The sources said the company would take a final decision at a meeting next week of its board of directors about giving up of Sari South exploration rights in Sindh and partial transfer of ownership and operatorship of the Zin block in Balochistan to a private company.


The government’s estimates indicate a serious gas shortage in the next few years which could lead to critical energy shortfalls unless the supply is augmented by two billion cubic feet per day (bcfd).

The country’s current gas production is about 4.2bcfd and the unmet constrained demand in excess of 1bcfd.
The government also concedes that the most preferable option is to accelerate gas exploration activities, rather than relying on gas import through pipelines and liquefied natural gas. Geological data indicate that the potential of finding large-scale gas deposits is either offshore or in the Balochistan region, which has mostly remained unexplored for two decades.

The sources said that OGDCL had decided to farm out major shareholding in the Zin block exploration licence -- one of the most prospective areas -- to a local private company because the security situation did not allow it to go into the Marri-Bugti area for almost a decade.

Documents available with Dawn suggest that Zin is considered to be the highly prospective block as it is hemmed in by major gas discoveries. A major discovery in the area can significantly change the energy outlook of the country.

The government has criticised OGDCL for lack of progress in the area and threatened to terminate its licence. OGDCL says that conventional approach of farming out Marri-Bugti exploration blocks to foreign companies could not materialise because of the security situation in Balochistan. It has decided to adopt a non-routine solution of negotiated transfer of major shareholding and operatorship to Pakistan Exploration Limited (PEL) which claims to have “necessary contacts” in the area and is in a position to carry out unhindered exploration in the Zin block. While some interested exploration companies have called for an open bidding, PEL has demanded a negotiated transfer of 51 per cent share of OGDCL’s working interest, along with operatorship. OGDCL, the sources said, wanted to transfer 25 per cent share and operatorship to PEL, along with sharing of expenses already made, signature bonus of $5 million and security responsibility.

The OGDCL also wants the private partner to have legal agreements in place to ensure early drilling and exploration activities at the risk of the party farming in so that in case of failure, OGDCL can take appropriate action and find another company to pursue further activities.

The corporation’s spokesman, Basharat Mirza, said the company could not make any progress in the Zin block because of the security situation in the Marri-Bugti area, although aerial surveys indicated “very good prospects” in the area.

He said that OGDCL had discussed the option of farming out the area with PEL, but no commitment had been made so far. He said the issue would be decided by the company’s board of directors.

Official documents suggest that OGDCL has almost decided to get out of its work commitment for exploration at the Sari South block in Sindh because of “lack of potential”. However, its joint venture partner, Saif Energy Limited, would continue exploration work in the area.

The OGDCL, with a 50 per cent working interest in the Sari South block, and Austria’s OMV with 20 per cent interest, have concluded, on the basis of drilling data, that further expenditure on the block is not commercially viable.

Based on the same data, Saif Energy Limited, owned by the Saifullah family of the NWFP, wants to continue with further exploration and drilling activities.

Under the rules, OGDCL and OMV are required to pay the remaining part of the investment commitment to the government as liquidity damages. OMV has already paid its part to the government.

Interestingly, OGDCL is ready to pay the remaining amount, but is under pressure from the Ministry of Petroleum and Natural Resources to pay $1.5 million to Saif Energy, instead of depositing the amount in the national kitty.

The sources said that OGDCL had held a number of meetings, including at the level of board of directors, but was unconvinced that it could legally pay $1.5 million to the joint venture partner.

The OGDCL spokesman said the issue would be decided by the director general of petroleum concession of the petroleum ministry, and after that the OGDCL board would take up the matter of final payment to either the government or the private operator.