Introduction to Pakistan’s Upstream Sector

[dropcap font=”” size=”1″ background=”” color=”” circle=”0″ transparent=”0″]T[/dropcap]he first exploration well in the region that is now Pakistan was drilled in Mianwali, Punjab in 1887. The upstream E&P sector continued to discover fields until the promulgation of Mines and Oilfields and Mineral Development Act, 1948 came into effect. Following this, Pakistan Oilfields (POL) and Pakistan Petroleum Limited (PPL) were incorporated as local companies in 1950 which provided a much-needed stimulus to undertake more E&P activities. Discovery of Sui soon materialized in 1952 which consequently attracted the foreign players in Pakistan’s E&P segment which led to further discoveries in Uch, Kandhkot and Mari during the 1950s. In 1961, Oil and Gas Development Company Limited (OGDCL) was established as the national E&P company of Pakistan and led to the discovery of Qadirpur gas field in 1989. Today, Pakistan remains dependent on few of the large big fields with five of them providing over half of total recoverable reserves.

At present, in 2018, there are thirty-three active E&P companies in the country with foreign firms on equal footing. These operators carry out independent exploration activities as well as through joint ventures with Mari and OGDCL. OGDCL remains the dominant player in the segment with a 61% share in oil production and 23% in gas production.

The E&P upstream sector is subject to regulation by governments globally and Pakistan is no different. However, instead of the regulator, OGRA, regulating the upstream sector, it is the Director General Petroleum Concession’s (DGPC) office that works particularly with reference to the award of exploration and productions licenses and fields, the imposition of drilling specifications, controls over development and decommissioning of fields and, policies and sectoral development.

The Regulation of Mines and Oilfields and Mineral Development (Government Control) Act, 1948, was the first basic policy that governed the sector. Other complementary regulations, such as the Pakistan Petroleum (Exploration and Production) Rules, have also been introduced at various points in time. The ministry has also introduced various policies to promote private interest in the sector, with the first of those issued in 1991 and the most recent being the Petroleum Policy 2012. The latest revised policy of 2012 seeks to attract increased investment in the E&P sector in order to tap indigenous hydrocarbon resources by providing competitive incentives to local and foreign companies in the form of higher wellhead gas prices, along with a transparent and non-discriminatory licensing.

For the comfort of investors, exploration and production licenses and execution of Petroleum Concession Agreements and issuance of sovereign guarantees are carried out in the name of the President who is a symbol of Federation. The regime is a sophisticated regime giving investors’ confidence that their agreements are backed by none other than the Federation. For Production Sharing Agreements (PSA), the Government Holdings Private Limited (GHPL) holds title to all territorial waters and all the E&P companies come as sub-contractors to GHPL.

While the regulatory backdrop is improving for the upstream E&P sector, there are areas that could be further improved. For instance, the amount of documentation required at each stage for E&P activity is believed to be much higher than other countries and could be further simplified. An argument to move towards compliance-based regulation is often cited which simplifies the documentation processes and allows international companies to focus on their core activities rather than focusing and complying for the various paper work requirements asked at various stages of E&P activities by the DGPC’s office. Moreover, the strict regulatory control of the government over the sector has resulted in interference (since DGPC’s office is reportable to Secretary Petroleum) which has been the subject of criticism. In the future, simplification in procedures needs to be undertaken in order to attract more foreign investment in the sector.