Gas exploration: Mari Petroleum to receive higher price for new discoveries

Company’s new fields will be covered under the 2012 petroleum policy.

ISLAMABAD:

The federal government and provinces have agreed to offer a higher price under the 2012 petroleum policy to hydrocarbon exploration in new fields of Mari Petroleum Company Limited.

“A committee constituted under Clause V of Petroleum Policy 2012 has given approval for the new fields and there is no need to seek green signal from the Economic Coordination Committee (ECC),” a senior government official said while talking to The Express Tribune.

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The federal government had constituted the committee comprising deputy chairman of the Planning Commission, finance secretary and secretaries of energy ministries of the four provinces.

The Ministry of Petroleum and Natural Resources, in its summary, had also sought the ECC’s approval for covering new discoveries of Mari Petroleum under the 2012 petroleum policy to enable the company to get an attractive price.

Earlier, Mari had been working under the ‘cost plus return on equity’ formula, but the government scrapped it later in order to increase the wellhead gas price from $0.37 per million British thermal units (mmbtu) to $2.17 over the next five years.

According to a deal with other exploration companies, the government has offered a price of $4.1 per mmbtu for blocks awarded under the 2007 petroleum policy, $4.38 for blocks covered by the 2009 policy and $5.78 for contracts reached under the 2012 policy if crude oil price is $100 per barrel.

These prices are for the exploration blocks that have been shifted from the old to the new policies.

“The same package will now apply to Mari’s new discoveries,” the official said.

So far, the government has received 200 applications from exploration and production companies for an increase in wellhead prices for new discoveries in an effort to step up exploration activity, officials say.

To process the applications in a transparent manner, a model supplemental agreement has been designed in consultation with the finance and law divisions. So far, 94 applications have been processed while the remaining were being examined.

Gas prices will rise following the increase in wellhead prices for exploration companies. There are two ways to absorb the price rise. First, provinces could take a hit on their gas development surcharge collection and second, gas consumers could be forced to pay higher bills, a government official said.

The ECC, while approving the replacement of cost-plus formula with a new crude oil-indexed gas price formula in November 2014, provided Mari Petroleum a level playing field with all other exploration companies.

After the approval, a new gas pricing agreement was struck between the company and the government on July 29, 2015 under which the former was allowed the incentives given to existing leases under various policies including the 2012 petroleum policy.

The incentives given to existing leases under the tight, marginal, low btu, shale gas, the 2012 petroleum policy and any other policies issued from time to time will be equally applicable to production of such gas from the Mari field. Following this, the company exercised the option of shifting to the 2012 policy.



In Mari Petroleum, the government has a 20% stake, Oil and Gas Development Company has 20% shareholding, Fauji Foundation holds 40% shares and the general public has 20% shares.

Published in The Express Tribune, December 30^th, 2015.

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