Iraq venture: Chinese firm backs out; PPL to proceed alone

Ministry still going to seek approval today from Economic Coordination Committee to proceed with the project.

ISLAMABAD:

Chinese firm Zhenhua has decided not to partner with Pakistan Petroleum Limited and invest in Iraq due to security issues, The Express Tribune has learnt.

Despite the development, the petroleum ministry is still going to seeking approval from the Economic Coordination Committee (ECC) of the Cabinet today (Tuesday) to proceed with the project.

The country’s second largest oil and gas explorer PPL and Zhenhua of China had entered into a joint venture to participate in Iraq’s fourth licencing round for exploration blocks and were expected to make an investment of $200 million if their bid would have been accepted.

PPL would have had 49% stake and Zhenhua 51% share, according to the initial agreement. Zhenhua also had the right to increase its share up to 70%.

“PPL is still in favour of investing in Iraq despite its partner walking away,” officials said while adding that Pakistan is safer and offers an attractive $6.6 per Million British Thermal Unit (MMBTU) in the new petroleum policy.

Pakistan Petroleum Limited (PPL) has made a huge investment in Yemen that is stuck due to poor law and order situation, official said adding that the state-owned explorer is likely to face a similar fate in war-torn Iraq.

To strengthen its case, state-owned PPL in a document submitted to ECC mentioned that some initial studies including base modelling had been completed in Yemen. “Geological field work and seismic acquisition are planned to start as soon as security situation becomes favourable,” PPL said.

Although Block 29 of Yemen falls in a high-risk area, exploration work in nearby areas suggest encouraging results, it said.

PPL has a 43.75% participating interest and is a non-operating partner with OMV of Austria in Block 29. Initially, the Block has been given for exploration for four years effective March 17, 2009.

PPL did, however, mention that all activities in Yemen were currently on hold as operating and service companies had left the country and were waiting for improvement in the security situation before resuming operations.

For the Yemen venture, PPL and OMV signed an agreement in April 2008. Later, in violation of laid-down criteria, the petroleum ministry sought approval of ECC on March 27, 2009 for a $17.5 million investment. Though ECC gave the go-ahead but asked the ministry to seek prior approval before entering into any agreement in the future.

“This is why the ministry is seeking approval from the ECC, which is meeting on Tuesday, before committing the investment,” a source said, adding that PPL was making a huge investment in two blocks only.

In a bid to step up exploration work, the government has planned to announce bidding schedule for 36 blocks following settlement of issues that arose after the 18th Amendment which gave provinces rights over natural resources.

An attractive price of $6 to $8.75 per mmbtu has also been approved for exploration of gas.

These incentives are being given to stimulate foreign investment in exploration activity but PPL’s shift in focus to Iraq is rather surprising,” a government official said, adding that PPL needed to accelerate exploration at home as production at its major field in Sui was declining rapidly.

Ministry of Petroleum is also seeking approval of fortnightly oil prices revision amid strong opposition from Oil and Gas Regulatory Authority (Ogra). The regulator argues that oil giants will reap benefits at the cost of consumers. The committee headed by Minister Water and Power Syed Naveed Qamar has supported the proposal.

Published in The Express Tribune, May 15^th, 2012.