Exploration firms resist changes to petroleum policy

Warn policy amendments will hurt investment, lead to a legal battle

ISLAMABAD: The Ministry of Petroleum and oil and gas exploration companies are locked in a tug of war over the amendments proposed to be made in the Petroleum Policy 2012 as the industry terms the move an open threat to investments and a deliberate attempt to stall hydrocarbon search in the country.

The industry has also warned that the proposed amendments to the petroleum policy may spark a legal battle.

According to officials aware of the development, the oil and gas exploration companies have called the amendments proposed by the petroleum ministry a breach of the recently executed supplemental agreements.



The ministry had suggested that if the holders of working interest in exploration blocks failed to amend the supplemental agreements, they would not remain eligible for the gas price incentive.

In response, the industry warned that any attempt to amend the agreements unilaterally was likely to be blocked by courts.

The ministry also proposed the imposition of a windfall levy on the investors that were waiting for the government to process their supplemental agreements.

However, the Pakistan Petroleum Exploration and Production Companies Association, a body of oil and gas exploration firms, countered that the move would be discriminatory and it was also likely to be challenged in courts.

The association cautioned that proposed amendments to the petroleum policy would severely infringe on the rights of companies that had already made substantial investments by reposing trust in the current policy regime.

According to the proposals, all pending applications of exploration firms must be re-submitted along with a revised field development plan. And there will be no incentive for field development without approval of the development plan.



However, seeking approval of the Directorate General of Petroleum Concessions of the Ministry of Petroleum will take time.

The objective of the Petroleum Policy 2012 is to accelerate exploration and production activities and promote foreign direct investment in the sector. Frequent retrospective changes to the policy have caused an uncertain environment and will push investors to question the reliability of government policies and the agreements signed under them.

The oil and gas industry pointed out that for the exploration of hydrocarbons their investment decisions were based on a project’s lifecycle and retrospective policy changes would hurt capital flow into the exploration work.

“The proposals are also contrary to the government’s commitment in Section 12 of the petroleum policy that states that any changes in terms of the policy will not affect any rights that may have previously accrued under the policy,” the association said, adding the amendments would create an uncertain environment and shatter investor confidence.

“We fear that a perception will be created in the industry that the government is making a deliberate attempt to stall local exploration and production activity,” the association said.

Published in The Express Tribune, October 19^th, 2016.

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