Italian oil exploration firm mulls exit from Pakistan after 20 years

Italian firm faces dip in profit margins due to volatile oil prices since Covid outbreak

KARACHI: ENI, the Italian oil and exploration firm, is considering an exit from Pakistan after 20 years of its operations due to decline in profit margins associated with the volatile international oil prices since the coronavirus outbreak.

A company official confirmed to The Express Tribune that the firm’s assets are up for sale in Pakistan.

“ENI is looking to sell its upstream exploration and production business in Pakistan,” according to a document containing information related to the assets available for sale.

Earlier in February 2020, ENI and Pakistan Petroleum Limited (PPL) officials on behalf of the industry prepared and submitted a report to the government of Pakistan that proposed to provide incentives on oil and gas productions and suggested revision in policy for new drillings to discover a new deposit of hydrocarbons so that all the industrial players could stay in good profit margins.

“The government is yet to respond on the proposals and suggestions,” a source stated.

The document maintained that the ENI gas production has depleted to 19,000 bpd (barrels of oil equivalent per day) in 2019 compared to over 22,000 bpd in 2017. However, it further suggested that there is room for an increase in production as it maintained “solid track record of sustainable production at low operating cost.”

The company is required to acquire NOC (no objection certificate) from the Ministry of Energy to proceed with its plan of selling the assets.

An official at the Ministry of Energy (Petroleum Division), however, said ENI has not yet officially informed the director-general of petroleum concessions (DGPC) office or the ministry about the decision.

The ENI, in partnership with the US-firm ExxonMobil and two local partners OGDC and PPL, had conducted offshore drilling at Kekra-1 well in Karachi waters at the cost of around $100 million sometime in April 2019, but the well did not produce hydrocarbons.

The industry had proposed the incentives at the time when the Covid-19 had yet not depressed demand for hydrocarbons in Pakistan. The price of international benchmark crude oil - Brent - had still stood around $60 per barrel at the outset of February.

The outbreak of the coronavirus further hit profit margins of the explorations firms as demand, especially for oil, had depleted almost next to nil after the Pakistani government imposed lockdown to contain the virus late in March - that is yet to be fully lifted.

However, the demand has picked up again since farmers started harvesting wheat sometime in April in Sindh and later on in Punjab. Majority sectors of businesses have also resumed productions nationwide now.

Informed sources and energy experts speculated the company has decided to sell the assets following depletion in the production of gas from existing fields in the country while new exploration activities remained sluggish.

“The depletion has hit its (ENI) profit margins as price of the locally produced oil and gas supplies are associated with international oil prices which stayed volatile since coronavirus spread has badly hit the oil and gas demand not only in Pakistan but globally,” an expert said.

The plunge in global demand resulted in crashing the Brent price to negative $37 per barrel on futures counter sometime in April, as there was left almost no space at global reservoirs to save a single drop of the cheaply available oil. Brent is hovering now around $40 per barrel, around 50% less than its price at $60 in February.

ENI assets in Pakistan

ENI’s current production is centred on three operated and six non-operated producing assets.

“Producing assets are the operated Bhit, Badhra and Kadanwari assets and the associated processing facilities, and the non-operated Zamzama, Sawan, Latif, Miano, Tajjaland Mitha assets,” the document said.

“Assets have high-quality partners such as Ocean Pakistan (formerly BHP), UEG (formerly OMV), OGDCL, KUFPEC and PPL.”

New energy business comprises a 10MW photovoltaic plant developed near the Bhit gas field, which provides power to the upstream operations and contributes towards ENI Pakistan’s ESG agenda.

ENI business in Pakistan is organised under three legal entities; ENI Pakistan Limited, ENI AEP Limited and ENI Pakistan M Limited SARL, and its new energy business which is organised under ENI New Energy Pakistan (Private) Limited. 

Published in The Express Tribune, June 21^st, 2020.

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