Settlement with E&P firms to help ramp up oil, gas output

Govt reaches out-of-court settlement for renewal of hydrocarbon exploration companies’ licences

ISLAMABAD:

Three hydrocarbon exploration and production (E&P) companies have reached an out-of-court settlement with the government of Pakistan under which their exploration licences will be renewed with the aim of boosting oil and gas production in the country.

The cabinet has approved the renewal of licences of 11 exploration blocks. Of these, Dewan Petroleum and Pakistan Exploration Limited (PEL) hold licences for five blocks each.

The government wanted to renew the licences in a bid to ramp up domestic oil and gas production to cope with higher international energy prices in the wake of Russia-Ukraine war.

Pakistan LNG Limited (PLL) has made efforts over the past one year to arrange imported gas supplies to bridge the domestic shortfall. It even floated a tender for gas purchase on a contract basis but no bidder turned up.

Owing to the failure of PLL, Pakistan’s public gas companies are rationing supplies by providing gas for only three times a day for preparing breakfast, lunch and dinner.

The objective of renewing the E&P licences is not only to attract investment in the oil and gas sector but also make efforts to discover fresh hydrocarbon reserves.

Sources told The Express Tribune that 10 out of the 11 blocks had been awarded to the E&P firms under the Petroleum Policy 2001 whereas one block was awarded under the 2009 policy.

These companies defaulted on obligations of Rs250 million to Rs300 million, but now they will have to meet these payment obligations after signing a framework agreement within three months.

The E&P companies will be offered gas price in line with the Petroleum Policy 2012 following signing of supplemental agreements with the government.

The Petroleum Division told the cabinet, in a recent meeting, that the government had granted exclusive petroleum exploration licences for an initial period of five years through a competitive bidding process.

Later, the licences were revoked when the companies failed to undertake the committed work programmes during the stipulated time period and did not meet financial obligations to meet the goals of social welfare, training, rent and production bonus.

However, the Civil Court of Islamabad and the Sindh High Court passed status quo orders for the 11 exploration blocks.

Cases were being pursued in the courts for early decisions. Litigant companies also approached the government, showing keen interest in exploration work.

According to officials, the litigation timeframe is always unpredictable and even if a case is decided at one forum, a higher forum is available (up to the Supreme Court) till a final decision is reached.

Hence, they said, the litigation may take a long time by engaging the parties to the contracts (exploration licences and petroleum concession agreements) in the process.

A framework for the renewal of revoked licences through an out-of-court settlement was submitted to the Economic Coordination Committee (ECC) of the cabinet for consideration and approval.

Subsequently, the Cabinet Division told the Petroleum Division to seek fresh approval of the prime minister as minister in charge of the Petroleum Division for submission of a summary to the cabinet.

Later, the framework was submitted to the cabinet for its consideration and approval.

During discussion, a cabinet member, while endorsing the proposal of the Petroleum Division, highlighted that the revival of licences through an out-of-court settlement would give a fresh fillip to the exploration activities, which had been dormant for various reasons.

Among these, a major factor was the global economic slowdown due to the Covid-19 pandemic.

The cabinet noted general consensus and support for the proposed renewal of exploration licences. It reviewed the summary titled “Revival of Revoked Petroleum Exploration Licences”, submitted by the Petroleum Division, and approved the proposal.

Published in The Express Tribune, December 16^th, 2022.

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