E&P firms seek depletion allowance

Companies call on govt to waive 15% extra royalty on ageing fields

Zafar Bhutta May 08, 2024


Hydrocarbon exploration and production (E&P) companies have called on the government to grant a 15% depletion allowance on ageing fields rather than imposing an additional 15% wellhead value.

Sources told The Express tribune that oil and gas exploration companies insisted that the government should consider waiving the additional 15% wellhead value, ie, extra royalty other than the already imposed 12.5% fee, on old fields, which have passed the life span of 30 years.

Additionally, background discussions revealed that E&P firms underlined the need for doing away with the windfall levy on gas and condensate. Rather, they said, ageing fields should be given 15% depletion allowance.

Responding to a query, these companies said that the average cost of different artificial lift systems varied from $0.3 million to $0.9 million.

Price incentive with tax relaxation from the regulator will surely confirm the economic viability of brown fields with a significant natural declining trend and help expedite the application of optimisation techniques, which require considerable capital and operational expenditure, they said.

Sources in the Petroleum Division said that Oil and Gas Development Company Limited (OGDCL) was taking the lead in ramping up hydrocarbon exploration on its own risk by investing millions of dollars. The company is working on different fields, where prospects of discovering fresh reserves seem bright.

According to officials, Zin gas field is a valuable asset for OGDCL, which has significant reserves and production potential up to one trillion cubic feet and 100 million cubic feet of gas per day (mmcfd), respectively.

However, challenges in Balochistan, particularly security and socio-political issues, could pose hurdles in the way of its development and monetisation.

Despite these obstacles, OGDCL is determined to proceed with the development and monetisation of Zin gas field.

Additionally, engaging in talks with interested buyers demonstrates the commitment to monetising the field as quickly as possible, which will help capitalise on the current market conditions and fulfill contractual obligations, officials said.

In Kohlu block, OGDCL is the operator with 40% shares and it has 5% carry-forward shares in Block 28 where the recent discovery of Maiwand X1, made by Mari Petroleum, opens a new horizon for tapping the hydrocarbon potential in the area.

OGDCL has planned to accelerate its exploratory efforts. In financial year 2024-25, the company is expected to drill 10 exploratory wells, which will be increased to 12 and 14 in subsequent years.

OGDCL is targeting its 20 major fields for enhancing production, primarily in north and south zones. These fields include 14 oil fields namely Kunnar, Tando Alam, Pasakhi, Sono, Lashari Centre, Thora, Rajian, Kal Palli, Chak Naurang, Fim Kassar, Missa Keswal, Mela and Toot, and six gas and condensate fields namely Chanda, Nashpa, Qadirpur, Kunnar Pasakhi Deep – Tando Allah Yar, Sinjhoro and Bettani.

OGDCL anticipates that its current production of 34,000 barrels per day of oil will jump up to 50,000 barrels per day over the next three to four years. To achieve this, it is planning to shift more than 15 oil wells on to suitable artificial lift systems.

Moreover, three to five “infill wells” will be drilled to maintain their production and drain attic oil. Pressure maintenance projects have also been initiated and their execution will start from FY25.

With these activities, raw gas production will rise up to 1.4 billion cubic feet in the next five to six years by developing low British thermal unit (BTU) fields like Zin and Sara West, and discoveries in high security risk areas like Jandran, Laki Rud and Kalerishum. It will also include production through exploratory efforts during the given time frame.

At present, all E&P companies are facing the challenge of finding larger oil and gas deposits in the country and adding enough new reserves to offset the natural decline in the remaining reserves.

Among major E&P firms, OGDCL is making efforts to enhance production in the long run through expediting the completion of ongoing development projects.

State-of-the-art technology which OGDCL has planned to deploy in its fields is already being used by E&P companies worldwide. Some of these have already been adopted by the company and now they are being modernised and installed on a fast-track.

Published in The Express Tribune, May 8th, 2024.

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