Deal breaker: Exploration company denied promised wellhead gas price

OGRA calculated price at $3.8 per unit, but offered $2.5 to the explorer.

ISLAMABAD:

Top bureaucrats of the Oil and Gas Regulatory Authority (Ogra) and the petroleum ministry are discouraging oil and gas exploration companies from making investment in the country by denying wellhead gas prices according to petroleum concession agreements.

According to documents, senior officials of Ogra and the petroleum ministry have so far denied Dewan Petroleum and Austria’s OMV the wellhead gas price of $3.8 per million British thermal unit (mmbtu) according to the petroleum concession agreements.

According to a senior official of Ogra, more than one billion cubic feet of gas per day was discovered in three to four years under petroleum policies of 1994 and 1997, but after the 2001 policy the exploration activity had virtually stopped and only 83 mmcfd had been produced in 10 years.

In a letter to the petroleum ministry on February 6, 2008, Ogra said the wellhead gas price of Salsabil field, owned by Dewan Petroleum, had been calculated at $3.4091 per mmbtu, excluding 11 per cent discount as per petroleum concession agreement.

Ogra put the gross price at $3.8 per mmbtu, but the petroleum ministry asked it to set the price at $2.5 per mmbtu on provisional basis, though the ministry had no authority to advise Ogra according to the legal opinion of Attorney General of Pakistan given in September 2004.

According to the documents, though both Ogra and the ministry were convinced that the price should be $3.8 per mmbtu as per concession agreement, they deviated from their positions and set the price at $2.5 per mmbtu on the basis of Petroleum Policy 2001.

The documents say Ogra Senior Executive Director Finance Syed Jawad Naseem also computed the price at $3.46 per mmbtu, excluding 11 per cent discount in June 2008.

Naseem, in a letter to the petroleum ministry on May 19, 2008, said Dewan Petroleum had requested Ogra to issue the wellhead gas price for Salsabil in accordance with the Safed Koh concession agreement. “Your comments are solicited on an urgent basis. If no comments are received by May 31, 2008, Ogra will process the request of the company in accordance with the provision of the petroleum concession agreement.”

However, Ogra did not use its powers to determine and notify the gas price, which also deprived OMV of the actual wellhead gas price. Dewan and OMV were the only two companies that discovered gas out of 84 blocks awarded under the 2001 petroleum policy.

According to sources, Naseem concealed these facts at all forums that led to contempt charges from the Islamabad High Court.

Then director general gas, who comes under the petroleum ministry, in July 2006 also computed gas price at $3.89 per mmbtu on gross basis according to the concession agreement and gave another price of $2.82 per mmbtu according to the Petroleum Policy 2001.

He sought comments from the director general petroleum concession, who was the author of 2001 petroleum policy and was also instrumental in reaching the concession agreement. However, he refused to respond as he had no authority.

The DG gas had also no authority to calculate gas prices according to the legal opinion of the Attorney General, which clearly said Ogra was empowered to determine and notify wellhead gas prices for exploration companies.

Commenting on the matter, a senior official of the petroleum ministry told The Express Tribune that Dewan Petroleum had accepted the price of $2.5 per mmbtu in a business plan submitted to the director general petroleum concession.

“Had Dewan Petroleum sought more than $2.5 in the business plan, the ministry would not have entered the petroleum concession agreement,” he said, adding though the agreement signed between the company and the government was binding, Ogra was required to seek parameters from the petroleum ministry to notify the wellhead gas price.

“Now the petroleum ministry, following directives of the Supreme Court, will try to resolve the issue and reach an amicable settlement,” he added.

Ogra Member Gas Mansoor Muzaffar Ali, when contacted, voiced concern, saying he was kept in the dark relating to the decision of the authority which calculated the gas price at $3.8 per mmbtu on gross basis. At that time, Ali was heading a price committee on Dewan Petroleum.

Published in The Express Tribune, January 22^nd, 2012.