OGDC’s dormant fields: Centre moves to cancel gas allocation for Sindh

Province refuses to invest in fields, pay set wellhead price.

ISLAMABAD:

The central government has decided to cancel the gas allocation to Sindh from dormant fields of the Oil and Gas Development Company (OGDC), a move that will save the company from a loss of over Rs5 billion per annum.

“The Ministry of Petroleum and Natural Resources has sent a summary to the Economic Coordination Committee (ECC), asking it to withdraw its earlier decision of allocating gas to Sindh,” a ministry official said.

According to the new plan, OGDC will develop these fields and release gas into the system to meet the country’s requirements. The move came after Sindh and OGDC failed to finalise a gas sale agreement for dormant fields despite holding a series of meetings. As a result, OGDC did not hand over the fields to Sindh and sought wellhead price of hydrocarbon resources according to the petroleum concession agreement in light of ECC’s decision.

During the meetings, the Sindh information and finance ministers refused to make any investment to develop the dormant fields.

Earlier, the gas was allocated to Sindh in the early part of last year after the province claimed that it had first right over the fields located in the province after the 18th Constitution Amendment. Consequently, the OGDC cancelled its tender with bid opening scheduled for September 30, 2010.

ECC, in a meeting held in the last week of January 2011, decided that gas from dormant fields including Nur, Bagla, Jakhro and Sara West would be allocated to Sindh, or its designated entity, subject to the condition that OGDC would be paid the price according to the petroleum concession agreement.

ECC said the policy price for gas as well as products ie LPG and condensate would be applicable. Product disposal by the buyer would be in accordance with prevalent rules and regulations and all applicable taxes would be paid.

While allocating the gas, the ECC decided that Sindh would pay the wellhead price set in the petroleum concession agreement.

However, the ministry official said, Sindh refused to pay wellhead price according to the petroleum concession agreement and did not show any willingness to make investment. The province demanded that the fields should be handed over to it and asked OGDC to invest in developing the fields, but OGDC refused.

“If OGDC had accepted the price offered by Sindh, the company would have suffered a loss of over Rs5 billion,” the official said, adding the province wanted to pay only $1 per million British thermal units (mmbtu) against $4.02 per mmbtu set in the concession agreement.

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