Gas exploration: Mari Petroleum willing to give up Rs9.9b reserves

Company, in return, seeks an increase in wellhead gas price.


Zafar Bhutta June 21, 2014
The company will undertake exploration, appraisal and development work in Mari and other fields with the help of its own resources. PHOTO: FILE

ISLAMABAD:


Mari Petroleum Company Limited (MPCL) has agreed to deposit Rs9.9 billion worth of reserves with the government by converting them into preference shares if the company is given an increase in gas price under the new proposed pricing formula.


According to a summary to be tabled before the Economic Coordination Committee (ECC) seeking approval of the new gas pricing formula for MPCL, an amount of Rs9 billion was appearing as un-distributable reserves in balance sheet of the company. This had been provided to meet the company’s capital expenditures and maintain debt ratios in terms of the gas pricing agreement.

“Though the company has claims over the reserves, it is willing to surrender the amount by converting it into non-voting non-cumulative preference share capital in favour of the government of Pakistan,” said the summary prepared by the Ministry of Petroleum and Natural Resources.

Apart from this, Rs0.9 billion was appearing in the reserves of the seismic unit, which would also form part of the preference share capital.



The ministry has negotiated with the company a formula linked to the crude oil price, similar to the mechanism agreed with Pakistan Petroleum Limited (PPL). This formula offers a wellhead gas price of $2.17 per million British thermal units (mmbtu) at the reference crude price of $110 per barrel, which will be gradually achieved in five years starting July 2014.

The current price is $0.73 per mmbtu compared to $2.6 per mmbtu and $6 per mmbtu offered under the 2001 and 2012 petroleum policies respectively.

According to the summary, the government will no more provide exploration funds valuing $40 million per annum, which is currently being provided.

The company will undertake exploration, appraisal and development work in Mari and other fields with the help of its own resources including revenues from other fields and will tackle all the associated risks. Revenues from other gas pricing agreements outside the Mari field will no more be credited to the company.

For the next 10 years, the company will give an undertaking that dividend distribution will continue to be in line with the present formula and profits will be reinvested in exploration and development activities in Mari as well as other fields.

“Since the revision in the pricing formula is proposed from July 2014, the entire balance in un-distributable and seismic unit reserves on June 30, 2014 will be transferred to non-voting preference share capital in favour of the government of Pakistan,” the petroleum ministry said.

The company’s proposal to redeem the preference share capital in 10 years in the form of cash payment to the government was also supported, the ministry added.

In 2001, the government had allowed the company to undertake exploration, appraisal and development work outside the Mari field with expenditures up to $20 million per annum or 30% of the annual gross sales revenue. This ceiling was enhanced to $40 million in January 2012.

Published in The Express Tribune, June 22nd, 2014.

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COMMENTS (1)

Shah | 7 years ago | Reply

$6 MMBTU Is A Bargain Compared to $18 mmbtu of Imported LNG.Our Gas Crisis Is Nothing More Than The Result of Flawed Policies

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