Oil and Gas sector

Oil and Gas sector in Pakistan has seen phenomenal growth since the independence in 1947 when oil quantities produced were scarce. At that time there was no gas production. Over the past half century the petroleum industry has played a significant role in national development by making large indigenous gas discoveries. These sources are supplying gas to consumption centers through 10,667 kilometers transmission networks and 80,221 kilometers of distribution system. Pakistan meets about 100% of gas and 15% of oil demand from local sources.

  1. Policy Focus

Oil and Gas are major components of Pakistan’s energy mix meeting over 80% of energy needs (Fig.1) and therefore, successive Governments, since independence have attached high priority to this sector. The Governments have adopted consistent policies aimed at promoting foreign investment in upstream petroleum sector with the view to exploit indigenous hydrocarbon resources in an optimal manner for the benefit of the nation while providing adequate return to the investors.

Legal Framework

The upstream activities in the oil and gas sector are administered and regulated through the Directorate General of Petroleum Concessions (DGPC) of Policy Wing, Ministry of Petroleum and Natural Resources. Policy Wing has three more directorates namely, Directorate General of Gas (DG Gas), Directorate General of Oil (DG Oil) and Directorate General Special Projects (DGSP) to provide support to the Government in formulation of policies for midstream and downstream oil and gas sector. With the formation of Oil and Gas Regulatory Authority (OGRA), midstream and down-stream oil and gas sectors are regulated by OGRA.

After the passing of the 18th constitution amendment, The provinces have been granted 50 percent ownership of all Oil and Gas reserves in their province. Under Power Policy 2012, the provinces will have equal share as the federal government in granting leases/licences to E & P companies

Procedural and Regulatory Measures

ZONING

The country has been divided into zones based on their relative prospectivity and geological risk. Onshore areas are sub-divided in three zones; ZONE-I high risk – high cost areas, ZONE-II medium risk – high to medium cost areas and ZONE-III low risk-low cost areas. Offshore areas are also sub-divided in three zones; Shallow, Deep and Ultra Deep. (Fig. 9). Separate incentives have now been provided for the onshore and offshore areas of the country.

CONCESSION AWARDPROCESS

Onshore and Offshore E&Prights will be awarded via three distinct procedures:

  1. The granting of Petroleum Exploration Licences for entering into PCAor PSAin relation to onshore and offshore blocks offered through competitive bidding.
  2. The granting of Petroleum Exploration Licences for entering into PCAor PSAin relation to onshore and offshore blocks without competitive bidding to Strategic Partner Companies on Government to Government basis.

Gas Market

i) E&P companies under Petroleum Exploration & Production Policy 2009 are allowed to contract with Natural Gas transmission and distribution companies and third parties, other than residential and commercial consumers, for the sale of their share of Natural Gas in Pakistan at negotiated prices in accordance with applicable laws, rules and regulations.

ii) Subject to overall market demand, E&PCompanies may request andGOPwill purchase their share of pipeline specification gas through a nominated buyer which is effectively controlled by it in acceptable daily, monthly and yearly volumes to meet the internal demand in an economical manner provided there are no infrastructure constraints. The delivery point shall be at the field gate. GOP/gas buyer nominated by GOPshall pay the price for gas at the field gate as set out in this Policy.

iii) If the foreign E&P Companies sell Natural Gas to third parties in Pakistan and want to remit sale proceeds in foreign currency abroad, Government shall allow such E&P Companies to freely remit a “guaranteed percentage” of their sale proceeds. The “guaranteed percentage” shall be 75% of the total gross revenues from any Lease in Zone O, Zone I, 70% in Zone II and 65% in Zone III. The remaining gross income in Rupees can be used to pay royalties, taxes, windfall levy and any other payments to the Government as well as to meet local currency expenditures.

Onshore Package

The main features of the package for the three onshore zones which is available for all new awards to the E&PCompanies, are enumerated in the following paragraphs:

ROYALTIES

Royalty is payable @ 12.5% of the value of petroleum produced and saved at the field gate.

CORPORATE INCOME TAX

Corporate income tax is capped at 40% of profits and gains with royalty payments allowed as expense item.

PROSPECTIVITY ZONATION

Onshore area is divided into three prospectivity zones based on risk and investment as follows

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