The recovery in global oil price continued in 2017-18 as the glut in global oil supply gradually disappeared as a result of production adjustments from OPEC and non-OPEC nations under the ‘Declaration of Cooperation’. Oil price which averaged around $50 per barrel in 2016-17 touched $70 per barrel in 2017-18. The price is expected to remain stable during next 2-3 years due to increase in oil demand resulting from a strong world economy (mostly developing countries) and growth in demand for petrochemicals (mostly in USA, China and other developed countries). On the supply side, most of the increase in supply is expected to come from non-OPEC countries led by the US. Despite oil price stability, investment in the upstream sector has so far shown only modest signs of recovery from the lows of 2015-17.
In Pakistan, upstream sector remained quite active during the year although the much-awaited bidding round for new blocks remained elusive as before. 29 oil and gas exploration and production companies are working in Pakistan, out of which 11 are local. There have been quite a few discoveries of both oil and gas during the year but reserves replenishment remains quite low. Remaining recoverable gas reserves stand at about 20 TCF and oil reserves are at 344 million barrels. Indigenous production of natural gas has remained stagnant at 4 billion cubic feet per day for a few years and oil production has been fluctuating around 90,000 barrels per day. For oil and petroleum products, the Country has mainly remained dependent on imports since independence.
Natural gas contributes around 45 percent of Pakistan’s primary energy supply mix. There is growing shortage of natural gas due to increase in gas demand and depletion of existing gas fields. In addition to exploitation of indigenous resources, efforts have been made to mitigate the shortfall through import of LNG mainly from
Qatar. The LNG import has reached 7 million tons per annum.
Indigenous crude oil meets only 15 percent of the Country’s total requirement, while 85 percent requirement is met through imports of crude oil and refined petroleum products. The indigenous and imported crude is refined by six major and two small refineries in the Country.
The downward trajectory of the Country’s recoverable oil and gas reserves amid declining production volumes from maturing fields, projects a weaker outlook for indigenous oil and gas production in coming years. Most of the unexplored hydrocarbon potential in the Country remains in the frontier areas of KPK and Balochistan which are now opening out to cautious operations.
Key Sources of Uncertainty
The uncertainty in E&P operations emanates from multiple sources. Key sources of uncertainty for MPCL are as following:
- Crude oil price volatility
- Inherent risks in E&P business
- Security situation in areas of Company operations particularly in KPK and Balochistan
- Changes in Government policies concerning energy, petroleum and fertiliser sectors
- Regulatory issues
- Human errors and negligence
- Natural disasters and extreme weather conditions
Analysis of the Company’s Current Performance vis-à-vis Targets
Financial year 2017-18 has been the most prolific year with highest ever production rates and profits. The Company posted a strong financial and operational performance with all major performance parameters following a positive trajectory.
Core Activities: The Company made one new hydrocarbon discovery in its operated blocks and also completed one appraisal and one development well during the year. The new discovery and appraisal well resulted in expected reserves addition of 143 BCF against a target of 181 BCF.
The Company produced a total of 34.02 million barrels of oil equivalent (MMBOE) compared with 32.32 MMBOE of last year. The Company was able to further enhance incremental production from HRL Reservoir as planned. Total incremental production of gas reached 27,797 MMCF compared with 17,999 MMCF of last year. The Company was also able to commence production from Aqeeq-1 well in Sujawal Block as per plan.
A record number of 10 wells were planned for FY 2017-18, out of which 05 wells were drilled during the year, while drilling of 04 wells was in progress at the close of the year. One well was carried forward to 2018-19 for arranging drilling materials as the plan changed from vertical to a dual lateral well.
In line with the target of expansion of exploration acreage in four new/ existing blocks, the Company successfully acquired new/additional working interests in Bannu West, Block-28, Ghauri, Kalchas, Kohat Blocks and acquisition of working interest in Bela West is in progress.
Diversification: Work on setting-up of MPCL’s pilot Power Project is in progress. An LOI of Owners Engineer has been issued to M/s Fichtner in March 2018. A Kick-off meeting was formally held with the OE and a site visit was jointly conducted on May 31, 2018. The Company hopes to complete the feasibility study by September 2018.
In view of technical and commercial viability, carbon dioxide will be separated from the produced HRL gas through a new processing plant and then purified to good grade for sale to beverages industry. After inhouse evaluations, an independent third party consultant was hired to conduct the technical and commercial feasibility of the project. Consultant’s Report concluded that the project was technically and commercially viable. Final Investment Decision has been made and FEED study is in progress to commission the plant in the next fiscal year.
Financial: During the year, gross sales exceeded Rs. 100 billion for the first time in the history of MPCL. Gross sales surged to Rs. 100.04 billion from 96.78 billion in the last year. Similarly, net sales reached an unprecedented level of Rs. 40.68 billion from Rs. 28.18 billion in the last year. The impact of increase in net sales was reflected in net profit, which jumped by 68% to reach a whopping Rs. 15.37 billion compared with Rs. 9.14 billion of the last year. Earnings per share also increased from Rs. 82.87 to Rs. 139.45 and after payment of final dividend, total dividend to the shareholders will amount to 60% (Rs. 6.0 per share) for the year besides announcement of 10% bonus shares. As a result of prudent strategies stemming from cost consciousness, MPCL has emerged as the most cost effective E&P company in the Country with operating expenses at only 9.98% of the gross sales.
Market Share Information
|Product||Total Output||MPCL’s Output||MPCL’s Share|
|Oil & Condensate||16,286,766||399,023||2.4%|
Source: Pakistan Petroleum Information Service by LMKR on behalf of DGPC. Based on the data for Jan-Jun, 2018.
Internal Processes: The Company continuously improved its internal business processes and was able to successfully implement SAP Plant Maintenance System at MPCL operated fields. Moreover, 872 Management System Procedures (MSPs) pertaining to all departments were revised and updated. In order to enhance overall competency level of 70-80% of technical workforce, the Company has successfully implemented Competency Management System whereby gaps between competency levels will be identified and rectified to ensure that competent personnel are in place to operate and maintain facilities efficiently and effectively.
Stakeholders: The Company managed to bring down Total Recordable Case Frequency (TRCF) to 0.11 against the target of 0.45. It was the lowest-ever TRCF in the history of the MPCL. The Company spent Rs. 221.4 million on CSR Projects in Mari and other operated Fields/Blocks.