Pakistan Trying to Lure Investors to Upstream Sector

ISLAMABAD Jul 19, 2007 (Dow Jones Newswires)

Pakistan Wednesday removed a cap on the sale price of natural gas to attract much needed foreign investment in its upstream oil and gas sector, a senior government official said.

"The cap on the gas (sale price) has been removed," Ahmed Waqar, Secretary of the Ministry of Petroleum and Natural Resources said after a meeting of the Economic Coordination Committee of the Cabinet - the country's highest economic decision make body - approved a new petroleum policy.

The pricing policy, set in 2002, caps the price of gas from more than 90% of the country's fields at $36 a barrel crude oil equivalent, nearly half world prices.

"Pricing will now be linked to international oil rates, and a 0.5% to 2.8% increase in prices will apply if the average exceeds $45 a barrel," Waqar said.

Local and international exploration firms in Pakistan had long demanded an increase in the sale prices of natural gas and considered a cap as a hurdle in luring foreign investment in the oil and gas sector.

The new policy would apply to new government-backed gas purchase deals and those companies who are in commercial production won't benefit from the policy, Waqar said.

Analysts said new pricing formula would improve earnings of upstream oil and gas firms in the range of 18% and 52%, depending on the zone in which they are operating.

Waqar hopes that the country will now receive quality investment as the new policy has addressed most of the concerns of international investors on pricing issues.

"The new policy will also boost indigenous production and will reduce oil imports," he added.

There are around 25 exploration companies working in Pakistan, out of which 15 are foreign and 10 are local.

Despite a liberalization process that has seen a number of foreign firms invest in exploration and the production of hydrocarbons, Pakistan has struggled to increase domestic oil and gas production above the 65,000 barrels a day and 3.5 billion cubic feet a day, respectively. International firms had invested $479.6 million in the oil and gas exploration in the first 11 months of the last fiscal year that ended on June 30.

Pakistan's little over 3.7 billion cubic feet of natural gas a day production meets 50% of its total energy needs.

The government hopes the country will be producing 100,000 barrels of oil a day within five years and will almost double its gas output in the next six years to meet the energy demand of the growing economy. Copyright (c) 2007 Dow Jones & Company, Inc.