Pakistan Oil & Gas to Spend $1 Billion on Exploration, CEO Says

By Khaliq Ahmed and Farhan Sharif for Bloomberg

Oil & Gas Development Co., Pakistan’s biggest fuels explorer, plans to spend a record $1 billion this year to drill 48 new wells and increase production, to help bridge the nation’s record energy deficit.

“We are following a very aggressive exploration policy,” Chief Executive Shah Mehboob Alam said in an interview at his office in Islamabad yesterday. “We are targeting a number of discoveries.”

Improved domestic energy supplies may help Pakistan’s economy which has been hurt by terrorism and falling foreign investment. Demand for energy is three times supply and daily power outages have forced textile and engineering factories to close and caused riots across the country.

“There is a huge need and also huge potential to increase production by explorers,” said Umer Ayaz, a research analyst at JS Global Capital Ltd. in Karachi. “Pakistan has unusual risks in exploration and also unusually high potential.” A “sizeable” discovery in the northwest will be announced in “a couple of days,” Alam said, without giving details.

Shares of Oil & Gas Development rose 2.8 percent to 149.56 rupees on the Karachi Stock Exchange yesterday, the highest since Oct. 30, 2006. The stock has gained 35 percent this year compared with an 8 percent increase in the benchmark index. Oil & Gas plans to expand exploration in the western province of Baluchistan, where attacks on pipelines and installations have disrupted gas supplies, Alam said. The province is estimated to hold more than half the country’s gas reserves.

The company expects the Zin Block in Baluchistan to generate its first gas flows within two years. The block has estimated gas reserves of 10 trillion cubic feet and drilling is scheduled to start as soon as the government approves security plans within the next two weeks, he said.

“We drilled only five out a planned 15 wells in Baluchistan last year because of security issues,” he said. “Now, we have submitted a plan to the Finance Ministry under which the Frontier Corp. will raise a special force of 500 to 600 people.” Baluch nationalists want political autonomy and a share of the resources in the province, where the country’s largest gas fields, including Sui, are located. The Frontier Corp. is part of Pakistan’s paramilitary force.

The company is also working in fields in western Baluchistan, including the Samandar field, west of Karachi, and Shahana, which is near the border with Iran, Alam said. Oil & Gas will invite bids today for the development of Kunar Pasakhi Deep and Tando Allah Yar fields in the southern province of Sindh, Alam said. Previously awarded tenders had been canceled after being challenged in court for not complying with regulatory procedures. The two fields may produce 280 million cubic feet of gas a day, 360 metric tons of liquefied petroleum gas a day and 4,300 barrels of oil a day, Alam said.

The company drilled 26 wells and made six discoveries in the year ended June 30, including at Nashpa in the northwest, which is producing 15 million cubic feet a day of gas and 4,700 barrels of oil a day, he said. Oil & Gas Development discovers fuel in one out of every 2.3 wells drilled, compared with an industry average of one in every 3.8, he said.

Oil & Gas Development will increase production after installing new compressors to plug leaks at the Qadirpur gas field by September, Alam said. The company plans to buy two new rigs this year. The Qadirpur field in the southern province of Sindh contributes about 40 percent of the company’s total gas output.

Oil & Gas Development produces about 1 billion cubic feet of gas a day, or a quarter of the country’s total output. Its oil production is 60 percent of the nation’s total of 62,000 barrels a day. Pakistan imports 85 percent of its oil needs. The company’s profit in the 12 months ended June 30, will be “higher than last year,” Alam said, without giving details. Oil & Gas reported a net profit of 55.5 billion rupees ($647 million) in the year ended June 30, 2009, according to data compiled by Bloomberg.

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