Importance of Engineering

Economics in Petroleum Field

Lecture 5
ROLE OF THE PETROLEUM ECONOMIST
To advise on the economic attractiveness of these
opportunities, taking into account the many
uncertainties regarding reservoir behavior, development
costs, future energy prices and relationships with
governments.

He will also be involved in some or all of the following

activities:
- Lease Bidding
- Selection of "best" option
- Reporting
- Unitization discussions
- Fiscal changes
- Contracts
 ECONOMIC ANALYSIS AND DECISION
MAKING

The primary objective of any business organization (oil and gas) is

not merely to produce goods and services (oil and gas) BUT rather
to make a profit – the maximum profit.

OTHERS
- Expansion in production capacity

- Increase in market share

- Diversification of activities

- Continuous survival of the organization

RELATIONSHIP WITH OTHER DISCIPLINES

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Pakistan Petroleum Policies
and Law Instructions
Contents

• Introduction
• History of Pakistan Petroleum Policy
• Pakistan Policy Objectives
• Pakistan Policy requirements
Introduction
• A petroleum policy is the set of high-level guidelines that a nation
decides on the basis for exploiting its petroleum resources. It should
point the direction for how, and how fast, the nation wants to exploit
resources and how to manage the sector.
• Given below is a policy pyramid by AUPEC (Abeerdeen University
Petroleum and Economic consultants).
History of Pakistan Petroleum Policy
• GOP introduced the first Petroleum Policy document in 1991. This was
then followed by new Petroleum Policies of 1993, 1994, 1997, 2001
and 2007 and 2009.
• Whenever a previous policy was replaced by a new policy documents,
the existing rights granted under licenses, Petroleum Concession
Agreements (PCAs) and Production Sharing Agreements (PSAs) were
not affected.
• The need to a new policy arise upon the identification of an
unresolved issue or problem in previous policy, external changes (e.g.
increase in the international energy prices) or by the management
direction.
History of Pakistan Petroleum Policy
• Pakistan’s average daily production of crude oil and gas in 2009-10
was 65,000 barrels and 4,063 million cubic feet, respectively.
• Pakistan’s indigenous oil and gas production meet around 53% of its
total energy requirements while other indigenous sources provide
19%. As a result around 27% of the country’s energy needs are
currently being met through imports.
 Pakistan Policy Objectives
The principal objectives are:
• To accelerate E&P activities in Pakistan with a view to achieve maximum
self sufficiency in energy by increasing oil and gas production.
• To promote direct foreign investment in Pakistan by increasing the
competitiveness of its terms of investment in the upstream sector.
• To promote the involvement of Pakistani oil and gas companies in the
country’s upstream investment opportunities.
• To train the Pakistani professionals in E&P sector to international
standards and create favorable conditions for their retaining within the
country.
• To promote increased E&P activity in the onshore frontier areas by
providing globally competitive incentives.
 Pakistan Policy Objectives
• To enable a more proactive management of resources through
establishment of a reorganized Directorate General of Petroleum
Concession (DGPC).
• To ensure the energy secure of the country by enhancing domestic
exploration.
• To decrease reliance on imported energy by providing additional
incentives to exploration and production companies for enhancing
indigenous production.
• To undertake exploitation of oil and gas resources in a socially,
economically and environmentally sustainable and responsible
manner.
 Pakistan Policy requirements
In order to achieve the objectives, it is necessary for the Policy to:
• Provide stimuli for increasing exploration and production investment by modifying current
contacting terms and incentives while taking into consideration the market conditions.
• Adopt licensing terms, conditions and processes to attract newcomers including oil and gas
majors and independents, National Oil Companies (NOCS), and Pakistani private
companies.
• Provide a balance between prices and incentives through the rationalization of the pricing
formula so as to suitably compensate exploration and production risk.
• Implement pro-active Policy management.
• Successfully align the Policy with GOP’s objective to achieve maximum self sufficiency in
domestic energy resources for the larger public good.
• Provide a transparent and non-discriminatory licensing and contracting system managed
by DGPC.
Contents

The 2012 Petroleum Policy of Pakistan

The 2012 Petroleum Policy of Pakistan

Outline of Policy.
The petroleum E&P policy of 2012 is based upon the
maintenance of two different types of agreements.
• For onshore operation, a system based upon a Petroleum
Concession Agreement (PCA)
• For offshore operation, a system based upon a Production
Sharing Agreement(PSA)
 The 2012 Petroleum Policy of Pakistan
The policy document is divided into six sections:
• Section I: Licensing process
• Section II: Exploration and Production Regimes
• Section III: regulatory Process and Obligations
• Section IV: Pricing and Incentives for Petroleum
Exploration & Production
• Section V: Implementation and Removal of Difficulties
• Section VI: Conversion to 2012 Policy
The 2012 Petroleum Policy of Pakistan
Section I: Licensing process
This section of the policy is divided into two main parts.
1. Companies entitlement to acquire petroleum right.
2. Licensing system
 The 2012 Petroleum Policy of Pakistan
Section I: Licensing process
1. Companies entitlement to acquire petroleum right.
In order to acquire the right the company will be required to
• Furnish the details as to the nature of and the principal place of business of the company,
the authorized, subscribed and paid-up capital of the company, the names and nationality
of the directors thereof and the names and holdings of the principal shareholders.
• All local and foreign companies presently operating in Pakistan will be eligible to acquire
petroleum rights.
• Foreign companies not operating in Pakistan but having operated concession in other
geographical areas of the world will also be eligible to acquire petroleum right subject to
demonstration of technical and financial capability.
• All companies having joined a consortia (association) of companies in a concession and
having gained at least three years of experience as a non-operator will be eligible to
become operator subject to demonstration of technical and financial capability.
 The 2012 Petroleum Policy of Pakistan
Section I: Licensing process
2. Licensing system
Four different type of E&P license will be available namely;
1. Reconnaissance(preliminary surveying or research) Permit
2. a) Petroleum Exploration License – Onshore
b) Development and Production Lease.
3. a) Petroleum Exploration License – offshore shallow water
b) Development and Production Lease.
4. a) Petroleum Exploration License – offshore deepwater and ultra deep water
b) Development and production lease.
Map of licensing zones:
For the purposes of petroleum licensing, Pakistan will continue to be
divided into three onshore and one offshore zones, on the basis of risk
and investment requirements.
The 2012 Petroleum Policy of Pakistan
Section II: Exploration and Production Regimes
This section highlights the two basic agreements that are PCA and PSA.
Onshore Petroleum Concession Agreement (PCA)
• The economic package for onshore licensing Zones I,II and III is detailed below and
will be included in a model PCA to be released in line with this Policy.
• Zone I: West Baluchistan, Pishin and Potowar Basins.
• Zone II: Kirthar, East Baluchistan, Punjab platform and Suleman Basins.
• Zone III: Lower Indus Basins.
• The onshore PCA will apply to all new licenses in onshore areas. The onshore fiscal
package contained in this Policy as applied to future awards will be reviewed from
time to time in the light of additional information and may be adjusted to maintain
international competitiveness.
Both the offshore Production Sharing Agreement (PSA) and Onshore
Petroleum Concession Agreement (PCA) includes the following economics
package:
1. Royalties, corporates tax and 10. Local employment, welfare and
windfall levy. training contribution.
2. Depreciation. 11. Exploration period.
3. Direct government participation. 12. Extended well testing.
4. Production sharing. 13. Retention period.
5. Cost limit. 14. Total lease term.
6. Profit oil and profit gas split. 15. Rentals.
7. Production bonuses. 16. Incentives for offshore discovery
8. Import duties and taxes. 17. Block system
9. Marine research and costal area 18. Policy of grant for lease after expiry
development fee. of lease term
The 2012 Petroleum Policy of Pakistan
Section III: regulatory Process and Obligations
• The regulatory process and obligation section is further
divided into 4 section to a give a better understanding and
specification of the policy’s obligation.
The section is subcategorized into;
1. Regulatory process.
2. Foreign exchange.
3. Assignment or transfer of interest.
4. Domestic supply obligation or gas allocation.
The 2012 Petroleum Policy of
Pakistan
Section IV: Pricing and Incentives for Petroleum Exploration
& Production
• Crude oil, Condensate and Liquefied Petroleum Gas (LPG) Pricing.
• Gas Pricing.
• Associated gas Pricing.
• Low BTU and shale gas Pricing.
• Tight gas Pricing.
• Extended well testing gas Pricing.
Apart from pricing this section also provides and explanation regarding the
calculation of royalty in case of sale of a gas to a third party.
The 2012 Petroleum Policy of
Pakistan
Section V: Implementation and Removal of Difficulties
Its one of the most important section of the Policy. Focuses on the
implementation of the policy, removal of difficulties, addressing of anomalies,
framework for institutional development and strengthening of the policy
wing. This achievable by calling of a committee which shall comprises of;
• Minister for Petroleum and Natural Resources (Chairman).
• Deputy Chairman Planning Commission (Member).
• Secretary, Finance Division (Member).
• Secretary, Petroleum and Natural Resources (Member).
• Provincial Nominees (Member).
• Director General Petroleum Concessions (Member).
THANK YOU