ISLAMABAD: The Centre and Balochistan on Friday signed an agreement to extend for another 10 years the lease of Sui gas field at a higher price.

The previous 30-year lease had expired on May 30, 2015, and was provisionally extended for one year. Under a vague cost plus formula, the gas wellhead price for the field was around $1.50 per unit (mmBtu) that always attracted criticism from the people of Balochistan.

That price formula was not acceptable to the then provincial government because newer gas fields in Sindh and Khyber Pakhtunkhwa were linked to international oil prices, translating into $3-4 per mmBtu. As if that was not enough, the latest petroleum exploration and production policy of 2012 raised wellhead gas price to as high as $6 per mmBtu.

In the meanwhile, the gas production continued to decline from Sui field, coming down from around 900mmcfd a decade ago to an average of 430mmcfd as of March 2016. The operator PPL wanted an extended programme for deep drilling with higher investments to beef up production or at least sustain existing supplies.

The new lease agreement envisaged 55 per cent price of Petroleum Exploration and Production Policy-2012 to Balochistan government for Sui field. Balochistan would now get about $3.30 per unit (mmBtu) for future gas production from Sui as against $1.50 per unit.

Balochistan will now get about $3.30 per unit for future gas production from the field as against $1.50 per unit

According to a Balochistan government official, the provincial government expected enhanced revenues from Sui field at the rate of Rs7.5 billion per annum for 10 years.

A central government official, however, said this number was hypothetical and based on hopes of PPL’s successful output enhancement programme. He said provincial revenues would depend on international oil prices and gas output but are expected to increase by Rs2 billion per annum.

A petroleum ministry official said the formal agreement for 10-year extension was signed by secretary of petroleum Arshad Mirza on behalf of the federal government, Balochistan chief secretary Saifullah Chatta and PPL managing director Wamiq Bukhari. Federal Minister for Petroleum Shahid Khaqan Abbasi and Balochistan Chief Minister Sanaullah Zehri witnessed the signing of the accord.

“Under the agreement, the wellhead price of Sui Development and Production Lease shall be fixed at 55pc of Petroleum Exploration and Production Policy-2012,” said a brief statement issued by the petroleum ministry. In addition, PPL will pay 10pc wellhead value to Government of Balochistan as lease extension bonus, it added.

The statement said the agreement will entitle Balochistan government to enhanced royalty, scholarships and jobs. Other obligations, such as production bonus, employment and social security will also be applicable.

The PPL will invest Rs20 billion on exploration activities in Balochistan under its normal exploration programme under which it recently acquired through bidding a series of fresh exploration blocks.

PPL would continue supply of free of cost natural gas to Sui Town, provision of jobs to local people at Sui gas field and facilities in connection with health, education and others.

PPL — then owned by UK’s Bermah Oil Company — had acquired a 30-year lease of Sui gas field in 1954, which was renewed for another 30 years in 1984.

Published in Dawn, May 21st, 2016