Oil and gas discoveries by exploration and production (E&P) companies have become more frequent of late, but we have yet to see them translating into something meaningful.

The Oil and Gas Devel­opment Company Ltd (OGDC) announced last week that its drill test in a Tando Allah Yar field tested 1,400 barrels of oil per day (bpd) and 5.02 million cubic feet of gas per day (mmcfd).

It was followed by Mari Petroleum Company Ltd (MPCL), which announced the discovery of gas and condensate in North Waziristan with a flow of 50mmcfd and 300bpd, respectively.

But how meaningful are these numbers in the larger context? Apparently, not a lot. Despite small discoveries here and there, the country’s oil and gas production has remained in consistent decline.

According to the latest Energy Year Book published by the Ministry of Energy, the average production of crude went down for five years by an annual average of four per cent to 76,739bpd in 2019-20. Similarly, natural gas production has been decreasing for five years at an annualised rate of 2.2pc. It was 3,597mmcfd in 2019-20.

“Our discovery size is very small compared with the international standard. We had a few big discoveries like Sui and Mari back in the 1950s, but there’s been nothing significant since then. Even Qadirpur (in Sindh) is mid-sized,” said Muhammad Azfer Naseem, CEO of Alpha Capital Ltd, a Karachi-based brokerage and advisory firm.

This is despite the fact that the country has a drilling success rate that’s notably higher than the international average. Every third drilling is successful here versus one-in-five internationally. “We have a better success rate, but our challenge is the small size of discoveries,” he added.

No wonder our overall reserve replenishment ratio is less than 100pc. It means the country is failing to replenish its reserves at the same speed that it’s consuming them.

Data compiled by AKD Securities shows oil reserves held by Pakistan Petroleum Ltd (PPL), OGDC and Pakistan Oilfields Ltd (POL) went down 24pc, 14pc and 28pc, respectively, on an annual basis. Only MPCL showed a 7pc increase in its oil reserves.

As for gas reserves, OGDC, MPCL and POL reported an annual decline of 4pc, 4pc and 5pc, respectively. Only PPL managed to increase its gas reserves by 1pc year-on-year.

As a result, the country’s total hydrocarbon reserves have a life of 15 years.

The average size of discoveries is expected to go down further with the passage of time. The most attractive prospects within a new field are always drilled first in the hope of a big discovery. Accordingly, the discovery size tends to go down as the drilling density goes up.

It’s unsurprising then that many foreign E&Ps have exited the Pakistani market altogether in recent years. Italian oil company Eni sold its E&P assets to a local player last year. BHP of Australia and OMV of Austria also divested their assets a few years ago.

“The political risk is on the higher side. Currency volatility and poor international standing also come into play. Pakistan’s E&P opportunity set isn’t that impressive,” said Mr Naseem.

So who’s to blame for the poor state of E&P in Pakistan: nature or bad governance? He says both are equally responsible. Citing the example of Kekra, a field located near Iran, he said the prospects seemed so good that E&P companies went all in, committing as much as $140 million, or more than Rs28 billion at the current exchange rate. But they found nothing there. The supposedly huge reserves accumulated over hundreds of thousands of years had already slipped away in the intervening period.

To rebuild the discovery size, E&Ps need a “game-changing event,” which can possibly be an accidental breakthrough that improves the existing set of geological information. Secondly, E&Ps can come across reserves of unconventional fossil fuels like tight and shale gas if they combine their efforts and dig a larger number of wells to ensure critical mass — an unlikely scenario since most energy players are red-tape-ridden, state-owned entities.

Lastly, a game changer may emerge from the unexplored frontier basin. The largest province of Pakistan in terms of area has an extremely low drilling density, thanks to poor law and order and a lack of road and pipeline infrastructure. Analysts see the recent discovery of gas in Margand promising, with production possibly going up from 30mmcfd to 250mmcfd if the field is developed properly.

“We’re getting some discoveries in the Bolan and Margand fields of Balochistan. There’s hope we’ll start understanding this basin a lot better if the pace of discoveries continues,” he said.

Published in Dawn, June 30th, 2022