Govt promises new offshore prospects to oil companies as Eni signals pullout
Statesman Report
KARACHI: As Italian oil and gas giant Eni prepares to wind down its upstream operations in Pakistan, top government officials said they hoped the company would reconsider the decision as more offshore exploration blocks were likely to be offered once the coronavirus crisis eases.
According to a document seen by Arab News, Eni last week nominated British multinational investment bank and financial services company Barclays as the transaction adviser for the 100 percent disinvestment of its entities — Eni Pakistan Limited, Eni AEP Limited and Eni Pakistan M Limited SARL — and its new energy business under Eni New Energy Pakistan.
The group’s new business is a 10MW photovoltaic plant near the Bhit gas field, which provides power to the site’s upstream operations, according to the document.
“We are likely to offer more offshore blocks in the coming months once COVID-19 issues settle down a bit. We hope they will then reconsider,” Nadeem Babar, special assistant to the prime minister on petroleum, told Arab News.
“Their departure is part of an overall retrenchment from markets with smaller prospects. This includes Australia, Pakistan and some others,” he said.
With 20 years of presence, Eni is one of the largest gas producers in the country, actively engaged in the Bhit, Badhra and Kadanwari oil and gas exploration fields, which generate 75 percent of its Pakistan revenue.
With Exxon Mobil, Oil and Gas Development Company OGDCL, and PPL, Eni was part of the consortium exploring the Kekra-1 well near the Pakistan-Iran border. The site, which was expected to have reserves bigger than those of Kuwait, was abandoned last year when the government announced that nothing was found.
“Their interest is more in offshore because of likely bigger prospects. Not finding anything in Kekra deep was a setback,” Babar said.
Analysts estimate that Eni’s transaction value could be around $189 million as per the enterprise value (EV) of the company. Its reserves have a remaining life of around four years and could be further enhanced through more drilling.
“The remaining 84 mmboe (million barrels of oil equivalent) net reserves of Eni translates into total value of $94 million — using EV of Mari Petroleum. With the industry’s average, total value comes at around $189 million. Taking cue from previous transactions, any premium above EV/reserves cannot be ruled out,” Shankar Talreja, petroleum analyst at Topline Securities, told Arab News.
Eni is not the first company to exit Pakistan. Malaysian Petronas, BHP Billiton, OMV have also offloaded their assets. The major discoveries of these companies were gas reserves.
Pakistan’s focus on cheap imports of liquefied natural gas (LNG) is one of the reasons why the companies saw no lucrative business opportunities in the country.
“Over 90 percent of Eni’s revenue is coming from gas,” Talreja said.
“Imported LNG is cheaper than the locally produced gas. The increasing focus on the import of the LNG is discouraging local producers. The conditions of Director General Petroleum Concession (DGPC) are tough and hard to meet, and security issues are also increasing their production cost,” said Masood Abdali, Texas-based energy expert and former business development manager of Weatherford in Saudi Arabia and Bahrain.
The future of petroleum exploration and production in Pakistan is murky.
“Governments for many years were not taking interest in oil exploration because they wanted to show quick performance, but exploration takes many years to produce results. In some cases it goes beyond six years, that is more than a government’s term.
This is how this is less politically attractive,” Abdali said.
Pakistan’s exploration and production sector is among its most profitable industries, wherein companies have operating margins of around 55 percent, EBITDA margins (earnings before interest, taxes, depreciation, and amortization) of 63 percent and net margins of 40 percent.
Twenty-four operators — 14 international and 10 local — are operating in the country’s upstream petroleum sector.