The Government of Pakistan (GOP) has published a Petroleum Exploration and Production Policy for 2009 (the Policy) in order to promote investment in E&P activity in Pakistan. GOP is seeking to attract direct foreign investment in the upstream sector on a level playing field with domestic companies in order to accelerate the exploitation of indigenous natural resources and reduce its reliance on imported energy. The Policy sets out the means by which companies may obtain onshore and offshore E&P rights in Pakistan and details the procedures for companies to respond to future invitations to bid for blocks.
The Policy sets out four types of exploration licence that will be available:
(i) Reconnaissance Permit - a one-year permit (with a one-year option for extension) which allows companies to undertake non-exclusive surveys and drill stratigraphic wells, but carries no right to be converted into a petroleum concession or production sharing agreement.
(ii) Petroleum Exploration Licence (PEL) - Onshore
(iii) PEL - Offshore Shallow Water
(iv) PEL - Offshore Deepwater and Ultra Deepwater
The three PELs have an initial five-year term. Corresponding Development and Production Leases for all blocks have a term of 25 years with a five-year option for extension.
Onshore acreage in Pakistan is divided into three zones with different economic terms on the basis of geological risk and investment requirements. Zone 1 comprises the West Balochistan, Pashin and Potowar basins, Zone 2 the Kirthar, East Balochistan, Punjab platform and Suleman basins, and Zone 3 the Lower Indus basin. A model Petroleum Concession Agreement (PCA) will apply to all new licences in these onshore areas. A royalty of 12.5% of the value of petroleum produced would be payable plus 40% income tax.
Foreign E&P companies must offer stipulated minimum working interests (15% in Zone 1 blocks, 20% in Zone 2 blocks and 25% in Zone 3 blocks) to domestic companies under a joint venture. The foreign companies shall be deemed to have fulfilled their obligation with respect to the minimum Pakistani participation if Pakistani incorporated companies and/or Government Holdings (Private) Limited, which manages GOP's upstream ventures, do not wish to take up any interest.
A model Production Sharing Agreement (PSA) will apply to offshore blocks. In the offshore acreage, E&P companies' profit splits with GOP will depend on the water depth (shallow, deep or ultra-deep) and the sub-surface depth from which oil and gas are produced. No royalty would be payable in the first four years after commencement of commercial production, 5% would be payable in the fifth year, 10% in the sixth year and 12.5% in the following years. Income tax would also be payable at the rate of 40%.
Procedure for granting of E&P rights
Onshore and offshore E&P rights will be awarded via three distinct procedures:
(i) PELs may be granted through competitive bidding as per the procedure laid out in the Policy.
(ii) GOP may select certain national oil companies representing foreign governments as 'strategic partners' to explore and develop specific acreage without a competitive bidding process.
(iii) Non-exclusive Reconnaissance Permits may be granted for undertaking studies and surveys following direct negotiation with the Directorate General of Petroleum Concessions (DGPC).
Bid evaluation will be primarily based on (i) technical and financial capability of the bidding company/consortia; and (ii) work programme commitment.
Interested companies without substantial operating experience within Pakistan will be required to demonstrate their operating experience overseas and a track record of effective exploration and/or field management.
Companies with no previous operating experience will be assessed on the type of licence they are applying for and will be required to demonstrate that they have an agreement with an internationally renowned E&P/services company acceptable to DGPC or have a high calibre technical and management team with a track record of managing operations in the international petroleum industry.
To access the Policy in full, please click here.
This article was written for Law-Now, CMS Cameron McKenna's free online information service. To register for Law-Now, please go to www.law-now.com/law-now/mondaq
Law-Now information is for general purposes and guidance only. The information and opinions expressed in all Law-Now articles are not necessarily comprehensive and do not purport to give professional or legal advice. All Law-Now information relates to circumstances prevailing at the date of its original publication and may not have been updated to reflect subsequent developments.
The original publication date for this article was 30/04/2009.