Tal block may sell Gas to third party

By Asad Cheema

ISLAMABAD: The Economic Coordination Committee (ECC) is likely to allow the joint venture of Tal block to sell gas to third party at a higher price in order to reach an out-of-court settlement.
The recoverable reserves in Tal block are estimated at 16.1 billion cubic feet (bcf) of gas but due to litigation, production could not begin at the field. It has not produced gas since 2017 due to the dispute in court.
The exploration licence for Tal block, which is located in Zone-II in Khyber-Pakhtunkhwa, was granted on February 11, 1999. MOL (the field operator) has 8.4% working interest, Oil and Gas Development Company 27.76%, Pakistan Petroleum Limited 27.76%, Government Holdings Private Limited 15% and Pakistan Oilfields Limited 21%.
A supplemental agreement, in addition to the petroleum concession agreement (PCA), was signed on August 28, 2015 to allow switchover to the Petroleum Policy of 2012. However, following the decision taken by the Council of Common Interests (CCI) on November 24, 2017, the policy was amended to impose a windfall levy on the oil/ condensate produced under the petroleum policies of 1994 and 1997.
All exploration and production (E&P) companies including the Tal joint venture were advised to submit supplemental agreements by incorporating the amendments in PCAs, signed under the 1994 and 1997 polices, for execution within the stipulated time frame. In case of failure, the holders of working interest will not be eligible for gas price incentives.
The E&P companies challenged the amendments in Islamabad High Court and obtained stay orders. Since then, the matter has been sub judice.
On court’s instructions, the matter is being referred to CCI for reconsideration of its earlier decision.
A new discovery, namely Mamikhel South, was made in Tal block on July 14, 2020 with gas flow of 20 million standard cubic feet per day (mmscfd) and condensate flow of 4,300 barrels per day.
A three-year development and production lease was granted with effect from January 14, 2021. However, due to litigation, the field could not go into production.
With a view to beginning production, a summary was prepared for the Economic Coordination Committee (ECC), proposing allocation of gas to Sui Northern Gas Pipelines Limited (SNGPL) at a wellhead gas price under the Petroleum Policy 2012 on a provisional basis pending litigation.

However, the summary was withdrawn following requests of joint venture partners, who asked for reconsidering the recommendation of Petroleum Division.

Subsequently, several meetings were convened to discuss with the working interest holders an early beginning of production and sale of gas.

Now, MOL has indicated that they have concluded an arrangement for gas sale to a third-party buyer from Mamikhel South under Article 10.1(iii) of PCA, which says “For Zone-I and II, the working interest owners will be free to use natural gas or sell it to any buyer, as they wish”.

The Petroleum Division told ECC that it had reviewed thoroughly and obtained legal opinion, where the stance of MOL for gas sale to third party was supported.

“It is for the first time a company has approached for applying Article 10.1(iii) of PCA,” it said.

The division added that the sale of gas to third party would result in imposition of windfall levy (40% of price under the Petroleum Policy 2012, or Rs5 billion assuming a price of $9 per million British thermal units – mmbtu), which would go to the national exchequer.

Provincial government will also receive a higher royalty due to a high gas price, which is estimated at Rs1.5 billion assuming a price of $9 per mmbtu for third-party sale.

Besides estimated reserves of 16.1 bcf of gas, around 4,300 barrels per day of condensate will also be available. Moreover, “this will encourage investment in the upstream sector, resulting in more discoveries in the area”, the division said.

“There will be immediate availability of gas (20 mmscfd), which will also result in import substitution of around $241 million, assuming LNG price of $15 per mmbtu.”

It pointed out that state-owned enterprises had around 70% working interest in the Tal exploration licence, which would indirectly benefit the government in the form of increased dividends and taxes.

“This will also be an opportunity to enable private sector participation and arrest circular debt. Working interest owners have expressed their intention of early monetisation to ensure timely payments.”

Keeping all this in view, the Petroleum Division recommended that ECC may allow Tal joint venture the sale of gas from Mamikhel South discovery to third party in accordance with Article 10.1(iii) of PCA, which was a sovereign document.