Salient Features of Petroleum Policy

Economic Review, February 1994 | Go to article overview

Salient Features of Petroleum Policy


The salient features of the 1994 Petroleum Policy are given below:

A. Upstream Exploration and Production Sector

Procedural and Regulatory Measures

a) Zonation: The country has been divided into three zones based on prospectivity and geological risk as shown in the enclosed map.

b) Concession Award Process: The procedure for expeditious disposal of concession applications will be streamlined through the introduction of a new process of competitive bidding thereby introducing transparency and minimizing discretion.

c) Petroleum Regulatory Board (PRB): An independent Petroleum Regulatory Board will be set up.

d) Exploration in Balochistan and Tribal Areas: A high level committee has been set up to recommend measures for improvement of operating conditions in Balochistan and the tribal areas in consultation with the Provincial Governments and other parties concerned.

e) Incentives for Local Companies: In order to develop an indigenous base in exploration and production, local companies will be provided and additional 2-1/2% share out of the Government's Working Interest after Commercial Discovery provided they invest a minimum of 5% during exploration.

In addition local companies will be provided foreign exchange during exploration against rupees on a case by case basis and paid 30% of their sale proceeds in foreign currency after production to cover their day to day operational requirements.

f) Gas Market: The Government will allocate gas to specified buyers within three months of a Commercial Discovery in Zone 3. If no allocation is made by the Government within three months or no agreement is reached within six months, the producers will be free to dispose of the gas to any other purchaser. In Zones 1&2 no such procedures will apply and the producers will be free to sell the gas as they wish.

g) Miscellaneous Matters: These include autonomy of OGDC improvement in procedures regarding equipment imports, data exports, intercompany transfer of equipment, disposal of obsolete material and equipment, procedures for land acquisition by petroleum companies and improvement of data base.

II. Economic Package: The economic package has been defined and fixed for the three zones. The main features are:

a) Government's Participation: The Government will participate in all concessions to the extent of 5% at the exploration stage which will be carried by the exploration companies. The Government's share of expenditure will be reimbursed through production in installments over a period of 5 years. The post Commercial Discovery share of the Government will be as under:

* Zone 1 (High Risk/High Cost) 15%

* Zone 2 (Medium Risk/High Cost)

* Zone 3 (Medium Risk/Low to High Cost)

b) Producer Pricing

i) Oil: The existing linkage to Arabian/Persian Gulf crude oils and adjustment for quality differential will continue. However, there will be no discount except that the crude will be delivered by producers at their cost to the nearest operating refinery.

ii) Condensate: The price of Condensate will be the FOB price of internationally quoted comparable condensate. No other adjustment will apply.

iii) Non-Associated Gas: The price of non-associated gas will be indexed to the price of a basket of Arabian/Persian Gulf crude oil as follows:

* Zone 1 77.5% of the crude oil basket.

* Zone 2 72.5% of the crude oil basket.

* Zone 3 67.5% of the crude oil basket.

iv) Associated Gas: Same price as for non-associated gas will apply for acceptable gas specification.

v) LPG: LPG producers will be given incentive through a higher price equal to FOB price of LPG for incremental production over currently committed levels. For new projects, C&F price will be applicable.

vi) Deeper Drilling: In order to encourage deeper drilling, new discoveries below the deepest known horizons will be entitled to the oil and gas prices as applicable to the relevant Zones. …

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