Pakistan Petroleum Gas Output Plan Hurt by Rebels

By Naween A. Mangi and Khaleeq Ahmed

Feb. 18 (Bloomberg) -- Pakistan Petroleum Ltd., the nation’s biggest gas producer, said deteriorating security may jeopardize plans to increase output by as much as 30 percent over the next three years to plug a shortage of energy.

“I’m hungry to explore and I can afford it but it’s getting tougher,” Chief Executive Officer Khalid Rahman said in an interview at his Karachi office yesterday. “There has to be an environment where we can operate.”

An insurgency in the southwestern province of Baluchistan, home to half of Pakistan’s estimated gas reserves, impedes exploration and raises the cost of production. The inability to replace aging fields threatens to widen the nation’s gas deficit from 1 billion cubic feet a day, equivalent to 20 percent of total consumption.

Output from the company’s Sui gas field in Baluchistan, which accounts for a quarter of Pakistan’s total, is declining by as much as 5 percent a year, Rahman said. Gas production from Sui began in 1955.

“The company needs to be more aggressive in exploration,” said Hamad Aslam, a research analyst at BMA Capital Management Ltd. in Karachi. “The security situation is tricky and how much they can explore is largely dependent on security.”

Pakistan Petroleum shares rose 1 percent to 155 rupees at 9:46 a.m. local time, extending this year’s advance to 57 percent. Pakistan Petroleum is the second-best performer on the benchmark Karachi 100 Index after Fauji Fertilizer Co. The KSE 100 Index gained 0.6 percent.

Gas Reserves

Pakistan has estimated gas reserves of 200 trillion cubic feet, he said. About 100 trillion cubic feet may be in Baluchistan, which can’t be confirmed until the security situation improves, Aslam said.

China’s largest gas field, Sulige in the north, has reserves of 533.6 billion cubic meters (19 trillion cubic feet).

Baluch tribal chief Nawab Akbar Khan Bugti was killed by Pakistani security forces in August 2006 after he led the struggle for political autonomy and demanded a share of the province’s gas and mineral wealth. The government blamed Bugti for ordering attacks on gas pipelines and oil installations in Baluchistan, which borders Iran and Afghanistan.

Pakistan Petroleum’s net profit rose 49 percent to 13.8 billion rupees ($173 million) in the six months ended Dec. 31, driven by rising gas prices.

The price at which Pakistan Petroleum sells gas to the government was increased by as much as 40 percent on July 1, according to the Oil and Gas Regulatory Authority.

Increased Spending

Record profits at the company will fund an increase in exploration spending to as much as $130 million a day, from $60 million, said Rahman, 52, who took the helm in August after 17 years at the company.

The drop in Sui’s production will be partly compensated by higher output from the Manzalai area of the Tal block in the North West Frontier Province, Rahman said.

Production from Manzalai, with reserves of 1.3 trillion cubic feet, is scheduled to rise to 250 million cubic feet a day by June, from 39 million cubic feet, he said. Pakistan Petroleum owns 27 percent of the Tal block.

The gas producer, 78.4 percent owned by the government, is also in negotiations to acquire a small reserve to improve supplies, Rahman said. The acquisition is expected to be completed “very soon” he said, without providing details.

Exploration Licenses

Pakistan will invite bids for exploration licenses in 50 areas in a few months, Rahman said. Pakistan Petroleum plans to apply for licenses in at least nine areas.

The government simplified the process of awarding licenses to exploration companies as part of a policy aimed at boosting production. Regulators will process licenses within 60 days rather than 90 days, the petroleum ministry said last month.

The company may diversify into refining and power generation to increase revenue, Rahman said. Pakistan Petroleum produces 1 billion cubic feet of gas a day. That compares with an output of 1.55 billion cubic feet a day at Oil & Natural Gas Corp., India’s biggest exploration company.

Pakistan Petroleum is looking for opportunities in Africa, Central Asia and the Middle East after the Pakistan government approved exploration in Yemen, Rahman said.

To contact the reporters on this story: Naween A. Mangi in Karachi at nmangi1@bloomberg.net; Khaleeq Ahmed in Karachi at paknews@bloomberg.net.