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© Copyright OGEL 2008 OGEL Cover v2.1

Oil, Gas & Energy Oil, Gas & Energy Oil, Gas & Energy Oil, Gas & Energy Law IntelligenceLaw IntelligenceLaw IntelligenceLaw Intelligence

www.ogel.org

ISSN

:

1875-418X

Issue : Vol. 6 - issue 3

Published : November 2008

Pakistan Petroleum (E&P) Policy 2007by M. Arif

An overview

Petroleum (E&P) Policy 2007

by

Muhammad ArifManager Legal and Commercial,

Orient Petroleum International Inc.Hayat Hall No. 2, Diplomatic Enclave, G-5, Islamabad

Ph: 051-2274261/3600: Cell 0333 - 5191381

Marriott Hotel, Islamabad: January 31, 2008

Map of Licensing Zones

Zone-I: West Balochistan, Pashinand Potowar Basins

Zone II: Kirthar, East Balochistan, Punjab platform and Suleman Basins

Zone-III: Lower Indust basin

Zone-O: Offshore PakistanMuhammad Arif

Licensing SystemTypes of Exploration & Production Rights

• Reconnaissance Permit• 1 year initial term with one year renewal for unlimited open area

• Exploration Licence (Onshore)• 5 years initial term (Two phases) Phase-1 : 3 years Phase-2 : 2 years• Two renewals of two years each• Total period : 9 years• 5 years additional retention allowed for gas market in Zone-1 & 2• Maximum Area allowed : 2500 sq. km• Relinquishment

• 30% of the original area after Phase-1 (after 3 years)• 20% of the remaining area after Phase-2 (after 5 years)• 10% of the remaining area on or before 2nd renewal (after 7 years)

• Development & Production Lease (Onshore)• 25 years with one 5 years renewal

Muhammad Arif


• Exploration Licence (Offshore Shallow Water)• 5 years initial term (Three Phases) • Phase-1 & 2 of 2 years each & Phase-3 of 1 year• Two renewals of two years each allowed• Total period of Licence : 9 years• Maximum period of two years allowed for appraisal operations over discovery

area plus additional 10 years retention period for gas market• Maximum Area allowed : 2500 sq. km• Relinquishment

• 30% of the original area after Phase-1 (after 2 years)• 30% of the remaining area after Phase-2 (after 4 years)• 20% of the remaining area at the end of 1st renewal (after 7 years)

• Development & Production Lease (Offshore Shallow Water)• 25 years with one 5 years renewal

Muhammad Arif


• Exploration Licence (Offshore Deepwater and Ultra Deep Water)• 5 years initial term (Three Phases) • Phase-1 & 2 of 2 years each & Phase-3 of 1 year• Two renewals of two years each allowed• Total period of Licence : 9 years• Maximum period of two years allowed for appraisal operations over discovery

area plus additional 10 years retention period for gas market• Maximum Area allowed : 2500 sq. km• Relinquishment

• 30% of the original area at the end of initial term (after 5 years)• 20% of the remaining area at the end of 1st renewal (after 7 years)

• Development & Production Lease (Offshore Deepwater and Ultra Deep Water)

• 25 years with one 5 years renewal Muhammad Arif

Pre-Qualification of Companies

Pre-qualification of Applicants- Legal Capacity and Residence

Requirement (local office)- Financial Capacity- Technical Capacity

Muhammad Arif

Pre-Qualification as New Local Entrants as Non-Operator

Company registration documents MoA/AoA Financial structure of the companyDetails of capital and assetsOrganizational structure: subsidiary, affiliate etc.Company should have oil and gas activities as its main business

Muhammad Arif

Pre-Qualification as New Local Entrants as Operator

Company registration documents MoA/AoA Financial structure of the companyDetails of capital and assets and financing plans demonstrating capacity to fulfill its obligations. Organizational structure: subsidiary, affiliate etc.Company should have E&P as prime area of operations. At least 2 Geologists, 2 Geophysicists, 1 Pet. Engr., 1 HSE professional with each having at least five years experience. In case of lack of technical capacity – an agreement with E&P/Service Company may suffice [3.1.3 (2)].

Muhammad Arif

Pre-Qualification Exceptions

Some of the conditions does not apply to new entrantsProven reserves and production requirement does not apply to new local entrantsCompanies not having technical and operational pre-qualification requirement may enter into Technical Services Agreement.Criteria may be relaxed by DGPC on a case to case basis

Muhammad Arif

Award of Petroleum RightsProcedure for Grant of E&P Rights

1. Competitive Bidding

• Call for Nomination : In the first week of January & June every year, or as and when required DGPC will invite through a press advertisement, a call for submission of nominations of open acreage for grant of petroleum rights within 60 days.

Invitation to Bid: Within 15 days of close of Call of Nomination, DGPC will issue an Invitation to Bid in the Press which would remain valid for 90 days.

2. Direct Negotiations with Strategic PartnerMuhammad Arif

Direct Negotiations with Strategic Partners

GOP may award petroleum rights without competitive bidding to foreign national Companies, provided:

Strategic Partner (SP) meet the pre-qualification criteria.SP is a national oil company of a foreign country.SP remains Operator and majority share holder of such block.Farm-out possible only to Public Sector Companies of the same country.DGPC to identify the blocks for possible Strategic Partnership.

Muhammad Arif

Equivalency of Work Units A work unit equals to an expense of US$ 10,000"Well Depth“:

For offshore: seabed/ocean floor to TDOnshore: Rotary table to TD Deepening of an existing well: deepest point to the new total depth.In case a well is side-tracked, re-drilled part of the well from the kick off point (excluding already drilled part) to the total depth. In case a well is horizontally drilled or deviated, the length of the horizontal/deviated segment of well shall be added to the vertical well depth.

Award of Petroleum Rights: Competitive Bidding Work Unit Equivalency

Muhammad Arif

Award of Petroleum RightsBid Evaluation Procedure

Equivalent Work Unit

0.3

1.0

1,000 metres 1002,000 metres 2003,000 metres 4004,000 metres 6005,000 metres 1,0006,000 metres 2,0007,000 metres 3,000

1 square kilometre of 3D seismic (acquired, processed, interpreted & mapped)

1 exploration well with a surface location in onshore with the following well depths:

Equivalency of Work Units for Zone I and II

Type of Work

1 line-kilometre of 2D seismic (acquired, processed, interpreted & mapped)

Muhammad Arif



0.3

1.0

1,000 metres 502,000 metres 803,000 metres 1004,000 metres 2005,000 metres 3306,000 metres 6007,000 metres 900

1 square kilometre of 3D seismic (acquired, processed, interpreted & mapped)

1 exploration well with a surface location in onshore with the following well depths:

Equivalency of Work Units for Zone III

Type of Work


Muhammad Arif



0.3

1

1,000 metres 3002,000 metres 5503,000 metres 1,0004,000 metres 1,8005,000 metres 3,2006,000 metres 5,8007,000 metres 10,000

1 exploration well with a surface location in shallow water (<200m) grid area with the following well depths:

Equivalency of Work Units for Zone 0 (Offshore)

Type of Work


1 square kilometer of 3D seismic (acquired, processed, interpreted & mapped)

Muhammad Arif

Award of Petroleum RightsWork Unit equivalency

Equivalent Work Unit1,000 metres 5002,000 metres 9003,000 metres 1,6004,000 metres 2,8005,000 metres 5,1006,000 metres 9,200

7,000 metres or more 160001,000 metres 7002,000 metres 1,3003,000 metres 2,2004,000 metres 3,6005,000 metres 6,4006,000 metres 12,000

7,000 metres or more 21000

1 exploration well with a surface location in deep water (=> 200m & < 1,000m Water Depth) grid area with the following well depths:

1 exploration well with a surface location in ultra deep water area (=> 1000m) with the following well depths:

Equivalency of Work Units for Zone 0 (Offshore)

Type of Work

Muhammad Arif


Equivalency of Work Units can be updated by DGPC on yearly basis.Minimum units mentioned can also be revised by DGPC before Invitation to Bid according to the size and prospectivity of the area.In case more than one bidder achieves the highest marks and there is a draw, the successful bidder would be decided on the basis of lower Gas Price Gradient (GPG).Within 15 days of bid opening date, equivalent bidders would be asked to re-bid the GPG at no more than the previous GPG and with the lower limit of GPG=0 and work commitment of not less than previous offered.The process will be repeated until there is a clear winner.

Muhammad Arif


Formal bid assessmentThe balance scorecard:

80%Work UnitsWork

Commitment on offered

block

20%Gas Price Gradient

Gas Price Formula

Main WeightsMeasuresComponents

Muhammad Arif


Min Max Min Max0.2 1 100 Highest Bid

Max Min Min Max5 1 1 5

Gradient (GPG) Work Unit

Score Score

Muhammad Arif


Min Max Min MaxZone III 0.2 1 100 Highest BidZone II & I 0.2 1 100 Highest BidZone 0 Shallow Water 0.2 1 200 Highest BidZone 0 Deep Water 0.2 1 200 Highest BidZone 0 Ultra Deep Water 0.2 1 200 Highest Bid

Gas Price Gradient (GPG) Work Units

Bid Scoring Criteria

Zone or Sub Zone

Following scoring system should be enclosed with each bid documentBid Evaluation Procedure

Muhammad Arif


Gradient of

Formula Bid

ScoreWork Units Bid

Score

Company A 1 1.00 Company A 1000 3.06Company B 0.2 5.00 Company B 1015 3.09Company C 0.4 4.00 Company C 1672 4.59Company D 0.5 3.50 Company D 1850 5.00Company E 0.00 Company E 0.00Company F 0.00 Company F 0.00Company G 0.00 Company G 0.00Company H 0.00 Company H 0.00Company I 0.00 Company I 0.00Company J 0.00 Company J 0.00Company K 0.00 Company K 0.00

BALANCE SCORECARD EXAMPLE

Zone I, II and III Balanced Score Card Sheet (published post award)

Muhammad Arif


Price Formula Bid

Work Commitment on

offered block20% 80%

Gradient of Formula Work Units

Company A 1 3.06 2.65 52.91%Company B 5 3.09 3.47 69.46%Company C 4 4.59 4.47 89.49%Company D 3.5 5.00 4.70 94.00%Company E 0 0.00 0.00 0.00Company F 0 0.00 0.00 0.00Company G 0 0.00 0.00 0.00Company H 0 0.00 0.00 0.00Company I 0 0.00 0.00 0.00Company J 0 0.00 0.00 0.00Company K 0 0.00 0.00 0.00

GPG values outside of the GPG range does not count toward the companies score

Overall Score Percentage

Muhammad Arif

Non Fulfillment of Work Obligations

• Non fulfillment of committed work obligations shall obligate the holder of EL to pay financial compensation based upon the remaining work units.

• Holder of Reconnaissance permit to pay compensation based on minimum expense obligations.

Muhammad Arif

Fiscal Terms Onshore - 2007 Policy

12.5% Royalty and 40% Corporate Tax – same as before.The royalty payable on liquid and gaseous hydrocarbons (such as LPG, NGL, Solvent oil, gasoline and Sulphur etc)Windfall Levy applicable on crude oil, condensate @ 50% of priceabove Base price of $30/bbl. – same as before.Windfall Levy on natural gas if sold to Third Party @50% of the price above policy price –revised. Minimum Local Companies Participation: Zone –1=15%, Zone-II= 20%, Zone-III=25% - same as before.30% of sale proceeds in Foreign Currency to the Local Companies-same as before.

Muhammad Arif

Social Welfare Obligations: 2001 Policy

Exploration Phase:Zone I & 0 : $10,000/annumZone 2&3: $20,000/annum

Production Phase:Production rate (BOE/d) US$ (For all Zones)

Less than 2,000 20,0002,000 - 5,000 40,0005,000 - 10,000 75,00010,000 - 50,000 150,000More than 50,000 250,000

Muhammad Arif

Social Welfare Obligations: 2007 Policy

Exploration Phase: All Zones $25,000/annum

Production Phase:

Production rate (BOE/d) Zone 0 & 1 Zone 2 & 3

Less than 2,000 50,000 37,5002,000 - 5,000 100,000 75,0005,000 - 10,000 200,000 150,00010,000 - 50,000 400,000 300,000More than 50,000 700,000 525,000

Muhammad Arif

Fee Comparison

Rs. 800 per sq.kmRs.650 per sq.kmEL year rentalRs.7500 per sq.kmRs.7500 per sq.kmD&PL year rental

Rs. 50,000Rs. 10,000Assignment application fee

Rs. 200,000Rs. 80,000D&PL grant/renewal fee

Rs. 100,000Rs. 40,000Exploration Licence grant/renewal fee

Rs.50,000Rs.20,000Reconnaissance Permit grant/renewal fee

2007 Policy2001 Policy

Muhammad Arif

Training Obligation: 2001 Policy

Exploration Phase:

Onshore (all zones) $10,000/ License Year Offshore $ 20,000/License Year

Production Phase:

Onshore (all zones) $ 25,000 per Lease Year.Offshore $ 100,000 per Lease Year

Muhammad Arif

Training Obligation: 2007 Policy

Exploration Phase:

Onshore: US$ 25,000 per license year Offshore US$ 50,000 per license year

Production Phase:

Onshore: US$ 50,000 per Lease year Offshore: US$ 250,000 per Lease year

Muhammad Arif

Irrevocable and unconditional guarantees in standard formatsatisfactory to DGPC such as:

Bank Guarantee equal to 50% of the minimum financial commitment.Parent Company GuaranteePetroleum Production lienFirst and preferred assets lienEscrow Account

Guarantees are released only on completion of all workprogramme obligation including: social welfare, training, data,rental etc.

Onshore and Offshore Performance Guarantees

Muhammad Arif

Onshore and Offshore Extended Well Testing (EWT)

Granted on a case to case basis upon submission of request before declaration of commerciality and approval of Development Plan.Royalty, tax, rentals and training/social welfare commitments asapplicable during lease are to be paid.Duration of EWT is to be based on reservoir uncertainty, and proposed investment outlay on EWT – on a case to case basisNo approval for flaring of gas for more than 30 days if gas infrastructure is located within 25 Kms of the discovery.If quality of an approved EWT is acceptable to buyer, 15% discount shall be applicable on applicable gas price for that Zone.

Muhammad Arif

Upon request from Operator, DGPC can extend Term of Licenceon following grounds:

• If seismic and drilling services are not available in the country to fulfill minimum work program commitment;

• If Operator undertakes additional work equivalent to at least 20% more than the minimum work obligations of subsequent phase or renewal;

• If Operator makes additional accelerated area relinquishment equivalent to 20% of the original licencearea; or

• Force Majeure circumstancesTotal Maximum extension period 36 months

Onshore and OffshoreEXTENSION OF EXPLORATION LICENSE

Muhammad Arif

Total lease term 25 years plus 1 renewal for 5 years

Conditions for grant of five years renewal:

• Submission of revised DP at the expiry of initial termSubmission of request for renewal 3 years in advanceExploitation area should have been producing on regular basis on the date of request for renewal.

Onshore and Offshore Renewal of D&PL

Muhammad Arif

After expiry of 25 Years plus 5 years renewal, DGPC to invite bids one year before expiry of Lease term from pre-qualified companies for additional 10 yearsAward on the basis of Signature BonusNo highest bid matching right to existing joint VentureBid bond @ 10% of offered Signature BonusDGPC not obligated to grant any extension.This Policy to apply to leases granted under 1986 and 2001 Rules.

Onshore and OffshoreGrant of Lease after Expiry of Lease Term

Muhammad Arif

Gas Supply: Field Gate

Field Gate for Zones, I, II & III would be anywhere within 25 Km radius from the outlet flange of a production facility. For Zone-O the nearest access point to an existing regulated transmission system or at the shore within Zone-II or III coastal locations would be Delivery Point and Field Gate.Field Gate locations would be approved by DGPC on submission of proposed field development plan.

Muhammad Arif

Conversion to New Policy

Available to new exploration efforts:- that stand granted/executed.- For which provisional award has already been made.- For which applications are pending and bids have been invited

before the Policy approval date.- Exploration Efforts mean “Exploration Wells” under drilling and/or

spudded, after the date of approval of the Policy.• GPG of 0.2 to apply to gas price formula for areas falling in the

corresponding zones as per Policy.• Conversion to be opted as a package within 90 days from the

effective date of Policy. Effective Date Nov 27, 2007 ending on Feb 23, 2008.

• Option once exercised shall be final.• Supplemental agreement to be executed within 6 months from the

date of exercise of option. Muhammad Arif

Foreign Currency

Subject to country requirement, E&P Companies will be allowed toexport their share of crude oil, condensate and gas upon receipt of Export Licence.Foreign Companies allowed “guaranteed percentage” of their sale proceeds abroad i.e. 75% of the total gross revenues from any Lease in Zone 0 & 1, 70% from Zone-II and 65% from Zone-III.Local Companies to be paid 30% of their sale proceeds in foreigncurrency.Foreign Companies entitled to export their share of petroleum subject to domestic supply obligation.Foreign Companies may retain 100% of their sale proceeds abroad.

Muhammad Arif

Gas Supply – Construction of Pipeline

E&P Companies to construct connecting pipeline up to the Field Gate. No tariff would be payable by the Government or Gas Buyer for the pipeline constructed by E&P Company from Field to Field Gate and title of such gas pipeline would be transferable to the Government on expiry or on early termination of petroleum rights.E&P Companies would be allowed to construct and operate pipeline for local requirements and export of their share of gas which shall be regulated by the concerned regular. Such E&P Companies would be allowed priority access based on a firm utilization plan.At the request of the Producer, the Buyer may also consider laying the pipeline from Field Gate to the nearest transmission system, at its cost.The tariff of pipeline from Field Gate to the transmission system will be determined by the regulator based upon a “rate of return on equity” basis @ 12% with the capital cost being amortized over a minimum of 15 years.The tariff payable shall not exceed US$ 0.5 MMBTU in aggregate.Ownership of pipeline shall be transferred to Government upon expiry or early termination of Lease.

Muhammad Arif

Oil & Gas Pricing

Crude Oil

The Producer Policy Price for Crude Oil delivered at the nearestrefinery gate shall be based on the Reference Crude Price (RCP) equal to C&F Price of a comparable crude oil or a basket of Arabian/Persian Gulf Crude Oils plus or minus a quality differential between thecomparable crude oil/a basket of crude oils and the local crude oil. No other adjustment or discount will apply. C&F price will be arrived at on the basis of FOB price of imported crude oils into Pakistan plus freight on AFRA, which is deemed chartered rate.

Windfall Levy applicable on crude oil @ 50% of price above Base price of $30/bbl which is increased by $0.25 per barrel per calendar year starting from first commercial production.

Muhammad Arif

Oil & Gas Pricing

Condensate

The Producer Policy Price for condensate will be the FOB price of internationally quoted comparable condensate delivered at the nearest Refinery gate plus or minus a quality yield differential, based on the value in the Arabian Gulf spot products market of the crude oil/condensate. No other adjustment or discount will apply.

Windfall Levy applicable on Condensate @ 50% of price above Base price of $30/bbl which is increased by $0.25 per barrel per calendar year starting from first commercial production.

Muhammad Arif

Oil & Gas Pricing

Associated and Non Associated Gas

For all gas pricing, a Reference Crude Price (RCP) equal to the C&F price of a basket of Arabian/Persian Gulf Crude Oils imported inPakistan during the first six months period of the seven months period immediately preceding the relevant price notification period as published in an internationally recognized publication acceptable to the parties will be used. C&F price will be arrived at on the basis of FOB price of imported crude oils into Pakistan plus freight on AFRA, which is deemed chartered rate.

Muhammad Arif

Gas Price (Mature Basin Price for Zone III)

THREE LINEAR FORMULAE

1. Reference Crude Price (RCP) equal to or greater than USD 10/bbl and up to and including USD 20/bbl:

When RCP is equal to USD 10/bbl (RC10)Zone III price is equal to USD 1.5/MMBTU (Gas Price Floor (GPF))

When RCP is equal to USD 20/bbl (RC20) Zone III price is equal to US$ 2.50/MMBTU (GP20); and

When RCP is greater than USD 10/bbl and less than USD 20/bblZone III price is equal to GPF + (RCP-RC10)X[(GP20-GPF) / (RC20 – RC10)]

For example when RCP = USD 15/bblZone III price (USD/MMBTU) = 1.50 + (15 – 10) x [(2.50 – 1.50) / (20 – 10)];Zone III price (USD/MMBTU) = 2.00 Muhammad Arif

2. Reference Crude Price (RCP) greater than USD 20/bbl (RC20) and up to and includingUSD 45/bbl:

When the RCP is equal to USD 45/bbl (RC45)Zone III price is equal to USD 3.0/MMBTU (Gas Price Ceiling (GPC)); and

When RCP is greater than USD 20/bbl and less than US$ 45/bblZone III price is equal to GP20 + (RCP – RC20) x ((GPC – GP20)/(RC45-RC20))

For example when RCP = USD 30/bblZone III (USD/MMBTU) = 2.50 + (30 – 20) x [(3.00 – 2.50) / (45 – 20)];Zone III (USD/MMBTU) = 2.70


Muhammad Arif

3. Reference Crude Price (RCP) greater than USD 45/bbl:

Zone III price is equal to GPC + (RCP – RC45) x GPG x [(GPC – GP20) / (RC45 – RC20)]

Where GPG (gas price gradient) has a minimum value of 0.2 or as may be bid in the bidding stage for the petroleum exploration licence, up to a maximum value of 1.0.

For example when RCP = USD 60/bbl and GPG = 0.20Zone III price (USD/MMBTU) = 3.00 + (60 – 45) x 0.20 x [(3.00 – 2.50) / (45 – 20)]Zone III price (USD/MMBTU) = 3.06


Muhammad Arif

Gas Price for Zone II

For Zone II, the Gas Price for Zone II shall be calculated using additional premiums toaddress the issue of more complex reservoir targets as follows:

Zone II = Zone III price + Zone II Premium

Zone II premiums shall be calculated as follows:

1. Reference Crude Price (RCP) is equal to or greater than USD 10/bbl and up to and including USD 45/bbl:

When RCP is equal to USD 10/bbl (RC10)Zone II Premium floor is equal to USD 0.00/MMBTU (P10);

When RCP is equal to USD 45/bbl (RC45)Zone II Premium ceiling is equal to USD 0.25/MMBTU (P45); and

Muhammad Arif

Gas Price for Zone II

When RCP is greater than USD 10/bbl and less than USD 45/bblZone II Premium is equal to P10 + (RCP – RC10) x [(P45 – P10) /

(RC45 – RC10)].

For example when RCP = USD 30/bblZone III price (USD/MMBTU) = 2.70 Zone II Premium (USD/MMBTU) = 0.00 + (30 – 10) x [(0.25 – 0.00)/

(45 – 10)];Zone II Premium (USD/MMBTU) = 0.14Gas price Zone II (USD/MMBTU) = 2.70 + 0.14Gas price Zone II (USD/MMBTU) = 2.84

2. Reference Crude Price (RCP) greater than USD 45/bbl:Zone II Premium is equal to USD 0.25/MMBTU (P 45).

Muhammad Arif

Frontier Areas Pricing Incentives

For Zone O and Zone I, the Frontier Area Price (FAP) shall be applicable and calculated using pricing incentives (PI) as follows:

Frontier Area Price (FAP) = Zone III Gas price + PI

Pricing Incentives shall be calculated as follows:

1. Reference Crude Price (RCP) is equal to or greater than USD 10/bbl and up to and including USD 45/bbl:

When RCP is equal to USD 10/bbl (RC10)PI floor is equal to USD 0.00/MMBTU (PI 10)

Muhammad Arif


When RCP is equal to USD 45/bbl (RC45)PI ceiling for Zone I is equal to USD 0.55/MMBTUPI ceiling for Zone O Shallow Water is equal to USD 1.05/MMBTUPI ceiling for Zone O Deep and Ultra Deep Water is equal to USD 1.40/MMBTU

When RCP is greater than USD 10/bbl and less than USD 45/bblPI is equal to PI 10 + (RCP – RC10) x [(PI 45 – PI10) / (RC45 – RC10)].

Muhammad Arif


For example when RCP = USD 30/bbl

Zone III price (USD/MMBTU) = 2.70 PI (Zone I) (USD/MMBTU) = 0.00 + (30 – 10) x [(0.55 – 0.00) / (45 – 10)]PI (Zone I) (USD/MMBTU) = 0 .31FAP (Zone I) (USD/MMBTU) = 2.70 + 0.31FAP (Zone I) (USD/MMBTU) = 3.01

2. Reference Crude Price (RCP) is greater than USD 45/bbl:

PI is equal to respective PI 45 for Zone I, Zone O Shallow Water or Zone O Deep and Ultra Deep Water.

Muhammad Arif

Oil & Gas Pricing

Gas Price Comparison 2001 v/s 2007 PolicyUS$ / MMBTU

3.223.183.063.002.62Zone III

3.473.433.313.252.82Zone II

3.773.733.613.553.00Zone 1

RCP $100

RCP$90

RCP $60

RCP $45

2007 Policy Price 2001Policy Price

Zones

Muhammad Arif

Concept of Work Units and Scoring CardGas Price Formula: Graph

Muhammad Arif

OFFSHORE

Exclusive

Muhammad Arif

Fiscal Terms: Offshore under 2007 Policy

RoyaltyFirst 48 calendar months : No Royalty(after commencement of commercial production)Months 49 to 60 inclusive : 5% of field gate priceCalendar Months 61 to 72 inclusive : 10% of field gate priceCalendar Months 73 and greater : 12.5% of field gate price

40% Corporate Tax on profits or gains as per 5th Schedule of the Income Tax Ordinance, 2001Windfall Levy would be applicable on crude oil, condensate and sale of natural gas to the Parties other than GOP, as per revised formula – same as for onshore.

Muhammad Arif

Carry forward of any unabsorbed depreciation until such depreciation is fully absorbed.

20% Declining BalanceOn facilities and offshore platforms

Expensed upon relinquishment of licence

Non-commercial well (exploratory wells)

Will be expensed immediately upon commencement of commercial production or relinquishment whichever is earlier

On dry holes (exploratory wells)

25% on Straight Line On successful exploration and development wells

Fiscal Terms: Offshore: Depreciation

Muhammad Arif

OFFSHORE Production Bonus

Production Bonus shall be:

US$ 500,000 - within 90 days of start of commercial production

US$ 1,000,000 - Upon 60 MMBOE (cumulative Prod)US$ 1,500,000 - Upon 120 MMBOE (cumulative Prod)US$ 3,000,000 - Upon 160 MMBOE (cumulative Prod)US$ 5,000,000 - Upon 200 MMBOE (cumulative Prod)

Muhammad Arif

OFFSHORE Marine Research andCoastal Area Development Fee

Marine Research & Coastal Area Development Fee:

US$ 50,000 per year - until first discoveryUS$ 100,000 per year - thereafter until declaration of

commercialityUS$ 250,000 per year - during development phaseUS$ 500,000 per year - during production phase

Muhammad Arif

PRODUCTION SHARING MECHANISM

Oil produced and saved

(100%)

Cost oil / gas

(85%)

- Royalty

- Opex

- Capex

- Balance is carried forward

Profit oil / gas

15%

GoP 10 –80%

(GHPL)

Contractor 90-20%

Company A

Company B

Company C

Excess cost oil added to Profit Oil

Muhammad Arif

OFFSHORE Production Sharing Agreement

Cumulative Available Oil/ Available Gas from Contract

Area

MMBOECrude Oil/LPG/

Condensate Natural GasCrude Oil/LPG/

Condensate Natural Gas

0 - 100 20% 10% 80% 90%> 100 - 200 25% 15% 75% 85%> 200 - 400 40% 35% 60% 65%> 400 - 800 60% 50% 40% 50%

> 800 - 1200 70% 70% 30% 30%> 1200 80% 80% 20% 20%

Profit Oil & Gas Share for Wells in Shallow Grid Area of less than 200m water depth and depth to reservoir shallower than 4,000m

Government Holdings Share of Profit Oil/Profit Gas in Contract

Area

Contractor Share of Profit Oil/Profit Gas in Contract Area

Muhammad Arif



Area

MMBOE Crude Oil/LPG/ Condensate Natural Gas Crude Oil/LPG/


0 - 200 5% 5% 95% 95%> 200 - 400 10% 10% 90% 90%> 400 - 800 25% 25% 75% 75%

> 800 - 1200 35% 35% 65% 65%> 1200 - 2400 50% 50% 50% 50%

> 2400 70% 70% 30% 30%

Profit Oil & Gas Share for Wells in Deep Grid Area of more than or equal to 200m and less than 1,000m water depth and depth or deeper than 4,000m to reservoir in shallow grid area


Area


Muhammad Arif



Area

MMBOECrude Oil/LPG/

Condensate Natural GasCrude Oil/LPG/


0 - 300 5% 5% 95% 95%> 300 - 600 10% 10% 90% 90%

> 600 - 1200 25% 25% 75% 75%> 1200 - 2400 35% 35% 65% 65%> 2400 - 3600 45% 45% 55% 55%

> 3600 60% 60% 40% 40%

Profit Oil & Gas Share for Wells in Ultra Deep Grid Area of more than or equal to 1,000m water depth


Area


Muhammad Arif

Recap 2007 Policy

Pre-Qualification has been introducedConversion option given - to be exercised prior to Feb 24, 2008Licence application fee increased from Rs.40,000 to 100,000;D&PL application fee increased from Rs.80,000 to Rs.200,000;Assignment application Fee raised from Rs.10,000 to Rs.50,000;EL yearly rental has been raised from Rs.650 /sq.km to Rs.800/sq.km;Social Welfare obligation has been increased;Training fund has been doubled;Bank Guarantee reduced to 50% of work obligation;

Muhammad Arif

Recap 2007 Policy…contd

Work Unit concept introduced.GPG introduced as a bidding component;New Gas pricing mechanism introduced;Gas price increased;EWT formalized with 15% price discount;Field Gate defined to be anywhere within 25 kms radius from the Field;Royalty on LPG, Solvent oil, NGL, Gasoline, Sulphur has been imposed;EL Extension up to 36 months formalized; andD&P Lease extension beyond 5 years renewal (through bidding) is based on Signing Bonus – No first right of refusal

Muhammad Arif

Thank you

Muhammad Arif

elap.com.pkelap.com.pk/.../pakistan-petroleum-policy-2007-presentation.pdf · pre-qualification as...

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