While the national giants in the oil and gas E&P sector in the country have been jacking up their drilling efforts, the foreign investment in the sector has dried up over the years. A look at the total net Foreign Direct Investment (FDI) in the oil and gas exploration sector shows that the global producers have been scaling back on E&P investments in the country.
The country has received a total of $1.757 billion dollars of net FDI in the sector in the last five years (FY13-FY17), which is around 19 percent of the total FDI received in the country during the same period as per SBP numbers. E&P sector’s share in annual FDI is also shrinking as no major global E&P Company has entered the local market in the last few years.
One reason for drying up of FDI in the E&P sector is likely what the global industry has also seen; low crude oil prices hindered investments that coincide with the period of falling FDI in the country. Other factors that might have slowed down foreign investment in the sector include the incidence of high corporate taxation (currently at 40 percent) relative to the other sectors. And despite a better security situation and petroleum policy (Petroleum Policy 2012) that offers better incentives and prices, the incoherencies in regulations could also be factors affecting FDI in the sector.
Recently OMV, the international integrated oil and gas company based in Vienna, has announced to divest its upstream business in Pakistan. While this might not be considered as a blow to the foreign investment in the country as the multinational giant has planned to sell of its upstream oil and gas interest to Dragon Prime Hong Kong Limited, it does not reflect positively on the sector’s efforts to keep ramping up FDI.
Now a little about the deal. The Austrian company has struck €157 million ($191.5 million) deal with Dragon Prime, which is a based in Hong Kong, and is a subsidiary of United Energy Group. The deal is said to consist of paying 80.6 million euros ($98.26 million) for OMV Maurice Energy Ltd and 77.2 million euros for OMV (Pakistan) Exploration Gesellschaft., both operating fields in Pakistan. This deal does not include OMV’s 10 percent JV stake in PARCO, and hence is limited to upstream sector only.
OMV Pakistan has stakes in 5 development and production leases, and is an operator of producing fields like Sawan, Miano, Latif, Mehar and Gambat blocks. It also has stakes in 5 exploration blocks; of which it is the operator of 4 blocks.
The deal is likely to be finalized by the end of the year and while OMV’s objective behind the sellout is to streamline in upstream oil and gas business; the acquisition is an extension of its business in Pakistan for United Energy Group, which will help it to control operations of all production fields and most of its exploration fields in the area.
United Energy Group is an independent oil and gas exploration and development company listed on Hong Kong Stock Exchange, and also has subsidiaries in China and Pakistan. The Pakistani subsidiary United Energy Pakistan Limited is headquartered in Karachi and has currently nine onshore exploration and production blocks in Pakistan, with a total area of about 9,000 square kilometers. According to the Group’s website, it has invested more than US$2.4 billion in cumulative exploration and development projects in Pakistan up till now since its acquisition of British Petroleum Company’s oil and gas assets in 2011.
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