$400 million investment over five years: Consortium to bid for Abu Dhabi oil block

A consortium of PPL, Mari Petroleum Company Limited (MPCL), Oil and Gas Development Company Limited (OGDCL) and Government Holdings Private Limited (GHPL) are to participate in a bidding process of one block of hydrocarbon in Abu Dhabi with an investment of $ 400 million spread over five years.

PPL has embarked upon an aggressive exploration and development program both within and outside Pakistan to replenish and possibly enhance its oil and gas reserves.

During the last five years, the company's oil and gas exploration and development activities both within Pakistan as well as its sole operated international venture in Iraq has remained in full swing and the company, including its partners, drilled 79 exploratory wells including a well in Iraq which so far has added 0.6 Trillion Cubic Feet (TCFs) of gas to the company's reserve base.

With the objective to further expand its international operations, the company has identified another international oil and gas exploration and development opportunity in the UAE, Abu Dhabi (2nd exploratory, bidding round, 2019).

To pursue this opportunity, in line with the decision of the company's Board of Directors (BoD), consortium was formed with Mari Petroleum Company Limited (MPCL), Oil and Gas Development Company Limited (OGDCL) and Government Holdings Private Limited (GHPL) with equal participation.

Abu Dhabi is one the world's richest oil and gas states and a prolific producer with production of more than 3 million barrels of oil per day and around 10 BCF of gas per day.

In its second bid round, Abu Dhabi has offered five blocks (two onshore and 3 offshore) through competitive bidding submission deadline of December 31, 2019. The un-risked in-place exploration potential of these blocks is estimated at 6 billion barrels of oil and 44 TFC of gas encompassing a total area of 34,000 sq km.

Ab Dhabi's first competitive block bid round was concluded in March 2019, which attracted major international players. The successful bidders included a consortium of Bharat Petroleum Company and Indian Oil Corporation Limited. Besides, other international companies namely Eni (Italy), PTTEP (Thailand), Occidental Petroleum (USA) and Inpex (Japan) also won blocks.

Abu Bhabi's second bid round provides a major opportunity for the Consortium of Pakistan's leading E&P companies to join the world renowned Abu Dhabi National Oil Company (ADNOC) and unlocking untapped resources in one of the world's largest hydrocarbon super-basins by investing in a trusted and reliable business environment.

The blocks being offered have a good appraisal and exploration opportunities. The investment is expected to help bring valuable foreign exchange in the long run for the country which can support in meeting Pakistan's energy requirements- currently a major source of country's foreign currency outflows.

Furthermore, there would be opportunities for Pakistan E&P companies to export exploration and production related services in the future. After carrying out detailed technical evaluations, the consortium has developed feasibility study for bidding one of the blocks offered by ADNOC.

Based on this detailed technical and commercial evaluation, the consortium plans to bid for the selected block comprising an exploratory and appraisal work program spread over a period of nine years divided into three phases.

All the respective Boards of consortium companies, after detailed deliberations and due diligence, have approved the participation by the companies in the bidding round and undertaking subsequent activities in case of success in the bidding round.

As per the estimates, the consortium will be making an initial investment of $ 400 million on exploration, appraisal and development activities over the first five year period. After the commencement of production, the venture will become self-sufficient to sustain its operations and will start generating foreign exchange for the country.

Although the blocks offered by ADNOC fall in the prolific area known for its rich hydrocarbon reservoirs nonetheless in case of no discovery the total exposure will be borne by the consortium of four participating E&P companies without any liability on the part of the GoP.

Moreover, there are adequate financial resources available with these E&P companies to meet the necessary forex requirements and their Boards of Directors after proper due diligence and deliberation have approved their participation in the bidding round.

The investment opportunity is expected to result in consortium's share of about oil and gas production of 10,000 to 14,000 BOE and result in net cash flow in foreign exchange in the range of $ 830 million to about $ 1.5 billion in the next 25 years for comparative cases. The Internal Rate of Return for the investment ranges from 16 per cent to 18 per cent for conservative cases.

Detailed presentation on the feasibility of the investment opportunities has been made to the Federal Minister for Energy and Special Assistant to the Prime Minister on Petroleum.

Keeping in view the energy crisis being faced by the country as evident by the widening gap in the primary general demand/supply the local E&P companies should be encouraged to engage in international E&P activities to their aggressive involvement in local E&P activities. This will help in securing the long-term availability of energy for the country.

Since the last date of bid submission is December 31, 2019, the success of the consortium is entirely dependent on a clear mandate with requisite support from the relevant approving authorities. Accordingly, the consortium has requested authorization to submit bid for one block in Abu Dhabi.

The Petroleum Division in its summary has submitted the following: (i) Consortium with PPL as the operator and OGDCL, MPCL and GHPL as partners may be authorized to submit bid (directly or through their subsidiaries) in Abu Dhabi 2019 bidding round for one bock and make an initial investment with an overall financial limit of up to $ 400 million spread over a period of five years; (ii) foreign exchange requirement for this investment to be approved, against rupee cover to be arranged by the member consortium companies in proportion to their respective share from their own resources; and (iii) consortium may be authorized to establish a jointly owned company (within or outside Pakistan) and open a branch office in Abu Dhabi, in compliance with the requirement of UAE's local laws and regulations. The government has approved the proposal.