New formulae proposed for oil and gas pricing

As a part of the Petroleum Policy 2007, the government has decided to remove the cap of $36 for oil and gas wellhead prices, and put in place the new zone-based formula for making oil and gas sector more attractive for the exploration and production (E&P) companies. To give different incentives to the investors, Pakistan has been divided into three zones.
Zone 1 includes West Balochistan, Pashin and Potohar basins. Zone 2 comprises Kirthar, East Balochistan, Punjab platform and Suleman basins. Zone 3 has lower Indus basin. The draft of the new policy, made available to Business Recorder, mentions wellhead prices for different petroleum products.
THESE ARE:
CRUDE OIL:
The producer policy price for crude oil delivered at the refinery gate shall be based on the C&F price of a comparable crude oil or a basket of Arabian/Persian Gulf Crude oils plus or minus a quality differential between the comparable crude oil/a basket of crude oils and the local crude oil. No other adjustment or discount will apply.
CONDENSATE:
The Producer Policy Price for condensate will be the FOB price of internationally quoted comparable condensate delivered at the refinery gate. No other adjustment or discount will apply.
LIQUEFIED PETROLEUM GAS (LPG):
For new projects, the LPG price will be determined by the market, under a deregulated regime.
COMPRESSED NATURAL GAS (CNG):
For new projects, the compressed natural gas price will be determined by the market, under a deregulated regime.
The nominal price, to be used for the calculation of royalty following the sale of compressed natural gas, shall be the equivalent zone price for natural gas as outlined below.
GAS PRICING:
For all gas pricing, a reference crude price (RCP) equal to the CNRF price of a basket of Arabian/Persian Gulf crude oils imported in Pakistan during the first six months period of the seven months period immediately preceding the relevant price notification period as published in an internationally recognised publication acceptable to the parties will be used.
MATURE BASIN PRICE FOR ZONE-3:
For zone-3, the mature basin price shall be calculated using three linear formulae as follows.
Reference crude price (RCP) equal to or greater than $10/bbl and up to and including $20/bbl.
GAS PRICE FOR ZONE-2:
For zone 2, the gas price for zone 2 shall be calculated using additional premiums to address the issue of more complex reservoir targets as follows.
Frontier areas pricing incentives for zone 0 and zone 1, the frontier area price (FAP) shall be applicable and calculated using pricing incentives (PI) as follows.
ZONE 1 PRICING INCENTIVE TAPER:
For zone 1 a PI taper will apply based upon a pro-rated of distances of 115 km or less from the outlet flange of the production facility to available third-party trunk line which is nominated to be the pricing point (field gate). At a distance of 25 km or less PI=USD 0.25 for each 10 km, over 25 km the PI will increase in proportion to the distance by USD 0.05/MMBTU to PI =USD0.7/MMBTU at 115 km.
Voluntary relinquishment of zone 1 pricing incentive. Operators in zone 1 may elect to have the field gate located within a 25 km radius from the outlet flange of a production facility, in order to circumvent the requirement to construct a pipeline from the gas field to a field gate located at the nearest transmission system. Such operators will not be entitled to receive the zone II pricing incentive and will instead receive a gas price equal to the Price for zone 2. It is the operator's responsibility to establish if a third party is interested and willing to contract with it to provide this service. The GOP is under no obligation to provide this service.
ASSOCIATED GAS PRICING:
The price for associated gas shall be equal to the price of non-associated gas in the respective zones.
SALES OF GAS TO THIRD PARTIES:
Where natural gas is sold to parties other than the Government of Pakistan, the price to be used for the calculation of royalty will be determined at the field gate in line with the rules.
EXTENDED WELL TESTING GAS PRICING:
Gas from Extended Well Tests (EWT) will be priced at the field gate at the Zone 3 price. If the gas from the EWT scheme is considered off specification, it will attract a discount equivalent to the lowering of the quality. This quality discount will be negotiated at the time between the parties. The gas will only be accepted provided it does not contain 'non inert' impurities that would affect the commercial value of the bulk stream. EPS facility gas prices and conditions will fall under the conventional gas pricing requirements outlined in section 11.2 above.
For the first time in Pakistan's history, the oil and gas pricing formula will differ from zone to zone and E&P companies will get different price of gas and oil price for different zones.
The new oil and gas formula will be the most important factor of the Petroleum Policy 2007 as the government will rely on it to attract local and foreign investment for oil and gas sector.
Oil and gas sector is the leading sector to secure huge investment for Pakistan during the last few years and in a bid to make it more attractive for the investors the government has worked out a new Petroleum Policy to be announced shortly.
The officials of the Ministry of Petroleum are holding meetings with the consultant, who prepared the draft of the policy in Islamabad, on daily basis and are trying to make the new policy as much attractive as possible.