The Pakistan Petroleum Limited (PPL) has tendered an apology for investing $17.5 million in OMV Yemen without prior consent of the government, a top Petroleum Ministry official told Business Recorder here on Monday. PPL is a leading oil and gas exploration and production (E&P) company. The government is the majority shareholder of the company with equity interest of 78.4C.
The Economic Co-ordination Committee(ECC) of the Cabinet, in its meeting on April 13, had expressed serious reservations over PPL's action and directed the Petroleum Ministry to seek an explanation from the top management as to why the rules and regulations for investment abroad were defied. The ECC members were annoyed over PPL decision, and slapped a ban on ex post facto approval of investment, in future, by Pakistani companies abroad.
"PPL has apologised for the mistake which we sent to the Cabinet Division as part of compliance report," the official said. He, however, added that it was the prime responsibility of Finance Ministry to clarify the position to the firm, but unfortunately it failed to do so.
PPL has entered into a joint venture (JV) with OMV (Yemen) for exploring opportunities in Yemen. OMV (Yemen) is a subsidiary of OMV Aktiengesellschaft (an Austrian E&P Company). PPL / OMV has 50:50 partnership in joint venture and was awarded block-29, located in the north-east of Yemen with an area of 9,237 square km, in December 2006 through competitive bidding by the Yemeni government .
The Production Sharing Agreement (PSA) for the block was signed between the Ministry of Oil and Minerals, Yemen, and PPL/OMV joint venture in April 2008 and has been ratified by the Yemeni Parliament. The work program for Yemen's block-29 mainly comprises 2D seismic data acquisition, gravity survey and drilling of one exploration well. Besides, a signature bonus of $1.5 million (PPL's share $0.75 million) is to be paid immediately, after approval of the PSA by the President of Yemen.
The cost to fulfil the committed exploration work program has been estimated to be around $35 million (PPL share $17.5 million). The contractual financial commitment of $15 million stipulated by the Government of Yemen (GoY) represents the joint obligation in case of non-fulfilment of committed work program payable as liquidated damages to GoY.
The issue of foreign exchange requirement of PPL for block-29 Yemen was taken with Finance Division which advised that equity investment proposals above $5 million required to be submitted to ECC for approval and that since PPL had signed the agreement in April, 2008, ex post facto approval in the matter of ECC be obtained.
PPL considered that there are good prospects in the Middle Eastern region to make inroads at this stage that would go a long way to earn not only foreign exchange but also secure energy requirements of the country. The conditions for investment are considered conducive in Yemen and capital and profit repatriation is allowed, claimed the Petroleum Ministry.
The block awarded covers an area of 9,237 square kilometres and a discovery of 50 million barrels of oil, being on the conservative side, will yield a post-tax NPV of $86 million out of which PPL's 50 percent share will be $43 million. In case of a discovery, the working petroleum system will be established and there could be multiple such discoveries in the 9,237 square kilometre area and thus would multiply the NPV commensurately.
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