Dewan Petroleum is on the verge of financial collapse with $30 million default to International Finance Corporation (IFC) due to low gas production price offered by the government of Pakistan. "Dewan Petroleum has repaid $10 million to IFC while from October 2009 the company stopped paying its yearly instalments due to comparatively high drilling costs, compared to low returns", sources said.
Dewan's financial woes stem from the fact that the government has refused to renegotiate the provisional price of $2.89 per mmbtu subsequent to a gas find, as originally agreed. Additionally, the Petroleum Exploration and Production Policy 2001 envisaged a price not less than $4 mmbtu. However, the government continues to pay $2.89 per mmbtu instead of $3.98 per mmbtu, as per the 2001 policy.
The government awarded 84 contracts, under the 2001 policy, at the lower price but it is trying to convert 77 out of these 84 contracts to the proposed 2011 policy, which offers a rate of $6 per mmbtu for onshore drilling from existing $3-4 per mmbtu and up to $9 per mmbtu for offshore. "It is really unfortunate that Safed Koh is not being included by the government in the list of 77 fields", a Dewan employee told Business Recorder. "It is injustice that even at this meagre price of $2.89/mmbtu, Dewan Petroleum is paying 40 percent corporate income tax and 12 percent royalty", an official of Dewan Petroleum said.
Dewan's total investment was $200 million, out of which $40 million was a loan from IFC for installation of gas plant in Salsbile field in Safed Koh sector on September 2006.
According to sources in the Ministry of Petroleum and Natural Resources, Dewan Petroleum discovered 25 million cubic feet (mmcfd) gas at Salsbile field in Dera Gazikan district, Punjab, in 2005. Sources said that it continues to produce 25 cubic mmcfd gas while it has the capacity to explore 150 mmcfd. "Low gas wellhead prices paid by the government have compelled the company to produce 83 percent less than capacity", sources added.
Dewan Petroleum has the capacity of 150 million cubic feet per day gas (mmcfd) within a year if the government agrees to a reasonable price. The country at present is facing severe gas shortage, which according to Petroleum Ministry estimates, has crossed one billion cubic feet per day (bcfd).