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Govt Formulates Tight Gas Policy to Boost Exploration and Production

To bolster tight gas exploration in a technically and commercially viable manner, the Government of Pakistan has unveiled the Tight Gas (Exploration & Production) Policy, 2024.

This policy is strategically designed to incentivize both local and foreign Exploration and Production (E&P) companies to invest in unconventional hydrocarbons.

Recognizing the unique challenges posed by the exploitation of unconventional sources, the government acknowledges that extracting optimum production from tight gas reservoirs involves drilling multiple wells. This is in contrast to conventional wells, where a single well can produce up to 50 Million Standard Cubic Feet per Day (MMSCFD) of gas.

The economic model for unconventional sources becomes viable only when adequate returns are assured. Therefore, the policy aims to address these specific aspects, encouraging the oil and gas industry to invest in unconventional ventures.

The Federal Government is well aware that the extraction of value from tight gas reservoirs poses a considerable challenge to the entire oil and gas industry. It requires the utilization of state-of-the-art technologies for various processes such as seismic acquisition and processing, drilling, reservoir stimulation, and Field Development Plan (FDP), all of which entail massive investments with a longer recovery cycle.

Under ideal conditions, a single conventional well can produce around 50 MMSCFD of gas. However, in the case of tight gas, the same level of production may require drilling 10 to 50 wells, leading to a manifold increase in production costs. The policy aims to bridge the demand-supply gap, providing a fair pricing regime that is compatible with market realities and addresses the unique risks and challenges associated with the exploration of unconventional resources.

When implemented, the incentives of this Policy shall apply to the gas discoveries that qualify and are accepted as “Tight Gas” under the existing and future Exploration Licences (EL), Petroleum Concessions Agreements (PCA) and Development & Production Leases (D&P)/fields and Mining Leases (ML). The incentives will also apply to existing tight gas discoveries that have not been developed as of the effective date of this Policy.

For the purposes of this Policy, Tight Gas discoveries will be considered as ‘not developed’ where: field development plan (FDP) was not submitted; FDP was submitted but not approved; FDP was approved but the development program was not substantially carried out or it failed to meet its objectives.

All those Tight Gas discoveries that have received Tight Gas prices under Policy 2011 and are in production will not be eligible for a price under this Policy. However, all other provisions, including the procedure for certification as spelled out in this policy will apply mutatis mutandis to such Tight Gas discoveries.

In case of conflict in the general terms of an existing Petroleum Concession Agreement (PCA) or Oil Mining Lease (OML) or Development and Production Lease (D&PL) and this Policy, the provisions of this Policy shall prevail in respect of Tight Gas. However, the other rights of the Operator will continue to prevail as per PCA/OML/D&PL of the respective block/field.

In order to avail the incentives of this policy a Model Supplemental Agreement (SA) shall be developed and SA to the respective Petroleum Concession Agreement (PCA) shall be executed.

Pricing Policy

In order to exploit Tight Gas Reserves, the applicable price for Tight Gas as defined in this Policy, shall be a 40 percent premium on the respective zonal price of Petroleum (Exploration and Production) Policy 2012.

The above Tight Gas price incentive will be applicable from the date of the notification of this Policy to all Tight Gas discoveries under the existing and/or future exploration licenses, Petroleum Concessions Agreements (PCAs), Mining Leases, and Development and Production (D&P) leases that satisfy qualification of Tight Gas under Section 4 of this Policy and are accepted as Tight Gas following the process set forth herein.

OGRA/any authority as may be notified by the Federal Government shall notify provisional incentive price without EWT discount once the Initial Third-Party Certification confirms the discovery as Tight Gas discovery. Any pending execution of a formal supplemental agreement shall have no bearing on notification of this provisional price. In this regard, the Regulator/Authority shall issue appropriate policy guidelines to the PDA/OGRA.

Final incentive price will be notified once D&PL/OML has been granted.

After having the approval of the Government in writing, the Operator with the consent of the JVPs may sell the gas to third parties within Pakistan at mutually negotiated prices but not less than the price offered in Tight Gas (Exploration & Production) Policy 2024. Moreover, the Government has the first right of refusal.

Notwithstanding the above, the incentives of this Policy shall be applicable on projects that have been certified within ten (10) years w.e.f. the notification of this Policy.

Royalty

Royalty will be payable at the rate of 12.5% of the value of petroleum at the field gate.

Tax Loss Carry Forward

Operating loss can be carried forward to a period not exceeding fifteen (15) years.

Abandonment Costs

As per Finance Act 2010.

Windfall Levy

Windfall levy will be applicable as per Petroleum Policy 2012.

Other Fiscal Levies

If both conventional and tight gases are produced from the same D&P lease, lease rental, production bonus, training fee, and community welfare shall be levied once and shall not be duplicated.

Production Suspension

Suspension of production for a cumulative period of one year will be allowed to Operator subject to technical and economic justifications.

A company concerned shall be deemed to have suspended the production in a month if the production is suspended for more than 15 days on account of reasons other than (i) force majeure and (ii) planned plant shutdown for maintenance in accordance with the provision of the Gas Sales Agreements. After the expiry of the said period, the Regulator/Authority may grant a further extension on case-to-case basis subject to justification acceptable to the Regulator/Authority

Remittance of Proceeds Abroad

The provisions of Petroleum Policy 2012 shall be applicable.

Review of Tight Gas (Exploration & Production) Policy

The Tight Gas (Exploration & Production) Policy may be reviewed after five years, except for the List of Consultants / Laboratories (Section 7), which shall be reviewed from time to time during the term.

Incentives for Service Sector

In order to incentivize the transfer of technology and deployment of state-of-the-art equipment and machinery for the exploration and production of Tight Gas, the equipment and machinery by the services sector shall be exempted from Customs duty or other duties. Necessary amendments in the existing S.R.O. shall be made accordingly.

Representation

In the event the operator or the WIO is aggrieved by the final decision of the Authority as regards the determination of the Tight Gas under this policy, representation may made to the Petroleum Division within 30 days from the date of such decision.

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