Challenges and Strategies to Sustain Exploration-driven Oil & Gas Supplies to Pakistan

For the last 12 years, sustaining oil and gas production and replacing reserves has been a serious challenge for Pakistan’s domestic exploration & production (E&P) sector. Economy has become vulnerable to the energy security threats. All the petroleum basins and plays mature or ‘cream out’ with time; larger and more obvious fields were discovered early in the exploration life of Indus Basin, followed by medium and then smaller fields (Figures 1 & 2). New discoveries ensued (rising limb on the creaming curve) with technological advancements or access to new geological plays or geography, but followed by the flattening trend again. If continued with the same approach, in the same accessible and maturing basins and plays, the depleting reserves would not be replaced due to smaller discoveries. In that backdrop, strategies and new avenues of exploration are being discussed and evaluated here.??

Energy forecasts show that oil and gas particularly indigenous supplies would remain significant fuel and energy source for Pakistan over the next 2-3 decades despite readjustment of country’s energy mix and improvement in energy efficiency standards. In E&P business, new value is created through “Exploration,” the starting point of “petroleum value chain.” New reserves added through exploration (organic growth) cost?2-4 times less than the acquisition of a producing field which only temporarily helps maintain production. Since exploration ventures involve only 20-60% chance of success, there are multiple benefits of such foreign “risk investment” to an oil importing country like Pakistan:?(1) Saves foreign exchange ($), (2) Supports other businesses and generates economic activities, and (2) Spares funds to spend on unproven high-risk high-reward opportunities in under-explored remote regions.

It is critical to understand and redress the exploration business drivers, processes and inherent geological challenges involved with the sustained, successful, timely and operationally cost-effective exploration (Fig. 3). Only then the right incentives and support can be designed and provided to help access and unlock this potential.?

Inherent and Operational Challenges

Size of the prize, fiscal regime’s stability and timely operations are three of the top five risks in the risk registers of International Oil Companies (IOC) and small or mid-sized Independents operating worldwide. Exploration business challenges [Dr.Nadeem1]?specific to the Indus Petroleum Basin and its peripheral regions (Fig. 2) are: 1) Geological viability and opportunity size vis-à-vis investment size, 2) Pay-back time, 3) Under-explored areas’ rugged terrain and geopolitics, and 4) Operational bottlenecks.

IOCs' next decisions of new country entry or expanding to its other basins or plays are based on the assessment of “access” to the geography and technology, local communities’ engagement, operational doability and security, scalability and longevity of the business. A prudent strategy built on sound subsurface geological and technical foundations and its timely and successful execution on the ground requires well-integrated subsurface geological and technical operations, fool-proof Security and local communities' engagement. This is where IOCs look towards the local governments and their NOCs to screen and comb the remote, rugged and/or technologically difficult regions where next big prize and ‘cream of the crop’ lies (Fig. 1, 2). To that end, the NOCs will have to play their vital role in bringing the risk of “Access to Geography” down in the range of IOCs’ risk appetite by combing the prospective corridors or play fairways for safe and efficient seismic and drilling operations.

Exploration Performance and Low to High Risk/Reward Opportunities?

A basin’s remaining potential is determined by its exploration history (geological & geophysical surveys, evaluations and exploratory drilling), discoveries and trends of new reserves added through time, and timely deployment of right technologies & workflows. Later two also define the exploration performance of the basin. Top-down and bottom-up assessments show that the Kirthar Fold Belt, Sulaiman Fold Belt’s interior and the westernmost part of the Bannu-Kohat Basin (Waziristan) are in emergent or yet-to mature stages. Significant yet-to-find resources have been estimated: 800MMBOE (gas) and +400MMBOE (oil) in the northwestern Upper Indus, and ~1,400 MMBOE gas and over 300MMBOE liquids in Middle Indus Sulaiman Foldbelt area. Over 600MMBOE gas and nearly 170MMBOE liquids in ‘yet-to-mature’ sub-plays of Kirthar fold belt?(Fig. 1).

Unfortunately, after initial successes in 1950s to 1990s, IOCs except MOL restricted themselves to the accessible and doable regions of discovered trends. Work programs in the rugged terrains of Inner fold belts (basins #1c, 2ai, 2aii) remained stalled on the pretext of security threats. Moreover, E&P companies drilled sizeable prospects only in these areas of convenient doability and infrastructure, and deferred or downgraded the smaller commercially challenging ones. But when these opportunities changed hands, smaller ‘local specialists’ or ‘niche’ players drilled and developed these opportunities in more economical and expedited manner due to their lower overheads and better operational agility. This explains the staggering performance of petroleum basins of Pakistan, and a high unlocked oil & gas remaining potential in exploration targets as well mature fields.

In the backdrop of above business imperatives of yet-to-find, new plays’ potential, accessibility and operational doability vis-à-vis E&P companies’ size, capacity and SWOT, we can further divide the basins and play fairways of Pakistan (Fig. 1) into the following categories:?

1)??Mature and accessible basins: (a) Conventional structural traps. Draw interest of low appetite small-sized companies. (b) Technology- and capital-intensive targets in mature basins. Stratigraphic traps, Tight and Basin-centered gas and Shale Gas. IOCs and mid-sized Independents’ play area, and (c) plays at deeper and shallower depths in proven basin. Appeal to small- to mid-sized Independents with local experience.?

2)??Unproven remote inaccessible or highly technology-intensive capital-intensive Plays:?(a) Geological plays in under-explored rugged terrain: (i) Extension from proven plays of nearby accessible regions (Fig. 1), and (ii) Unproven plays in the interior of Sulaiman and Bannu-Kohat Fold Belts, and southern Baluchistan. (b) Offshore basins - High risk appetite players; IOCs and large Independents.?(i) Eastern shallow Indus Offshore (extend plays from nearby onshore proven petroleum system),?and (ii) Deep-water Indus Offshore, Makran Offshore and Murray Ridge.

Energy Security paradigm – Role of Exploration-driven Oil & Gas Supplies

‘Imported’ crude and refined petroleum products make 82-83% of our total consumption. Domestic crude oil production (89kbo/d) is 33% of the total crude we use (93 MMbo). Imported gas which amounted to about 200 Bcf (LNG) in FY2018 makes ~15% of the indigenous production. We paid $4.3 billion for the crude oil imports and over $2 billion for gas (LNG) in FY2018. Change in energy mix, power sector reforms and mass transit systems may reduce this consumption but simultaneous economic growth is expected to cause a net 7% yearly increase in imports.?

1.?????Sustaining Indigenous Supplies through Exploration-based New Reserves:

In the accessible and maturing Lower Indus, Potwar and eastern Bannu-Kohat basins (Basins 1a, 1b), average size of “yet-to-be-discovered” field (Prospect) is estimated at 0.4-1.0 MMbo depending on the play, with a chance of success 40-50% (Fig. 4). In the new unproven or emergent plays (Basins 1c, 2ai & ii, 2bi), this size is 5 to 30 MMboe, with a likely success rate of 15-25%. In order to deliver new oil reserves in the range of 20-30 MMbo each year to maintain at least the current indigenous production levels, E&P companies would have to drill 75-150 wells in the accessible matured basins, or 8-25 wells each year in the under-explored remote basins (basins 1c & 2). Discovery of a Giant every 2-3 years can significantly enhance the above forecasts.?

Indigenous gas supplies involve even a wider range of complexities. A few to refer are wellhead & midstream to marketing issues, economic viability of stranded and tight gas / shale gas involving 50-100% higher capex/opex. To replace 1.4-1.6 Tcf gas as produced each year, 20-50 small and large discoveries?have to be made by drilling 70-100 exploration wells (assuming success rate of 40% and field size of 20-100 Bcf), in accessible proven petroleum basin. Or, in new plays of remote under-explored regions (Basins 1c, 2aii, 2b of field size 200-400 bcf per discovery), 15-25 high-risk exploration wells would have to be drilled each year assuming a success rate of 20-30%. Drilling these wells involve 2-3 times higher capex/opex and requires high-graded combed-out acreage, more in the under-explored frontier basins (Figure 1; 2ai, 2aii, 1d basins) and less in matured accessible regions (1a – 1c basins). An optimal mix of the two makes a diverse and robust portfolio which E&P companies strive to build at a basin, county or global scale.

Based on the rationale of right project for the right business/operator (vis-à-vis company’s size, capacity and SWOT analysis), regulators and NOCs or Joint Ventures (JV) may have to engage smaller more appropriate Independent E&P companies for tier-2 and -3 acreage of smaller opportunities (basin 1a).?

Frontier basins (basins 1c and 2aii & 2b; Zone-I, 2 & O) require a cost- and technology-intensive exploration efforts. Countries like Norway, www.npd.no/en/, allow E&P companies to reimburse up to 78% of their exploration costs from taxable income of that field. Pakistan also offers similar compensation on exploration wells but to a much smaller extent. Such incentives can remove initial blockades of new country entry or expanding to frontier remote regions.?

2.?????Securing Exploration-based Reserves in Overseas Basins to Minimize Import Bill:

Due to the global phenomenon of maturing of petroleum basins, IOCs having giant fields continuously add new countries and basins to their portfolios in order to access new emergent Plays which deliver larger fields in their early exploration history. Recent examples are: Statoil, Petrochina & CNPC, PTTEP, Petronas, Kufpec and India’s ONGC Videsh. Pakistan needs to adopt strategies to access foreign supplies at a minimized cost by participating in exploration projects and securing organically-added “petroleum reserves” at the source in overseas Basins. NOCs use G2G arrangements to secure overseas exploration acreage (Kufpec, ZhenHua). Operating or being part of an exploration joint venture under Production Sharing Agreement (PSA) or other contracts would help secure Reserves and bring home 30-50% cheaper and economical oil and gas / LNG (“profit oil” concept).?Few strategic options are:?

i) New Exploration Acreage in Overseas Basins through SWAP with International Oil Companies

Public sector NOCs have built a vast database, deep knowledge and experience of the local geological plays. Using this and the knowledge of local communities, these companies can more effectively gain operational access to the remote under-explored terrains, and perform initial seismic surveys and evaluations to create value through an initial smaller “risk investment” (Fig. 1). Identification and de-risking of the subsurface plays and prospects bring these drilling opportunities within the risk appetite of IOCs and Independents who are keen to farm into geologically and geopolitically de-risked regions with operational access. Such carefully selected JV partners , open to swapping “equity” in their overseas exploration blocks, offer additional benefits of knowledge, technology and experience exchange and foreign?“risk investment” for capital intensive part of oil & gas field appraisal & development in Pakistan. In return, the country can book and access exploration-based reserves overseas while securing energy at the source (oil, LNG or gas through IP-TAPI pipelines) at a 30-40% lower cost.?

ii) Central Asian Basins’ Access to maximize benefit of TAPI & IP pipelines; Swap Gas with Iran:?

Iran imports ~1 Bcf/d from Turkmenistan for its northern stranded cities, separated from its own southern oil and gas rich basins by the rugged terrain stretched over +1,000 Km. Chinese and Russian companies are already operating in Turkmenistan’s gas-rich Amu Darya basin where world class giant fields like Dauletabad (60 Tcf), Shatlyk (35 Tcf), Yoloten (750 Tcf) and many more are located. China is already importing over 2 Bcf/day from there while Russia imports over 1 Bcf/d gas from this region of Turkmenistan. TAPI was initially planned by UNOCAL in 1997 to transport gas from the above mentioned Dauletabad field to the south Asian gas markets.

Operating or taking equity in the upstream ventures in Turkmenistan’s gas rich basins can help Pakistan in two ways: i) Supplying gas to Iran in the north and in return getting equivalent gas volume through I-P pipeline from its southern part without any cash 'payment', something that Turkmenistan is also doing under 'food for oil' program (Figure 5), ii) while TAPI pipeline is being built, Pakistan’s public sector companies in strategic JV partnership with IOCs (ref. section 2 (i) above) may strengthen their position in other exploration & production assets in Turkmenistan and increase net production to pump own produced cheaper gas into the TAPI pipeline system. Synergy between the upstream and downstream operations and country’s share in I-P and TAPI pipelines may further economize the gas supplies to Pakistan’s markets.?

Use of above strategic options and operating or being part of a joint venture in exploration licenses in MENA region, emerging East African Offshore basins (gas, LNG) and Central Asia under Production Sharing Agreement (PSA) or other contracts can help bring home 20-40% cheaper economical oil and LNG (“profit oil” concept) over the period of next 4-8 years.

Dr.?Nadeem Ahmad is an avid technical writer, with many papers and articles on petroleum geosciences, business processes and strategies as applied in the field of exploration of oil and gas. With MS and Ph.D. in Geological Sciences from USA, he has rich experience of petroleum basins of North America, Northwest Europe, MENA region and Pakistan. He is Fellow of the Geological Society London, Active member of AAPG and serving on its Grants-in-aid Committee. He is currently serving as Chairman of PAPG and Chairman of Technical Committee, PAPG-SPE Pakistan’s Annual Technical Conference 2018. He also teaches voluntarily MS and M.Phil level courses at the universities and he is on Board of Studies of three universities in the field of geology and geophysics.??

References:

?1.?????Ahmad, N and M.R. Khan, 2011, Evaluation of a Distinct Sub-Play for Enhanced Exploration, Bannu-Kohat Sub-Basin, Pakistan. AAPG ICE 2011, MILAN. Also AAPG on Search & Discovery; https://www.searchanddiscovery.com/documents/2012/10391ahmad/ndx_ahmad.pdf

2.?????New Exploration Frontiers and Hydrocarbon Plays in the western basins of South Asia, 30 Nov., 2016, Linkedin Pulse.

3.?????Cost Efficiency and Operating Performance for Sustained Exploration Programs in Low Oil Price Environment. 20 Nov., 2016. Linkedin Pulse, and PAPG Technical Lecture Series 2017.?

4. Energy Yearbook, 2018, HDIP.

5. PPIS Annual Report, 2018.

PAPG (Pakistan Association of Petroleum Geoscientists- an affiliate of AAPG) and SPE Pakistan organize annual technical conference covering the Oil & Gas E&P related topics. https://www.atcpakistan.pk/

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