KARACHI: Pakistan Petroleum Limited (PPL) plans to spend more resources on extracting natural gas from hard-to-reach underground

reservoirs as most of the conventional blocks have already been explored, a top company official said.

This means capping cash dividends at the current level and building up liquid reserves for expenditure, which is essential to boost the companys profitability, Khalid Rahman, Managing Director PPL, told The News in an interview.

Parts of the country, such as a vast area in Balochistan that has not yet been properly explored, continue to remain prone to security risks, making it difficult for exploration companies to operate there, he said.

We need to work a lot on tight and shale gas reservoirs, he said. But any such venture has to be economically feasible for petroleum companies.

State-run PPL plans to start study on prospects of shale gas in Middle Indus Basin (MIB), which covers blocks mostly in Sindh, he said. Work will start from February. We have signed an agreement with ENI in this regard.

This marks a turning point for energy-starved Pakistan, which according to senior officials of Schlumberger, the worlds largest exploration and production (E&P) service provider, holds large quantities of shale gas.

Shale and tight reservoirs are deposited in rock formations that have low permeability. Techniques like hydraulic fracturing are used to create artificial holes for flow of gas. Technological advancement in recent years has made extraction from these reservoirs possible.

PPL is already using hydraulic fracturing and horizontal drilling techniques, Rahman said. Everything boils down to high cost associated with such a programme, he added, indicating that better gas price would encourage production from unconventional resources.

A draft of tight gas policy, prepared by the Ministry of Petroleum in consultation with the industry, offers 40 percent more return than the 2009 petroleum policy. But it still falls short of properly incentivising risky exploration, he said.

For example, development of tight gas reserves in Kirthar Block (in Sindhs Dadu district) has remained lukewarm because of poor economy, he said. A lot of other expenses also matter, like quantity of nitrogen in gas that has to be removed. A plant to do that may cost $100 million.

PPL has stakes in 32 onshore and offshore exploration blocks in the country, 14 of which it acquired last year. Amid criticism for doing little to replace fast depleting reserves while sitting on billions of rupees in profit, the management has been expanding its portfolio since last year.

Rahman said that the number of wells drilled in a specific period was not the benchmark for judging a companys performance. The company is currently drilling five wells- two each in Nashpa and Tal and one in Sui. Just maintaining production from existing fields can be very difficult. Everyone must remain patient. While PPL faces no immediate financial crunch despite Rs20 billion stuck in inter-corporate circular debt, he said that the management has to exercise restraint in awarding the shareholders.We have to make PPL a sustainable organisation. The way things are going, we have commitment of spending between $300 million and $500 million, he said. If things go well, we could be spending much more. He said the company cannot afford dishing out everything to shareholders, especially when lenders are unwilling to finance PPLs riskier investments. Cash dividends will be kept at the present level and bonus shares will be issued to compensate the shareholders, he added.

In fiscal 2009/10, PPL announced Rs4.979 billion in dividends (Rs9 per share) in addition to Rs1.992 billion in bonus shares. In the first (July-September) quarter of 2010/11, it avoided giving dividend.

This year, PPL plans to maintain its production at 970 million to 1 billion cubic feet per day. It reported a net profit of Rs7.789 billion in July/Sep 2010, a 56 percent rise against the same period of previous year.

Shale Gas Reserves in Pakistan

Reports of new gas reserves of 40 trillion cubic feet are specially welcome at this moment in Pakistan when it is facing a very serious and growing energy crisis. The US Energy Information Administration (EIA) puts the estimates even higher at 51 trillion cubic feet. Even if the demand doubles from the current one trillion cubic feet a year to two trillion cubic feet a year, the estimated current gas reserves can last as long as 30 years or more.

Pakistan is particularly heavily dependent on natural gas for its energy needs. Demand for natural gas in Pakistan has increased by almost 10 percent annually from 2000-01 to 2007-08, reaching around 3,200m cubic feet per day (MMCFD) last year, against the total production of 3,774 MMCFD, according to Pakistani official sources. But, during 2008-2009, the demand for natural gas exceeded the available supply, with production of 4,528 MMCFD gas against demand for 4,731 MMCFD, indicating a shortfall of 203 MMCFD. The gas supply-demand imbalance is expected to grow every year to cripple the economy by 2025, when shortage will be 11,092 MMCFD (Million standard cubic feet per day) against total 13,259 MMCFD production. The Hagler Bailly report added that Pakistan's gas shortage would get much worse in the next two decades if it did not bring on any alternative sources. Shale gas offers an alternative source for energy-starved Pakistan. Rough estimates indicate the presence of at least 33 trillion cubic feet of unconventional gas reserves trapped in rocks, according

to an ENI Pakistan report. Another report by Shahab Alam, technical director of Pakistan Petroleum Concessions, puts the estimate at 40 trillion cubic feet of tight gas reserves in the country. These unconventional gas reserves are in addition to the remaining conventional proven gas reserves of over 30 trillion cubic feet.

With the pioneering work done in the United States on deep drilling and hydraulic fracturing (fracking) to extract hydrocarbons from shale rock, it is now estimated that the US alone has over 1000 trillion cubic feet of recoverable unconventional gas, according to the Wall Street Journal. Unlike the bulk of world's conventional natural gas reserves that are found in Russia, Iran, Venezuela and Qatar, the shale gas reserves have been discovered in rock formations spread across many parts of the world, including Australia (396 TCF), China (1275 TCF), North America (1931 TCF), South America (1225 TCF), Europe (639 TCF), South Africa (485 TCF), India (63 TCF) and Pakistan (51 TCF). Many energy analysts argue that tapping these new hydrocarbon resources could be a game-changer in terms of global economics and geo-politics.

Increased production of gas from shale in the US has created a glut, pushing down gas prices from $13/BTU (million British thermal units) four years ago to just $4.23/BTU today, even as the price of oil has more than doubled. By contrast, the Iran pipeline gas formula links the gas price to oil

prices. It means that Pakistan will have to pay $12.30/BTU at oil price of $100/barrel, and a whopping $20/BTU for gas if oil returns to its 2008 peak of $150/barrel. To encourage investment in developing domestic shale gas, Pakistan has approved a new exploration policy with improved incentives as compared with its 2009 policy, a petroleum ministry official said recently. Pakistan Petroleum is now inviting fresh bids to auction licenses to explore and develop several blocks in Dera Ismail Khan (KPK), Badin (Sind), Naushero Firoz (Sind) and Jungshahi (Sind), according to Oil Voice. Under the new policy, exploration companies will be offered 40-50% higher prices for the extracted gas compared with the $4.26/Btu price announced in Exploration and Production Policy 2009. Companies which succeed in recovering gas from tight fields within two years will get 50% hike over the 2009 price and if it takes more time they will get only a 40% hike on the 2009 price. As an added incentive, the leases for the fields will now be for 40 years instead of 30 in the 2009 policy, the official said. Even with the higher prices for the tight gas offered to the exploration companies, it is estimated that Pakistan will have to pay a maximum of $6.50/Btu for the gas compared with $12.30/Btu for gas imports, according to a report by Platts. Although it does burn much cleaner than coal and oil, the process of extraction of shale gas in Pakistan, or anywhere else, is not without risks, particularly risks to the environment. In the United States, there have been many reports of ground water contamination from chemicals used to fracture rocks, as well as high levels of methane in water wells. In the absence of tight regulations and close monitoring, such pollution of ground water could spell disaster for humans and agriculture. Given Pakistan's heavy dependence on natural gas for energy and as feedstock for industries such as fertilizer, fiber and plastics, it's important to pursue shale gas fields development under reasonably tight environmental regulations to minimize risks to the ground water resources.

Government open new E&P opportunities to explore unconventional gas reservoirs

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Islamabad, Government will continue to open new Exploration and Production E&P opportunities in line with global shift to explore unconventional gas reservoirs and ensure enabling business

environment to attract international expertise and investment, says Secretary Petroleum Mohammad Ejaz Chaudhry, He was speaking at special session on Exploiting Shale Gas in Pakistan ahead of SPE-PAPG Annual Technical Conference 2011 hosted Monday by Pakistan Petroleum Limited which drew high-level participation from government representatives, management, technical staff of leading local, international E&P companies. Chaudhry lauded PPLs efforts in serving as conduit for drawing local and international attention to prospects for shale gas exploration in the country. Managing Director & CEO PPL Asim Murtaza Khan said session was meant to bring shale gas exploration on countrys E&P map and encourage participation by leading international E&P players in dialogue around policy and fiscal framework necessary for a breakthrough. He hoped it will provide platform for knowledge sharing, fuel further strategic interest, engagement by international E&P community in exploiting shale gas resources in Pakistan to meet future energy needs in face of depleting conventional reservoirs. Local and foreign delegates presented papers in session chaired by Peter Seitinger, General Manager, OMV (Pakistan) Exploration Gmbh. These included Methodology & Technology for Prospecting Unconventional Plays, especially Shale Gas, in Pakistan by PPL General Manager Exploration Moin Raza Khan, Senior Manager Dr. Nadeem Ahmad, Lessons Learned: Shale Gas Exploitation in Poland by Marcin Jzwaik of PGNiG Technologie Sp. zo.o, Shale Gas Exploitation in North America and its Replication in Pakistan by Robert Kuchinski, Wireline Business Development Manager, Weatherford, Middle East & North Africa. A roundtable was held on Technical, Commercial & Fiscal Strategies to promote Shale Gas Exploitation in Pakistan. At end of session, Khan said he looked forward to enhance business linkages between Pakistan & Poland through PGNiG, a PPL joint venture partner, in exploiting unconventional reserves in Pakistan. Preliminary estimates suggest 65 Tcf of shale gas resources within the countrys accessible basins and regions.

SMMC/SC/212/11
Closing Date: January 27, 2012 at 15:00 hrs Value: Rs 300 Description: Extension in Closing and Opening Dates

Invitation of technical and financial bids for Geophysics and Petrophysics consultancy/ advisory services. Please see below details about the consultancy services:

Geophysical and Petrophysical Services for Shale Gas/ Tight Gas Exploitation Pakistan Petroleum Limited (PPL) is a pioneer in the exploration and production of oil and gas in Pakistan. Apart from the hydrocarbons found in conventional reservoirs, a great deal of gas is also trapped within the unconventional reservoirs (Tight Gas & Shale Gas) which are being produced successfully on commercial bases in other parts of the world. In view of the looming energy crisis and in an attempt to bridge the demand-supply gap, PPL has taken a solid step forward by initiating the Unconventional Resource Exploitation program. With a strong R&D element aimed at generating necessary prospecting and technical data to start Production Pilots, this exploitation program has short-, medium- and long-term goals. Short-term phase is aimed at generating production and commercial scenarios based on laboratory analyses, regional G&G evaluations and drilling of pilot wells to locate the Tight Gas/ Shale Gas Sweet Spots and produce this vast gas resource. SCOPE AND OBJECTIVE Given the urgency of the programme and peaking G&G activities due to a very busy exploration program in 19 operated blocks and 16 partner-operated blocks, PPL is building a team of dedicated subsurface service providers to bridge the specific skills requirements for the exploitation of Shale Gas and Tight Gas. The company therefore invites qualified, able and experienced service providers (including individuals) to bid their services for (1) QI Geophysical Services with strong background in Rock Physics, and (2) Petrophysical Services with strong background in reservoir & production geology to coordinate and perform the Tight Gas and Shale Gas specific tasks as given under the Tasks & Responsibilities available in the Bid Invitation document. Brief description of these specialized services is being provided below: 1. QI GEOPHYSICAL (ROCK PHYSICS) SERVICES The services of full-time Geophysical Service Provider shall include the coordination and performing of the tasks related to QI Geophysics (especially Rock Physics/ Inversion), with full accountability from initiation of relevant studies/ analyses to the stage of spudding a Tight Gas/ Shale Gas well and post-well evaluation. 2. PETROPHYSICAL SERVICES The services of PETROPHYSICAL service provider shall include initiating, coordinating (where out-sourced) and performing (where done in-house) the tasks of specialized core and log analyses, rock mechanics and Frac feasibility as related to the Tight Gas and Shale Gas exploitation, with full accountability from initiation of relevant studies/ analyses to the stage of Frac and post-well evaluation.

Potential service providers (including individuals) are requested to submit separate Technical and Financial bid proposals for each of the above listed specialized services, in strict compliance with the terms and conditions set forth in this Bid Invitation document by above deadline. Short-listed candidates would be interviewed before final selection. Kindly note that Service Providers will provide services strictly as third party contractors through service contracts and their employees at no point will be treated as PPL employees. To obtain Invitation to Bid document and further information please contact k_ajmal@ppl.com.pk or visit our offices at: Resident Manager, Pakistan Petroleum Limited House No.59-A, Ismail Zabeeh Road, Faisal Avenue, Sector F-8/4, Islamabad - Pakistan Tel No. +92-51-2851740-44 & 2260770 Fax No. +92-51-2261466 Senior Manager Materials & Contracts Pakistan Petroleum Limited PIDC House, 4th Floor, Dr. Ziauddin Ahmed Road, Karachi-Pakistan Tel No. +92-21-111568568 (4458,4468) Fax No. +92-21-5683467/5680005