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Bahria University

Islamabad Campus
Midterm Examination (Spring -2010)
Department of Management Sciences

Instructor: Professor Col (Retd) Manzoor Iqbal Awan

Program: BBA VI (Sections D, E & F) Course: Conflict Management

CASE STUDY

1. This handout forms the basis for answering Questions 4, 5 & 6


2. You may bring this to the examination hall and consult during the examination

Narrative

Petroleum Policy of the Government of Pakistan focuses on accelerating exploration and


production activities in the country. It is aimed at achieving maximum self-sufficiency in energy
by increasing oil and gas production. The government is committed to accelerating the
exploration and development program to reverse the decline in crude oil production and increase
domestic gas production and supply. A Directorate General of Petroleum Concessions (DGPC)
operates under the Ministry of Petroleum & Natural Resources that enables a more proactive
management of resources.

All local and foreign companies presentably operating in Pakistan are eligible to acquire
petroleum rights. In order to grant such petroleum rights, DGPC designates the areas of interest
as blocks. These blocks are allotted through an open bidding process. The following extracts
from the Government’s Petroleum Policy lay down the process for allotment of such blocks:

“It is a prerequisite for this Block Award Process that the standard Model
Agreements are followed. All applicants will be required to follow the Model
Agreements. The new process will be as follows:

(a) A company can apply for a block in accordance with the laid down grid
system and the rules without a Work Program.
(b) Offers will be invited through the press within 15 days thereafter from
interested E&P companies.
(c) The first applicant company and any other company wishing to compete for a
block will have 30 days to submit sealed bids specifying the Work Program
and the related minimum Financial Obligation in US dollars. The GOP
reserves the right to seek a bid bond of an appropriate value. All the economic
terms and conditions will remain fixed as defined in this Policy, unless
relaxed by the GOP.

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(d) Bids will be opened in public and the winner decided on the basis of the best
Work Program and related Financial Commitment offered. The first applicant
company may be given the opportunity to match the best Work Program and
Financial Obligation. This however, cannot be claimed as a matter of right. If
no competing bids are received, the first applicant company can be
considered for award provided the company has the technical and financial
standing and offers a reasonable Work Program commensurate with the
prospectivity of the area.
(e) Applications submitted by OGDC will also be subject to the same process.
(f) If a company applies for a Reconnaissance Permit and another for an
Exploration License, preference shall clearly be given to the applicant for the
Exploration License.
(g) A Model Production Sharing Agreement will be prepared by consultants after
necessary amendments in the law. This will be available from 1st January,
1998.”

One such block advertized for allotment thorough bidding was named “Sukkur Block” situated
in the province of Sindh. In response a number of companies put in their bids, with those of
MGCL and PEL meeting all the criteria in terms of Work Program and Financial Commitment.
While PEL’s bid for Sukkur Block had an edge in terms of Work Program (3 well as against 2 of
the MGCL), the MGCL had made higher Financial Commitment. Thus both expected the award
in their favors. The office of DGPC evaluated all the bids and as a result of that evaluation, the
award was announced in favor of PEL. MGCL contested that at various forums ferociously.

Profiles of MGCL and PEL as contained in their respective websites are attached. Other
peculiarities that impact this case include:

a. MGCL inherited its structure from the USA firm ESSO Eastern when it divested its
investment from Pakistan in late 1950s. The latter had discovered this field and
subsequently used its gas for the production of fertilizer (urea) in a nearby production
facility. The company is operated institutionally through a 14-member board of directors,
with the Managing Director appointed for a fixed tenure of 3 years.

b. Mari Gas is public limited company, listed on all the stock exchanges of the country. It is
owned jointly by Fauji Foundation (40%), Oil & Gas Development Company Limited
(20%), Government of Pakistan (20%), and general public (20%). These are represented
on the Board of Directors in the ratio of their share holding. Fauji Foundation has been
granted the right to appoint the Managing Director

c. PEL on the other hand is owned by an entrepreneur named Zahiruddin. He started as a


junior functionary in a Canadian oil & gas company operating in Pakistan but rose to
prominence through phenomenal growth of his enterprises under the umbrella Shehzad
Group of Companies. His word of mouth establishes/modifies the policies. Everyone in
the company is answerable to him but he in turn is not accountable to anyone. It’s a
typical model of one-man show.

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d. PEL is known as the final resting place of oil & gas industry professional since it hires
retirees from all its competitors. It also has an efficient mechanism to keep all those who
could be of any use (present or future) in good humor by extending disproportionate
favors/rewards. Many term this as the hidden instrument of success of PEL.

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COMPANY PROFILES (Extracts from Respective Websites)

Mari Gas Company Limited (MGCL)

“Mari Gas Company Limited is one of the largest oil & gas exploration and production
companies in Pakistan. At Mari Gas, we celebrate our earth as something beautiful, and perhaps
even mysterious, for it has so many interesting secrets to reveal. We all look into the unexplored
side of the nature, beneath the earth, that's where the energy is, the passion is, and the wealth of
our business. Instead of seeing rainbows in the sky, we look opposite down to the rainbows
formed without light under our feet, beneath the soil.

“The glorious wonders and the vast resources nature has endowed the earth with are certainly
important to our ancestors, to us and to our children. We are here to let our love and knowledge
serve the meaning of the earth. We have started to tap into the absolute jewel of nature that
makes our lives easier and energize them with its hydrocarbon resources. We are here to explore,
produce, extract, deliver and to ensure the proper usage of oil and gas. From the monetary
efficiency and materialism we have shifted our emphasis towards a sustainable quality of life and
to the healing of our society, of our people and our energy system with proper technology and
right people.”

Petroleum Exploration Private Limited (PEL)

“Shahzad International and its associated company, Petroleum Exploration (Private) Limited
(PEL), has moved boldly to acquire new exploration rights, both on-shore and off-shore, in areas
where other Companies were hesitant to move in. And, thanks to the skill and expertise of its
highly-experienced and dedicated team of engineers and specialists, PEL has already scored
major success in gas exploration. PEL has also entered into a number of joint ventures with
major oil and gas companies that are likely to move the country towards its goal of self
sufficiency in the energy sector. Shahzad International has also established institutional linkages
with internationally well known oil and gas companies from the United States, Canada, Russia,
France, China, Australia and countries of South East Asia. It also has representatives based in a
number of countries.

Shahzad Group prides itself for having competent Project Managers and a work force of over
1,500 skilled, experienced and dedicated employees. Through dedication, single mindedness and
transparency, Shahzad Group has established itself as a hallmark of a leading business house
both within the region and internationally. While involved in its ventures and committed towards
Pakistan’s Glory and Prosperity, Shahzad Group looks towards foreign, local and overseas
Pakistani investors to work as their local partner and facilitator, to explore the potential of
Pakistan – the new business frontier.”

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