Overview Of The Oil And Gas Regime In Pakistan

Author:Mr James Varanese, Niazi Kabalan and Jameel Tarmohamed
Profession:Clyde & Co

By numbers alone, Pakistan is a major world oil and gas player. Crude oil recoverable reserves are estimated at over 300 million barrels and current oil production is over 65,000 barrels per day, while gas production is at 4 billion cubic feet per day. Over 700 wells have been drilled by local and international exploration and production companies with over 250 discoveries – a success rate of slightly over 1 in 3. US$ 810 million was spent in 2010 alone on drilling activities with 30 new wells drilled.

In addition to the numbers, the well developed legal regime offered by Pakistan is another attraction. Petroleum exploration in Pakistan is highly structured and regulated. The discovery of the Sui Gas Field in 1952 was the first major milestone in the search for hydrocarbons in Pakistan with Pakistan's first oil field being found shortly thereafter. However, it was Pakistan's independence in 1947 that prompted the need for the new country to develop its own oil industry and legislation governing the sector. The oil and gas industry was largely guided by general mineral rights legislation enacted in 1948 and modified by successively "modern" legislative acts specifically for oil and gas in 1969, 1976 and 1984. This structure benefits exploration and production companies by providing a solid and predictable relationship with the State.

But as with any highly regulated regime, operators and new entrants into Pakistan require expert guidance to the complex legal environment to which they are exposed. The intricacies of that regulatory environment must be navigated deftly from the outset to ensure smooth operations. Poor understanding of legal obligations at the negotiation stage can lead to all types of unforeseen issues down the road.

This note addresses the current legislation and applicable regulations for oil and gas exploration in Pakistan, with further detail on the fiscal regime for production including royalties and production bonuses and income tax and windfall levies.

This note does not address, as you might expect, the procedural steps in granting exploration and production rights, related fiscal terms and the customary licence and lease provisions in respect of the onshore and offshore rules. These specific areas will be covered in further updates to follow.

This note provides a hint of the complexities that operators and new entrants face. The sooner any exploration company either in Pakistan or planning a new venture in Pakistan...

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