Pakistan Oil And Gas Sector - Petroleum Exploration And Production Policy 2009

Author:Mr Robert Palmer
Profession:CMS Cameron McKenna LLP

The Government of Pakistan (GOP) has published a PetroleumExploration and Production Policy for 2009 (the Policy) in order topromote investment in E&P activity in Pakistan. GOP is seekingto attract direct foreign investment in the upstream sector on alevel playing field with domestic companies in order to acceleratethe exploitation of indigenous natural resources and reduce itsreliance on imported energy. The Policy sets out the means by whichcompanies may obtain onshore and offshore E&P rights inPakistan and details the procedures for companies to respond tofuture invitations to bid for blocks.Exploration licencesThe Policy sets out four types of exploration licence that willbe available:(i) Reconnaissance Permit - a one-year permit (with a one-yearoption for extension) which allows companies to undertakenon-exclusive surveys and drill stratigraphic wells, but carries noright to be converted into a petroleum concession or productionsharing agreement.(ii) Petroleum Exploration Licence (PEL) - Onshore(iii) PEL - Offshore Shallow Water(iv) PEL - Offshore Deepwater and Ultra DeepwaterThe three PELs have an initial five-year term. CorrespondingDevelopment and Production Leases for all blocks have a term of 25years with a five-year option for extension.Onshore acreageOnshore acreage in Pakistan is divided into three zones withdifferent economic terms on the basis of geological risk andinvestment requirements. Zone 1 comprises the West Balochistan,Pashin and Potowar basins, Zone 2 the Kirthar, East Balochistan,Punjab platform and Suleman basins, and Zone 3 the Lower Indusbasin. A model Petroleum Concession Agreement (PCA) will apply toall new licences in these onshore areas. A royalty of 12.5% of thevalue of petroleum produced would be payable plus 40% incometax.Foreign E&P companies must offer stipulated minimum workinginterests (15% in Zone 1 blocks, 20% in Zone 2 blocks and 25% inZone 3 blocks) to domestic companies under a joint venture. Theforeign companies shall be deemed to have fulfilled theirobligation with respect to the minimum Pakistani participation ifPakistani incorporated companies and/or Government Holdings(Private) Limited, which manages GOP's upstream ventures, donot wish to take up any interest.Offshore acreageA model Production Sharing Agreement (PSA) will apply tooffshore blocks. In the offshore acreage, E&P companies'profit splits with GOP will depend on the water depth (shallow,deep or ultra-deep) and the sub-surface depth from which oil...

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