There is a perception – if not a fantasy - among most Pakistanis that the country will become enormously wealthy by finding vast oil deposits. This, I feel, applies particularly to people of my generation who came of age in the early 1970s and saw the rise of oil as a way to power and prosperity. The country was faced with very hard economic conditions in the wake of the 1971 East Pakistan debacle, made worse by large scale nationalisation of Bhutto’s era. As a newly-minted engineer, I struggled to find employment and eventually accepted my first job in a state enterprise organisation at a monthly salary of Rs1,731 per month inclusive of “two advance increments” due to my foreign qualification. Even accounting for the fact that a dollar was worth around Rs10 at the time, it was not exactly an auspicious start for a young man hoping to make it in the country.
Following the 1973 oil embargo, when Arab oil exporting countries banded together as Organisation of Arab Petroleum Exporting Countries (OAPEC) to use oil as a weapon after the Yom Kippur War with Israel, prices spurted from around $3 USD to $12 USD (the equivalent of a rise from $17 to $66 in 2018) in a matter of weeks. Apart from initially being looked upon as a sign of Muslim resurgence, it brought about easy prosperity and immediate economic power to these countries. The Arab Middle East (and Iran) soon became immensely wealthy and Pakistanis, desperate for employment opportunities in their own country, began to find jobs there in large numbers. Influential Arabs, particularly those enjoying royal or state patronage, were given large quotas of employment visas, which were then used to scam money off poor job seekers via local employment agents. Whilst many ultimately did well out of the bargain and remittances have boosted the local economy enormously over the years, it must be said that many of our compatriots were treated in demeaning and unfair ways in their quest for a better life.
Since then, each time we face hard times, we invariably turn to the benevolence of our wealthy Muslim brethren to bail us out. Our attitude towards our benefactors is therefore a mix of pride, envy and resentment.
Take a straw poll and you will find that, Pakistanis, especially those who are professionally educated, feel that their talents are not recognised or they find no opportunities for expression in an impotent economy. This frustration has worked itself into the nation’s self-worth and identity. Therefore, having our own oil would be just the short cut to what the country needs to overcome its frailties and become a powerful and dynamic economy. We have been praying for a miracle of our own, even now, as the world has begun to acknowledge that fossil-based fuels may have seen their best days as a source of energy.
There has been much speculation since the ENI and Exxon Mobil combine began deep sea drilling in the Indus Block G located some 230km off the coast in Pakistan’s offshore exclusive economic zone. The drill ship Saipem 12000 contracted by ENI was moved into position to spud the oil well dubbed Kekra-I on January 6 and commenced drilling operations in the sea bed at a depth of 6,200 feet. The block was previously licensed to ENI (33.4 percent), OGDCL (33.3 percent) and PPL (33.3 percent) by the Ministry of Petroleum but the real impetus to pursue the prospect came about when Exxon-Mobil joined the consortium. A Deed of Assignment was signed between all the parties to transfer a 25 percent participating interest to Exxon-Mobil on May 29, 2018 by the previous government. All four parties now have a 25 percent stake with ENI as the operator.
Deep sea drilling is a very expensive proposition with one estimate suggesting that the drill cost could represent an investment of upwards of $100 million for the four partners. The country has not seen this level of interest by Big Oil in its offshore exclusive economic zone and this is the country’s first ultra-deep well. This has raised speculation not only at home but also abroad that the oil companies are on to something, given especially that Exxon Mobil returned to Pakistan after a lapse of 27 years. Aided by high resolution spectral satellite imagery and enhanced 3D seismic survey techniques, subsea prospects can be more accurately identified especially if they are in close proximity of existing fields.
Along with advances in seabed robotic technologies, deep sea drilling has come of age albeit it remains a risky and politically fraught business. The last two deployments of Saipem 12000 are instructive: it turned up a dry well off the coast of Morocco and was forced to abort an attempt to drill in Cypriot waters after Turkish Navy ships intervened to press a territorial counter claim on the basis of the unresolved division of Cyprus.
Pakistan may have lucked out; the specialised ultra-deep drill ship was looking for work and was made available in time to spud a well within the seasonally stable December to April window in the Arabian Sea. The international commercial success ratio for deep sea prospects is of the order of 10-15 percent, but that is the nature of the business. There are other formidable challenges as well including the time and investment required to develop the field and build the undersea pipelines to bring the hydrocarbons ashore. Assuming that a commercially viable discovery is made, I figure that the time required will be at least of five and more probably eight years with an investment that is likely to top $10 billion. Pakistanis will, therefore, need to temper their excitement with the reality of how it may all turn out in the end.
The country is steadily drowning into a state of stagflation: a combination of stagnating growth and high inflation. Confidence is in woefully short supply - the stock market has lost $44 billion in market capitalisation since June 2017 and there is no end in sight for the devaluing rupee. Comparisons with the 1970s are not out of place and in our parlous state, a miracle has become a vital and existential necessity for our country. So, when the prime minister announced that he was expecting to shortly deliver good news of an oil bonanza, it seemed that our miracle arrived. Or had it? The prime minister’s announcement on March 21 was latterly repeated in substance a second time by him as well as by the petroleum minister and cannot be termed as idle speculation or an unguarded comment.
One would expect them to be best informed of any such development in the country outside of the ENI/Exxon who providing technical expertise behind the venture. Given the price sensitivity of the news, it was uncharacteristic that it be given out publicly before it is fully confirmed. One hopes that this is all real and the government was not trying to talk up the economy.
There are many examples of large, stranded offshore oilfields in the world. However, what appears to have worked in Pakistan’s favour is the potential size of the find and a high probability of finding a gas deposit nearby a market primed to receive it. The offshore gas will need to compete with RLNG (the only other alternative) making it a commercially secure prospect. Bloomberg quoting Wood McKenzie, a respected oil industry consultancy, put the potential at 500 plus million Barrels of Oil Equivalent (BOE). Rystad Energy, another consultancy has put out estimates of 1.5 billion BOE. If either comes out to be true, this will indeed be a large but not a spectacular discovery - and certainly not the largest in Asia. One also has to bear in mind that there are three types reserves: proven, possible and probable. Proven reserves are those that have a 90 percent probability of recovery and this can only be assessed by drilling of wells and extensive reservoir studies which can take years.
To put things into perspective, proven oil reserves of Saudi Arabia are of 268 billion barrels of oil and 325 trillion standard cubic feet of gas when last audited at the end of 2017. Some statements that were put out preemptively are rather confusing and extremely speculative. Assuming that this find is one of many others in the area, it will be decades before we qualify for OPEC membership!
The author is a former CEO of Dawood Hercules Corporation Limited and can be reached at shahid@prachas.net