Islamabad –– The notorious circular debt along with heightened security concerns has forced the oil and gas exploration companies in Pakistan to curtail their exploration and development (E&D) activities.

During 9MF11, the activity depicted a significant decline of 40% as only 30 wells have been spaded versus 50 wells in the same period last year. Further bifurcation of the number reveals the gravity of the situation as only 7 exploratory were drilled versus 18 wells last year, with major activity conducted by 1 operator (MOL) in its two blocks.

The slowdown in the activity bodes negatively for country’s hydrocarbon reserve replacement and thus increasing country’s reliance on the exogenous resources. However, at current levels amid firm oil prices and high JV exposure within limited E&D activity, we maintain ‘Over-weight’ on the sector with our liking towards Pakistan Oilfields Ltd. (POL) .

As per Pakistan Petroleum Information Services (PPIS), only 30 E&D wells were drilled in 9MFY11 achieving on 37% of the full year target of 80 wells. Last year during the same period they achieved 50% target by drilling 50 wells versus target of 100 wells.

Even more daunting is that the activity has been skewed towards developmental activity rather than exploration of new reserves. During the period under-review, only 7 exploratory wells (against a target of 29) have been drilled, with major activity concerted in two blocks Tal and Margalla by single operator MOL.

There are two major reasons for their underperformance. First is the unending circular debt which has proven to be strain of cash position on the capital intensive E&P sector and second are the heightened security concerns particularly in rich hydrocarbon basins of Balochistan and KPK (Khyber Pakhtoonkhwa). In the period under-review, no exploratory wells were drilled in Balochistan while, only 2 well even that in single block were drilled in KPK.

Amongst the listed companies, OGDC has drilled only 1 exploratory wells (target 10 wells) while have drilled 10 developmental wells (target 16), indicating company’s focus of maximizing returns from its existing fields. PPL and POL did not drilled any new well of their own during the year, but are expected to benefit from its exploration activity of their JV partners.

Success ratio stood 28% so far in 9M: Out of 7 exploratory wells drilled during 9MFY11, 2 discoveries have been made so far. While work on 1 wells is being carried while the residual were either found dry or are currently suspended. The said translate into success ratio 28% which is below our historical average of 33%.

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