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Pakistan Exploration & Production: Offshore Drilling Hits Another Dead Hole

• Pakistan hits another dead hole, as all hopes of finding offshore hydrocarbon reserves seem to have slackened, as Kekra-1 well at Indus G-Block did not yield desired results, as per Special Assistant to the Prime Minister on Petroleum Nadeem Babar.
• The cost for the whole project is estimated at over US$100mn, equally divided among 4 players ; 2 local (PPL and OGDC) and two foreign (ENI and Exxon). We expect this cost to be booked by OGDC and PPL in 4QFY19, with an anticipated earnings impact of Rs0.5/sh (2%) and Rs1/sh (4%), respectively. Though the impact is not significant on the books, it will likely dent investors’ sentiments.
• We believe that this will also dampen any prospects of finding offshore hydrocarbon reserves going forward, in a country whose oil & gas reserve life are estimated at 11 years & 14 years, respectively. However, offshore drillings by countries in the past generally involved several attempts before hitting any success. For instance, India, Libya and Norway drilled more than 40 holes before they made any offshore discovery.
• While any finding would have been a game changer for Pakistan, probability of discovering commercially viable reserves in ultra deep waters some 230 kilometers southwest of Karachi, was a wild bet, given the success ratio of 10-20%.
• Please read our report, titled ‘Offshore ‘G’ Block Can Potentially Enhance Pakistan’s Gas Reserves by 15-40%’, dated Jan 15, 2019, where we highlighted that Pakistan ventured into such endeavors 17 times in the past (all failed to bear any fruit), and the success ratio for any new finds was estimated at 10-20%.
• Earlier, it was estimated that the promising Indus G block had the potential to reveal gas reserves of up to 8 Trillion Cubic Feet (TCF), or 25-40% of Pakistan’s total gas reserves.