Drilling activities of oil companies in Pakistan down

Internews Report

KARACHI: The drilling activities of oil and gas exploration companies in Pakistan is down by 26 per cent due to the growing circular debt issue.

According to an analyst, the growing circular debt is finally taking its toll on drilling activities of oil and gas exploration companies. This is again negative for the long term profitability of these companies.

During 11MFY10, only 81 wells exploratory and development have been drilled versus 110 wells drilled last year, down 26 per cent. This includes carry over wells of last year.

OGDC, the largest oil and gas explorer in Pakistan, drilled only 33 wells versus 44 wells last year, down 25 per cent. The decline in OGDC’s drilling activity is due to growing liquidity constraints as more than 60 per cent of the circular debt is borne by the company alone.

This could hurt long-term profitability and dividend paying ability of the company. To develop existing reserves is equally important to explore new hydrocarbons. This year E and P companies focus less on development wells. Out of 81 wells drilled so far in FY10, 55 per cent were development wells versus 70 per cent last year total 110 wells drilled.

The industry drilled total 54 wells which is an almost 50 per cent lower than current target of 100 wells. This means the industry not meeting the current year targets, thus endorses that persistent liquidity crunch led by circular debt has taken its toll on drilling activities in the country.

Besides 25 per cent declines in overall drilling activity of OGDC including carry-over wells, the company is short of current year drilling target. Only one month is remaining, the company needs to drill 15 wells more which look unrealistic. The company during 11MFY10 has drilled only 18 wells including exploratory and development, 42 per cent lower than targeted wells of 31 for FY10.

The major reason behind decline in drilling activities is the sharp increase in company’s receivable against gas utilities and oil refineries due to circular debt. The company’s overdue receivables have risen to Rs63 billion as at March 2010, 125 per cent higher than Rs28 billion overdue receivables on June 30, 2009.