Pakistan Oil and Gas Production Declines in Q1FY25

In the first quarter of the fiscal year 2025, Pakistan's oil and gas production has faced significant challenges, leading to a noticeable decline in output. According to a report by Arif Habib Limited (AHL), oil production has decreased by 8%, while gas production has fallen by 7%. This downturn is primarily attributed to annual turnarounds (ATAs) and forced curtailments at several major fields, which are crucial for the country's energy supply.

Several key oil fields, including Nashpa, Mela, Dhok Sultan, Adhi, Makori East, and Pasakhi, have reported the largest declines in output. On the gas front, fields such as Sui, Qadirpur, Uch, Nashpa, and Naimat West have also been significantly affected. These disruptions highlight the vulnerabilities within Pakistan's energy sector, which is essential for both domestic consumption and economic stability.

During this quarter, local exploration and production (E&P) companies managed to spud six exploratory wells and nine appraisal/development wells. However, this performance fell short of the ambitious targets set for the fiscal year, which included 27 exploratory wells and 40 appraisal/development wells. Despite these production challenges, there were some positive developments, with nine new discoveries made, including the Razgir, Chak 202-1, and Baloch-2 wells.

The AHL report also indicates a projected decline in earnings for major players in the sector. Pakistan Oilfields Limited (POL) is expected to experience a 6% decline in oil production and a 4% drop in gas output year-on-year. Additionally, POL is grappling with a 6% fall in realized oil prices, a 5% appreciation of the rupee, and rising exploration costs. Similarly, Oil & Gas Development Company Limited (OGDC) is anticipated to see a decline in earnings due to a 3% drop in oil production and a 13% decrease in gas output, compounded by a 10% fall in oil prices and currency depreciation.

Exploration costs across the sector are projected to rise by a staggering 57% year-on-year, largely driven by the dry well Tando Allahyar NE-1. Meanwhile, earnings for Pakistan Petroleum Limited (PPL) are expected to shrink due to an 11% and 7% year-on-year drop in oil and gas production, respectively, alongside rising exploration expenses. However, PPL may find some relief from a 41% increase in other income, thanks to better returns on short-term investments.

In contrast, Mari Petroleum Company Limited (MARI) is projected to see earnings growth, supported by an 11% increase in gas production. Interestingly, exploration costs for MARI are expected to decrease by 20%, reflecting lower seismic activity during the quarter. This divergence in performance among companies illustrates the complex dynamics at play within the industry.

The outlook for Pakistan's oil and gas sector remains cautious. Disruptions, rising costs, and lower production are impacting earnings for major players in the industry. As the country navigates these challenges, it is crucial for stakeholders to focus on innovative solutions and strategic investments to enhance production capabilities and ensure energy security. The future of Pakistan's energy landscape will depend on how effectively these challenges are addressed, paving the way for a more resilient and sustainable energy sector.