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Mol targets Pakistan’s unconventional potential

The company wants to increase production to around 140,000 boe/d in the next five years

Mol Group is betting on unconventional oil and gas in Pakistan as part of ambitious plans to boost output. The Hungarian company wants to increase its oil and gas production from around 94,000 barrels of oil equivalent per day (boe/d) last year, to around 140,000 boe/d in the next five years. “Pakistan is very important to us because it has not only significant onshore conventional (oil and gas) potential but unconventional potential as well,” Dodds told Petroleum Economist on the sidelines of the 21st World Petroleum Congress (WPC). Although Dodds said it was too early to give an estimate for Pakistan’s unconventional oil and gas resources he added that the numbers could be significant for the country.

Pakistan estimates its shale gas reserves at around 51 trillion cubic feet (cf). The US Energy Administration (EIA) is more bullish, saying there could be more than ten times that amount, around 586 trillion cf, with 105 trillion cf thought to be recoverable. Pakistan’s conventional gas reserves amount to just under 23 trillion cf. Pakistan frequently suffers electricity outages as the sector grapples with difficulties such as power generation theft.

Consumption was 1.07 trillion cf last year, down from 1.46 trillion cf in 2012. The country’s natural gas production has increased over the past decade, from 1.07 trillion cf in 2003 to around 1.46 trillion cf last year. Pakistan does not import any natural gas because it lacks the necessary infrastructure. Sui Southern Gas plans to build a 3.5 million tonnes per year liquefied natural gas (LNG) import terminal at Karachi. The Mashal LNG project is planned to come on stream in 2016, although Sui Southern has not made a final decision yet.

LNG delay

Dodds told Petroleum Economist that he met Pakistan’s prime minister, Mian Nawaz Sharif, and urged the government to delay investing in LNG import facilities until Mol had explored the opportunities for developing unconventional gas in Pakistan. “If that can be done there’s unlikely to be a need for much gas to be imported to the country,” Dodds said. “That’s just the onshore potential. Offshore there are opportunities which haven’t even been fully defined yet.”

Mol has stakes in four onshore oil and gas blocks in Pakistan, including the Tal block, which it operates, in the north of the country. It produces around 30m cf a day of gas and around 7,500 barrels of oil from Tal. Dodds said Mol is currently in negotiations to buy a 51% stake in the Baska block, central Pakistan, from Chinese firm ZenHua Oil. Mol is also considering farming into three other blocks in the country.

Security is a concern for energy firms wanting to operate in Pakistan, as in neighboring Afghanistan. In 2008 a truck bomb exploded outside the Marriott Hotel in Islamabad, killing around 40 people and injuring hundreds. A similar attack, at the Serena hotel in Kabul in March, showed that terrorism remains a threat to Pakistan’s population and for energy firms. “Obviously these types of things create stress for the organisation and for the country, Dodds said. “However I’ve been in the field and observed for my own eyes the infrastructure and communities there and I did not feel at all at risk or exposed.”

Mol’s pre-tax earnings, of HUF 516 billion ($2.3bn) in 2013, were down by 9% year-on-year. The group’s operating profit was dented by write-downs of its assets in Syria and its refining operations in Croatia. Its exploration push in Pakistan is part of efforts to improve its financial performance. Dodds said that the company was considering closing its refineries in Croatia, which have been affected by historically low refining margins in Europe. “There are decisions which have to be made in Croatia because there’s not enough demand to keep both going at 100% capacity. There’s obviously going to be a need for government support for the downstream business in Europe. It’s not on the upside.”

Jozsef Molnar, Mol Group’s chief executive, told the WPC that two thirds of the company’s reserves and exploration activities were now outside Hungary. “In downstream the golden age is over. We have to make radical operational changes to maximize (profits). We don’t want to do a deal at any cost,” Molnar said.  

However Mol is still investing in Europe’s upstream sector. In March it bought 14 licenses in the UK Continental Shelf from Wintershall. They include non-operated equity stakes in the Broom (29%), Catcher (20%), Cladhan (33.5%), Scolty and Crathes fields (50% each). Mol also bought Wintershall’s equity share in the infrastructure assets of the Sullom Voe Terminal and Brent Pipeline System as part of the deal. Dodds said the company is also considering bidding for onshore blocks in the UK’s upcoming 14th onshore oil and gas licensing round. Mol has already bid for 11 blocks across four license areas in a previous round. It is waiting to find out if its bids have been successful. “In the UK and Pakistan the opportunities for unconventionals are huge. Mol doesn’t have access to do that in the UK yet but that’s not to say that we wouldn’t look at it if it (the opportunity) was presented to us.”

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