KARACHI - The decision of British oil giant BP to sell its assets in Pakistan
may be as much to do with its security concerns in the country as to the rising
costs it faces from the Gulf of Mexico oil disaster, according to local
analysts.
BP has already agreed to sell assets elsewhere, notably oil and gas assets in
North America and Egypt for US$7 billion to Apache Corp, and it has decided to
offload its stake in the Argentine unit Pan American Energy, which could be
worth $9 billion. These deals will help to raise funds to compensate for the
worst oil spill in the US history for which BP has to pay.
Yet some analysts in Pakistan see security concerns as the key reason behind
BP's decision to close its operations in the South Asian country. Foreign oil
companies have faced grave threats
since the security situation significantly worsened in the wake of a
full-fledged military operation by the armed forces against Taliban insurgents
in the South Waziristan tribal area last October.
"Maybe they are leaving because their operation here is too small and the
security risk is too high," The News reported Muhammad Sohail, chief executive
officer of Topline Securities, as saying. "The selling price will indicate
whether the divestment is a desperate attempt or part of the global strategy."
Rising security risks have already forced other foreign firms to shut their
operations in the country and deterred others from investing in Pakistan -
foreign direct investment plunged 39% to US$2.03 billion in the 10 months to
May from $3.3 billion in the corresponding period in the previous fiscal year.
London-based Tullow Oil and Budapest-based Millennium Oil Ltd (MOL), Hungary's
largest oil refiner, have shown their inability to continue their operations in
the country's northwest amid rising incidents of violence. MOL recently started
gas production from its Manzalai field in the terror-hit Khyber Pakhtoonkhwa
province after making an initial investment of $500 million.
Tullow recently handed over control of a drilling project at Kohat in Khyber
Pakhtoonkhwa to its local partner. Tullow has been in the country nearly 20
years and during this period won at least eight licenses for a range of blocks
involving exploration, development and production. It has drilled 11
exploratory and six development wells.
The value of BP's business in Pakistan, where it produces about 250 million
cubic feet of gas a day and 14,000 barrels a day of crude oil, is not clear,
The Wall Street Journal reported last week.
And while talks with other companies are reportedly underway, the government of
Pakistan might also be interested. "Instead of these assets going to others, we
think, 'why don't the government or our public sector companies buy them'?"
Naeem Malik, head of the Directorate-General of Petroleum Concessions, told The
Wall Street Journal. "Of course, we have to see the financial costs first."
Talks over the sale of BP interests in Pakistan are in the final phase with a
United Arab Emirates-based company and a meeting in this connection has been
held at Khaskheli oil field in the Badin district in Sindh province, Geo News,
a private TV channel, reported.
BP is reluctant to compromise on price and intends to continue its operations
until the finalization of any deal. "You will see an actual transaction taking
place any time around December," The News reported BP spokesman Sabeen Jatoi as
saying. "We will not be selling at a price that does not represent a good deal
for BP shareholders."
BP, the leading foreign operator in Pakistan with concession blocks that span
eight districts in Sindh province, carries out its exploration and production
activities through BP Pakistan Exploration and Production, which produces 19%
of oil and 8% of the total gas production in the country. The company will
retain Castrol, which is involved in the downstream business of oil and
lubricants in Pakistan.
BP acquired the Pakistan operations of US-based ARCO (Atlantic Richfield
Company) in 2000, which purchased the assets of Union Texas in 1990. All of its
operations are based in Sindh province.
In 2007, BP acquired Occidental Petroleum Corporation's oil and gas interests
in the country and in 2008, BP Pakistan further expanded its portfolio by
acquiring a 51.3% working interest and license to operate the Mirpurkhas Khipro
(MKK) blocks, significantly enhancing BP's production profile.
BP has also acquired significant offshore acreage for petroleum exploration in
deep waters 250 kilometers south of Karachi. This is the largest offshore area
given so far to any single exploration and production company in Pakistan.
BP's announcement that it will sell its Vietnam and Pakistan assets comes three
months after an explosion on an offshore rig killed 11 workers and caused
millions of barrels of crude to spill into the Gulf of Mexico, Reuters
reported. The company has committed to raise $10 billion in the coming year to
pay for damage claims and cleanup and legal costs related to the leaking well,
which has caused an economic and environmental disaster in five states along
the Gulf Coast.
Syed Fazl-e-Haider (http://www.syedfazlehaider.com) is a
development analyst in Pakistan. He is the author of many books, including
The Economic Development of Balochistan (2004). He can be contacted at sfazlehaider05@yahoo.com.
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