Kekra-1: a new hope for the energy sector in Pakistan?

Feature Story

The Kekra-1 well has been in the news lately with statements coming from Petroleum Minister Ghulam Sarwar Khan that “gas reserves larger than Sui” have been discovered in Pakistan’s deepwater zone. Much hype has been created about the supposed “massive reserves of oil and gas” but as yet the well itself is simply a spud well and any official discovery is yet to be made.

However, with ExxonMobil’s reentry into the country, partnering with another oil giant, ENI, there is room for optimism in Pakistan’s energy sector. It is a postive development that foreign companies are looking to invest in Pakistan, and a large discovery such as that touted by the minister may encourage other companies to invest in Pakistan as well. However, before this development happens it is important to look at how the project is progressing to clarify any misconceptions that might have been spread.

Oil and Gas in Pakistan and the Indus G Block

Oil and gas exploration and production is a complicated business with billions spent on the search for the precious natural resource every year. Oil exploration is not as simple as poking a hole in the earth and watching the oil and gas magically spill out. Surveying large geographic location, finding areas where oil and gas may be present, and developing the field for production take years and account for heavy investment.

The Indus G Block in the Arabian Sea is a joint venture between 4 partners: the Italian company ENI, ExxonMobil, OGDCL and Pakistan Petroleum Limited (PPL). ENI is the operator of this venture, meaning that the company is responsible for the actual exploration and production (E&P) activities that are carried out. The cost of the project is shared between the 4 partners.

ENI has started drilling a spud well called Kekra-1 230 km southwest of Karachi in Pakistan’s deep sea area to a target depth of 5500 feet. This is a normal process in any E&P process as an oil production company searches for oil and gas reserves. Exploration for oil itself is an extremely completed process which requires a knowledge of geography, geology and geophysics to ascertain where subsurface geological structures may be present that may have deposits of oil and gas.

While it is positive news that ENI has begun drilling for oil in Pakistan’s deepwater, this may not necessarily lead to oil and gas being produced. All 17 previous attempts at producing oil offshore in Pakistan have failed. It should be remembered that drilling for oil and gas offshore is a much more complicated process than on land, and more costly as well.

The 4 oil companies have together invested $75-80 million in the current venture. While this may seem like a substantial investment, it is a relatively low sum for oil giants like ExxonMobil and ENI who operate around the world. The E&P business is high risk as well as high reward so oil companies tend to take on these “sunk” investments in the hopes of attaining a significant discovery.

Another important aspect to consider is that striking oil and gas does not necessarily mean that the companies will decide to exploit them. The reserves must be in sufficient quantity that the companies feel that it is financially viable for them to go ahead with the production process. This is because the production process will require a significant investment of several billion dollars to establish an oil and gas field as well as the necessary infrastructure to transport the resources to mainland.

Quick Facts

  1. Kekra-1 is a offshore spud well in the Arabian sea deepwater zone aimed at discovering oil and gas reserves in the Indus G block.
  2. The Indus G block is a joint venture between ENI, ExxonMobil, OGDCL, and PPL (25% stake each).
  3. ENI is the operator of the Indus G block and responsible for all the day-to-day activities that take place in the search for oil and gas reserves.
  4. ENI is currently using a Saipem drilling rig to dig the Kekra-1 well at a distance 230km from Karachi.
  5. 17 offshore spud wells have been drilled before in Pakistan, but none have been successful. Therefore, Pakistan has a 0% offshore drilling success rate.
  6. If a financially viable oil and gas discovery is made, it will require 4-5 years to develop the field and establish the necessary infrastructure to start exploiting the resources. 
  7. The Indus G Block is speculated to be rich in natural gas reserves rather than oil. The JV partners believe the current drilling location may have  3 to 8tcf (trillion cubic feet) of gas, 25-40 percent of Pakistan’s total gas reserves. This would be larger than the Sui Gas field.

Minister of Petroleum Ghulam Sarwar Khan had stated that Kekra-1 will yield flows as large as Sui which has been providing gas for Pakistan since 1955 but is rapidly depleting. 

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