INDUSTRY AND ENERGY DEPARTMENT WORKING PAPER ENERGY SERIES PAPER No. 59 An Evaluation of World Bank Funded Petroleum Exploration Promotion Programs 1980-1990 September 1992 = = The World Bank Industry and Energy Department AN EVALUATION OF WORLD BANK FUNDED PETROLEUM EXPLORATION PROMOTION PROGRAMS 1980-1990 by AKIN ODUOLOWU Senior Energy Specialist Industry and Energy Operations Europe and Central Asia Region September 1992 Copyright(c) 1992 The World Bank 1818 H Street, N.W. Washington, D.C. 20433 U.S.A. [ This report is issued by the Industry and Energy Department of Europe and Central Asia Region (ECA) for the information and guidance of Bank staff. This report may not be published or quoted as representing the views of the Bank Group, nor does the Bank Group accept responsibility for its accuracy and completeness. PRINCIPAL ABBREVIATIONS AND ACRONYMS BOGMC - Bangladesh Oil and Gas Management Corporation (Petrobangla) BOPD - Barrels of Oil Per Day CIDA - Canadian Intemational Development Agency CIS - Commonwealth of Independent States (former USSR) GOB - Govemment of Bangladesh HMGON - His Majesty's Govemment of Nepal GOP Govemment of Pakistan IOC - International Oil Company NOC National Oil Company OGDC Oil and Gas Development Corporation PCIAC PetroCanada Intemational Assistance Corporation PCR Project Completion Report PEPP Petroleum Exploration Promotion Program PGU Project Generation Unit U.S. - United States of America ABSTRACT The Petroleum Exploration Promotions Program evolved from a decision by the World Bank in the 1970s to assist Third World countries, particularly those dependent on oil imports, develop their indigenous hydrocarbon resources. The overall objective of Bank's assistance was to design and implement a program that would open up hydrocarbon exploration of the geologically prospective areas of countries where foreign oil companies were not active or have relinquished their exploration rights for a variety of reasons, and to establish the pre-conditions necessary to promote the interest of the international oil companies in the exploration and development of petroleum resources of such areas. This study examines the program in general with the objective of establishing a number of factors which are considered important in ensuring the success of the individual promotions and to recommend specific modification to the format used in the design and implementation of future similar projects. During the period 1980 - 1990, the Bank financed Petroleum exploration Promotion Programs (PEPP) in over 45 Developing Countries. In order to simplify the analysis under this study, these countries were grouped into four broad categories, and the promotion activity in a representative country for each of the broad categories was analyzed in relative detail in order to assess the effectiveness of these programs. The four representative countries selected are Bangladesh, Nepal, Pakistan and Papua New Guinea - all in East and South Asia Regions. The four broad categories comprise: (a) Countries with no known hydrocarbon exploration activities (i.e. Virgin Countries") represented by Nepal; (b) Countries that were considered gas prone and hence unattractive to Intemational Oil Companies (lOCs), such as Bangladesh; (c) Countries, such as Papua New Guinea, which have geologically prospective hydrocarbon basins, but in which, due to the difficult terrain and limited infrastructure, exploration activities were considered by the lOCs as expensive and uneconomic; and (d) Countries, such as Pakistan, with significant hydrocarbon potential but which had been abandoned by lOCs because of the poor petroleum policy of the Governments, and were therefore considered unattractive to foreign investments by the lOCs. The characteristics of these four broad categories implicitly require the application of different formats in the design of the PEPPs to ensure the success of the program. This study reviews the extent to which these differences were reflected in the design and implementation of the individual PEPPs and the effect on the level of success achieved. The study then tries to establish criteria for measuring the success of the PEPP program. The study concludes that while the promotions were worthwhile (at least in these four countries), the level of achievement of the objectives of the promotional initiative was related to how closely the design and format of the programs reflect the characteristics of the broad categories of countries; the perception by lOCs of the investment climate in each of the countries; and also the level of Bank's involvement through supervision, design and the implementation of the programs. With regard to the success of the PEPP programs, the study emphasized that the success of a PEPP should not be measured solely by the amount of oil and gas discovered but rather the extent to which the program was instrumental in achieving the following objectives: (a) the establishment and implementation of a favorable and efficient Petroleum policy in the country; (b) institution building to provide a cadre of national expertise that could implement and monitor effectively exploration activities; (c) increase in the knowledge of prospectivity of the sedimentary basins in the country through the establishment of a comprehensive geoscientific (geology/seismic) data base; (d) attraction and sustainment of the continued interest of the private sector in exploration in the country; and (e) increasing the level of resource mobilisation from private and bilateral sources for petroleum development. On the basis of the achievements of the majority of the PEPPs implemented in over 45 countries, the study recommends strongly that the initiative should be continued as an integral part of the Bank's energy/hydrocarbon lending program, and highlights areas where modifications in the format for the design are necessary. ACKNOWLEDGEMENTS The author wishes to thank current and former Bank staff, as well as officials of government institutions and of the international oil companies who were willing to be interviewed regarding the petroleum exploration program. Their experience provided invaluable insights and their thoughts formed the basis for many of the study's recommendations. Special thanks are also accorded to the peer reviewers of this report, comprising Messrs. Gultekin Yuksel (Principal Procurement Specialist); Thomas O'Connor (Principal Petroleum Specialist); James Bond (Principal Energy Specialist); Mohsin Shirazi (Senior Gas Specialist); and Ms. R. Vedavalli (Principal Economist). Consultancy services were provided by Ms. Kay McKeough (Energy Specialist) along with Messrs. Seyoum Solomon (Energy Economist) and Guy Chamot (Geologist). The study was funded by the Private Sector Finance Division within the Vice Presidency for Cofinancing and Financial Advisory Services and the Industry and Energy Division of the former Pakistan and Turkey Department, Europe, Middle East and North Africa. Their support, which was essential in enabling this study to be prepared, is gratefully acknowledged. In particular, the author would like to thank Messrs. Ibrahim Elwan and Franco Batzella, the chiefs of the respective divisions, for their support for this study. The secretarial services of Ms. Anne Haldar in the preparation and presentation of this report are greatly appreciated. An Evaluation of the Bank-Financed Petroleum Exploration Promotion Proarams Table of Contents Page No. I. INTRODUCTION .......................................... I II. ORIGINS OF THE PETROLEUM EXPLORATION PROJECTS. 2 Ill. REVIEW OF FOUR PETROLEUM EXPLORATION PROMOTION PROJECTS 7 - Nepal. 7 - Bangladesh .10 - Papua New Guinea .13 - Pakistan .15 IV. REVIEW OF OIL COMPANIES COMMENTS ON THE PEPPs .18 V. CRITERIA FOR EVALUATING THE PEPP . .24 VI. SUGGESTIONS FOR IMPROVEMENTS AND FURTHER STUDY 27 ANNEXES 1 Ust of Petroleum Exploration Promotion Projects Maps IBRD No. 16223 (NepaD IBRD No. 17101R (Bangladesh) IBRD No. 16390 (Papua New Guinea) IBRD No. 23508R (Papua New Guinea) IBRD No. 17072R (Pakistan) IBRD No. 24095 (Pakistan) I 1.I I AN EVALUATION OF THE BANK-FINANCED PETROLEUM -XPLORATION PROMOTION PROGRAMS CHAPTER I Introduction 1.01 During the decade of the 1970s, the worid was not until 1980, when it was apparent that the experienced a fivefold increase in international oil rapid Increase in world oil prices was creating an prices, in real terms, which had profound effects adverse effect on the balance of payments of on the economies of the developing countries. most of the oil importing countries and hindering Especially hard hit were the oil importing their economic development, that the Bank countries, who were faced with unmanageable decided to become involved in providing import bills and deteriorating balance of assistance to developing countries in the payments. The Bank had recognized the need for hydrocarbons subsector. The Bank's role was to developing countries (LDCs) to evaluate strategies be catalytic in assisting its borrowers mobilize for their energy sectors that would promote the capital and attract International oil companies to Increase of the indigenous supplies of energy accelerate the exploration and development of resources and ensure effective and economic domestic petroleum resources. utilization of the avaRable resources. However, It Box 1.1: Specific Oblectives of Bank's Petroleum Lending The specific oblectlves of Bank's petroleum lending were to: (a) improve the environment and management of petroleum operation through designing and Implementing Investment programs and pollcles that would ensure efficient exploration, development and utilization of petroleum resources; (b) mobilize extemal financial resources from bilateral donors and particularly the private sector to complement the domestic resources avallable; (c) advise national oil companies and the local public sector institutions in the country's petroleum subsector on the appropriate managerial structures and practices for encouraging intemational oil companies In participating in petroleum operations In the country; and (d) provide adequate training to the staff In the planning and efficient monitoring of petroleum activities. 1.02 The Petroleum Exploration Promotion attracting private sector In participating in Program (PEPP) evolved as a means of achieving petroleum exploration and production; and these objectives (Box 1.1). The aim of the PEPP (c) procure and/or develop the skills needed by was to open-up the geologically prospective areas the govemments or state oil companies to of countries where foreign Investors were not negotiate agreements and manage and supervise actively exploring for hydrocarbons by their hydrocarbon sectors more effectively. establishing the pre-conditions necessary to attract International oil company Interest. The 1.03 The success of the PEPP's have been PEPP was designed to: (a) compHie and where mixed and hence it is necessary to evaluate in necessary Improve the avalable geological and more detail than Is accounted for in the respective geophysical data, supporting the expectation that Project Completion Reports (PCRs), the the country was endowed with exploitable effectiveness of these projects and assess petroleum reserves; (b) assist the countries to whether similar programs warrant consideration establish the legal framework and policies for as part of future Bank lending In the petroleum -2 - subsector. The objectives of this study, therefore, considered too expensive and uneconomic by the are to evaluate and leam from the experiences of lOCs, such as PNG; and (d) countries, such as the past programs and identify necessary Pakistan, with significant hydrocarbon potential improvement in the design of future programs so and large sedimentary basins, but which due to as to ensure the success of the next generation of the poor petroleum exploration policy of the similar projects. The study reviews the PEPP in Government were considered too risky and non- general through documentation of Bank records, conducive to foreign Investment by the lOCs. The comments by Bank staff and management, staff results of the analysis of the PEPP in the four of govemment institutions and International Oil representative countries under this study, Companies (lOCs) that were Involved in the provided an Insight to the effectiveness of the program. It is Important to note that the PEPP initiatives and also proved useful In comments of oil industry varied, even within the reaching conclusions and recommendations for same company, largely due to their experience similar programs in the future. with the Bank in a particular country. 1.05 Chapter II traces the origins of the 1.04 AFTIE Division had undertaken a similar program, the context in which it was adopted and retrospective review of 28 completed PEPPs in the portfolio of petroleum exploration projects. Africa'/. This study would complement that Chapter III reviews the rationale and the design of effort and also determine If the success/failure of the PEPPs in the four selected countries and PEPPs are country specific. In order to highlights the lessons leamed; Chapter IV underscore the general comments and evaluates the significance of the following factors observations with empirical data, the study which are considered relevant in determining the examines the PEPP in four countries of outcome of the PEPPs. These are : Bank's Bangladesh, Nepal, Papua New Guinea and presence In the Project; Level and type of Pakistan ( in East and South Asia regions), that technical assistance provided; Supervision by are considered to closely represent the four broad Bank and Country staff; Effect of Bank categories to which most of the LDCs in which Procurement Guidelines; Level of Funding and the PEPP were carried out are grouped (Annex Adequacy of Timeframe; Role of the National Oil 1). These broad categories comprise: Company; the Contractual Framework; the (a) countries with limited geologic Information on Investment Environment; and Coordination with their hydrocarbon potential and with no ongoing International Oil Companies. Chapter V sets out petroleum exploration activities, prior to the specific criteria for measuring the success or initiation of the PEPP, such as In Nepal; failure of a PEPP, while Chapter VI summarizes (b) countries considered to be gas prone and the recommendations on suggested hence unattractive to lOCs, such as Bangladesh; improvements in the program and those elements (c) countries with geologically prospective which need further examination. Annex I provides hydrocarbon basins but in which, due to the a listing of the PEPP which the Bank has remoteness and diffifult terrain and limited sponsored. infrastructure, exploration activities were CHAPTER II The Origins of the Petroleum ExRloratlon Promotion Prolects Backaround to the Petroleum Lendina Proaram 2.01 The Petroleum Exploration Promotion 2.02 The timing of the PEPP coincided with the Program initiative was developed in the late-70s expansion phase of the oil industry in the 1980s. during the era of sharply rising oil prices In the Because of high oii prices and anticipated profits, aftermath of the 1973-1974 OPEC embargo2/. At companies were willing to explore and invest In one point, in late 1979, oil prices almost reached both proven and less known areas In hopes of $40/barrel in nominal terms on the spot market. discovering oll. Large Investments were made in the North Sea, Alaska, and other difficult areas. The state-run oil companies in countries such as -3- Colombia and Mexico were successful In finding 2.06 While the above measures were able to and developing large oil finds. A few developing address In the short term, the demand side of the countries with already known prospects, which problem, it was realized that for the supply side heretofore had been Ignored by the intemnational the financial requirements to undertake petroleum Industry, were targets for exploration exploration and development of the petroleum actMties. But a number of countries, especially potential of many developing countries exceeded the poor ones where there had been little the Investment plans and the resources available exploration activity, were largely Ignored, and to them. Other factors that were considered to hence did not benefit from the wave of further Impede the rapid exploamtion and exploration actMties. development of petroleum potential in most of these countries are highlighted In Box 2.1. 2.03 Due to limited financial resources and lack of interest by the Intemnational companies, 2.07 In order to mobilize the huge amounts of such countries were unable to explore their investment capital required and the requisite indigenous resources of oil and gas with their technical expertise and know-how to finid and own means. They remained Import dependent develop the resources, the Bank decided to and their economies generally suffered from design and implement a program that would increased cost of energy imports, thereby promote participation by the private sector, exacerbating their balance of payment deficits. In particuladly the international oil companies (lOCs). recognition of this situation, the Bank came under increasing pressure mostly from the oil Importing The Early Staaes of the Petroleum Lendina countries, to offer assistance, to such countries, Proaram for the development of indigenous sources of energy particularly petroleum so as to reduce 2.08 In July 1977, the Executive Directors of their import dependence (of petroleum) with the World Bank approved expanded lending to corresponding reduction in their overall balance of develop the energy resources of member payment deficits. countries and an energy program was drawn up. Soon thereafter, the Bonn (1 978) Summit and the 2.04 The Bank's initial response to this Secretary General of the United Nations endorsed pressure was to provide assistance to such the Bank's Initiating new approaches in the countries for developing strategies for curtailing energy sector, particulariy in financing oil importation through better and more efficient use exploration in the oil importing countries. of available energy resources, including imported Meanwhile, Intensive debate continued within the petroleum products; and also assist in Bank in an attempt to rationalize the rejuvenating petroleum exploration in those appropriate role of the Bank in petroleum3 countries for which the potential exists and in activities, especially exploration. which no exploration activities were being undertaken. 2.05 In regard to curtailing importation and better utilization of available energy resources, the following measures were recommended by the Bank: (a) a rational pricing of energy and better demand management to improve efficiency in the overall use of energy resources including interfuel substitution; and (b) a reorientation of the industrial, agricultural and transport sector development to take account of higher energy cost. -4- Box 2.1: Factors lmDedino Hydrocarbon Exploration in Developino Countries (a) most of the developing countries had no effective strategy of their ovmn for encouraging foreign investors to develop their hydrocarbon potential. The initiative for exploration had always come from the lOCs. Although some of the countries had national oil companies, most of these were mere extenslons of the Mlnistry or Department of Energy involved with regulatfng sales of products or activities of the lOCs on behaff of the Government; (b) potential Investors' interest in many countries was discouraged by the lack of comprehensive geological data on petroleum potential, the countrys location, the terms and condition offered for exploration, and In some cases their perception of the countryWs political risks; (c) where a geological and geophysical petroleum data base existed, in most developing countries It was in such disarray that it was difficult to make any reasonable evaluation of the countries' potential; (d) many govemments displayed excessive and counterproductive political sensitivity to making petroleum exploration data available to potential foreign investors; and' (e) in most of the countries, there was an Insufficient cadre of experienced local manpower with the competence to plan, manage and direct petroleum exploration. 2.09 The Bank reviewed a new energy The Petroleum Guidelines (1984) program in a 1979 report entitled 'A Program to Accelerate Petroleum Production In the 2.10 In the eariy 1980s, criticism by some Developing Countries". The Report drew heavily International oil companies and by the on the results of a Bank-commissioned survey of Govemment of some of the developed country 70 developing countriese, and from the results members of the Bank, particularly the United and recommendations from studies undertaken by States Govemment caused the Bank's role in oil the Bank's Energy Assessment DMsion. It activities to be re-eamined. Some companies recommended that the Bank should assist its opposed the exploration promotions, because borrowers mobilize capital and attract they felt the Bank was Intruding on matters better intemational oil companies for accelerating the left to the countries and the hntemational ol exploration and development of domestic companies. They argued that if the geology and petroleum resources. More specifically, it Investment climate were suitable, the companies concluded that the govemments or state oil would become active In that country. They feared companies in most of the countries urgently that the Bank would sanction unreasonable needed training and Institution building activities, contract terms by the national oil companies and including assistance for the development of that the promotions could be the first step In effective energy legislation and policies and in getting the Bank into the oil business which was acquiring and organizing geological and considered very risky for developing countries to geophysical (seismic) data, in a way that would undertake at their own expense or with borrowed facilitate the evaluation of their hydrocarbon funds. Internally, there was disagreement on the potential. The Report proposed Increased Bank role of the Bank In oll and gas projects, but less lending for such assistance. This was the so with the promotions. beginning of the Petroleum Exploration Promotion Program (PEPP). 2.11 As a result of the controversy, the Bank published a major energy policy review (1983) 'The Energy Transition In Developing Countries". While it endorsed the BanK's role In energy, it -5 - recommended guidelines to implcement the 2.14 In order to achieve the above stated lending program. These guidelines, Issued In objecties, the scope of the Petroleum November 1 298 2, were far reaching. They Exploration promotion projects typically included distinguished between the types of petroleum one or more of the following components: lending and carefully set out the criteria for each category, Including those for exploration (a) assistance in reviewing and Improving the promotions. regulatory (including fiscal and legislative) and contractual framework; 2.12 The guidelines specified that the promotions could be intiated In countries where (b) retrieval, reordering, consolidation and no significant exploration was ongoing or where repackaging of existing scattered scientific no exploration company maintained rights or was and technical information on the country's oil negotiating a contract and that expectations prospectivity; should not be raised beyond what was warranted by a country's geology, geography or investmedt (c) training of national staff; and climate. Umited acquisition of new broad- gauged geophysieal data were allowed under (d) lismted acquisition and interpretation of new particular circumstances, especially when such broad-gauged geophysical and geological data are considered necessary to enhance the data, Including, In a few cases, drilling of evaluation of the prospectivity of the country's exploration and appraisal wells. These sedimentary basin. Assistance in establishing or activities could then culminate in the reviewing the regulatory framework was permitted preparation of integrated promotional package but the Bank was precluded from participating in of technical data and legal documentation for negotiations between the govemment and areas w(ith petroleum potential for broad investors although it could comment on the dissemination and public presentation to proposed terms and conditions If so requested. .intemational oil companies. 2.13 On the basis of the above guidelines, Bank's assistance for exploration promotion had the following objectives: Box 2.2: The Characteristic of Petroleum Exploration Promotion Proiects (a) improving the data base, and in particular, the geological information available thereby increasing the attractiveness of the area; (b) establishing the policy framework needed to attract foreign private sector investmnents in exploration while safeguarding the long-term interests of the host countly; and (c) as part of institution building, procuring the expertise needed by the governments or government agencies to design appropriate policies, negotiate agreements and monitor lOCs' activities in the petroleum sector. 2.15 Altogether there were over 45 PEPPs (see subsector. Estimates of the number of and the Annex 1) which represent the largest single lending programmes for, the PEPP vary because category (over 30%) of any type of petroleum of definitional problems. For this report, the PEPP lending. However, the total Bank lending for the Includes only lending where there was an actual PEPP amounted to just over $300 million exploration promotion as opposed to technical compared to well over $6 billion for oil and gas assistance for seismic activities or projects that lending for downstream activities in the petroleum -6- were geared towards appraisal and development Bank had de-emphasized its lending for oil and of already discovered fields. gas exploration promotion. 2.16 The majority of the projects were International Oil Industry ActMtv: The Later undertaken in the early 1980s as a result of the Staaes of the PEPP recommendation to increase lending for energy. After 1983, the promotions tapered off and after 2.19 As Indicated in the first part of this 1985, there were virtually nl due to the collapse In chapter, oil prices were climbing and the oil crude oil prices and constriction of petroleum business was robust in the 1980s. In the early-to- company's exploration activities worldwide. mid 1980s, however, the oil markets settled down Moreover,the1986-1987reorganization effectively and oil prices slowly declined to around $25 de-emphasized lending for oil and gas exploration barrel as a result of rising oUl production and activities. Since then, only two PEPP Tunisia some technical market factors, combined with (FY89) and Algeria (FY92) have been approved drops In demand. The price collapsed to $12 per although there were some (Ethiopia and barrel In 1986 which benefitted the worid Tanzania) in the planning stages. economy, particularly energy importing nations, but sent shock waves throughout the oil industry 2.17 Over half (about 28) of the PEPP were as the finding cost for oil in the developing conducted in Africa6 and altogether 17 In the countries was averaging about $10-14 per barrel. other regions (Annex 1). By contrast, total oil and gas lending has been dominated by Asia. The 2.20 As a result of the collapse of oil prices, countries selected for the PEPP tended to be most major oil companies drastically reduced small countries with little or no petroleum their capital expenditures programs, Including production history, and where the priority was to exploration and production. Acreage under lease, verify and promote the resource base. It was exploration drilling, rigs rates, etc. fell and did not therefore natural that the promotions were tum around until 1988. The U.S. industry suffered concentrated in Africa and to a far lesser extent because of the poor performance of the U.S. elsewhere. fields relative to the higher retums from non-U.S. acreage. Gradually, as countries began to improve their financial terms and conditions the World Bank Relations with Intemational Oil IOCs began to reinvest-but very prudently-in Companies: prime acreages as well as in some of the better The Proiect Generation Unit (PGU) established oil producing areas in developing countries. At the same time, some national oil 2.18 In recognition of the misunderstandings companies and U.S. domestic oil companies that had been caused during the debate over the decided to Invest overseas to replace reserves. Bank's role in oil, a Project Generation Unit (PGU) This put more players on the global scene, but was created within the Bank in 1986, to foster with the high interest rates, particularly in U.S., the better relations between the Bank and the Industry's investment capital was still relatively intemational oil companies. Furthermore, the scarce. The collapse of crude oil prices in the PGU was to review the Bank's objectives In later part of the 1980s, and the perception that petroleum exploration with govemments and oil crude oil prices would stabilize at this level or companies and solicit their support in ensuring lower, induced a general contraction of oil and the success of the PEPP initiative. Meetings were gas exploration in all but the best established oil held by the PGU staff with both major oil provinces. The Bank reacted by phasing out its companies and a number of independents and exploration promotion program, falling to act the Bank encouraged communication on potential counter-cyclically. This was unfortunate In that, In projects. The Unit was successful In explaining areas where petroleum exploration promotions the Bank's rationale for promoting investment in were condiucted, the Bank's objectives were petroleum exploration and development in most reasonably achieved and the countries benefntted. of the oil importing developing countries, and in Renewed vigorous efforts toward reviving foreign overcoming the perception that the Bank was a exploration investments would have been competitor in oil prospects. Although the Unit especially needed to counter the Industry's supported the promotions, it was disbanded contraction, and enhance the momentum created during the 1987 reorganization of the Bank, as the by the Bank's sponsored PEPPs,but these did not -7- materialize. Oil prices have since stabilized at $18-20 per barrel which mnakes exploration in the developing countries profitable again, but the Bank's PEPP has all but been phased out since the 1987 reorganization. CHAPTER III Review of Petroleum Exploration Programs In Nepal, Bancladesh, Paoua New Guinea and Pakistan Introduction 3.02 The conclusions and recommendations summarized in the following paragraphs are 3.01 This section reviews the technical based on the analysis of the evidence gathered, characteristics of the selected PEPPs for Nepal, through interviews with: the staff of the Bangladesh, Papua New Guinea (PNG) and International oil companies that later went to the Pakistan, and examines whether the objectives of countries after the implementation of the PEPPs the program were achieved In the four countries. and whose decisions to explore In the respective These countries have been selected as countries could have been Influenced by the representing the four broad categories of PEPP Initiative; Bank staff Involved In the countries in which PEPPs have been respective countries, as well as from the Bank's implemented. The broad categories have been Project Completion Reports; and also from the defined as follows: staff of the relevant govemment Institutions of the countries involved. These results underscored the Iy A: These are countries with little or no observations throughout the study on the PEPP exploration activities prior to the and proved useful in reaching conclusions and initiation of the PEPP, i.e "Virgin recommendations for the future program. countries' such as Nepal; Type B: These are countries that were TYPE A: NEPAL considered gas prone and in the absence of an effective gas pricing PETROLEUM EXPLORATION PROMOTION policy were considered unattractive PROJECT to the lOCs, such as Bangladesh; Credit 1260-NEP TvDe These are countries such as Papua New Guinea, which although has Backaround significant hydrocarbon potential had been abandoned due to the difficult 3.03 Nepal Is a small land locked oil importing terrain and limited infrastructure and country, and at the time of the Bank-sponsored In which the cost of exploration PEPP, had no ongoing petroleum exploration activities were considered prohibitive; activities, except for the development of small and quantities of marsh gas In the Kathmandu Valley, under Japanese financing. The Teral sedimentary TyveD: These are countries such as Pakistan basin In the south eastem part of Nepal is with known hydrocarbon potential but geologically linked to the hydrocarbon producing in which the Govemment policies area of the Assam Region (Map No. 16223R) were considered not conducive to where off was first discovered In India. On this foreign investment. basis, it was considered that Teral Basin could possess hydrocarbon potential, which could be promoted to International oil companies. Nepal, however, had no national ol company and the -8- responsibility for monitoring any promotion was sampling and analyses were completed on vested in the Department of Mines and Geology schedule, and indicated the existence of source (DMG) of the Ministry of Mines and Power, which rocks for petroleum accumulation In the basin and at that time, had no in-house expertise in Identified the existence of oil and gas seeps. hydrocarbon exploration and development. 3.06 Technical assistance provided under the Qbjectives project included the implementation of a comprehensive training program comprising on- 3.04 The project's main objectives were to the-job training, overseas courses and seminars promote petroleum exploration in Nepal by for DMG staff which was satisfactorily completed. international oil companies (lOCs), including the The project was completed as initially planned by completion of the preparatory work required for March 1985 for the first round of promotion, such promotion efforts; and to strengthen DMG, during which ten blocks were offered to the lOCs. the department responsible for administering and The results obtained were encouraging to the supervising the exploration and development of extent that Shell and Triton, In a joint venture took petroleum resources. In light of the virgin' nature acreage in Block 10 (the most easterly block) of Nepal with regard to oil and gas exploration, under a production sharing agreement. The joint the design and components of the project venture completed a detailed seismic survey in emphasized the following activities: (a) legal the block and drilled a 3,500 m deep well. assistance for redrafting the petroleum legislation Although there were oil shows at different depths for Nepal and preparation of a model petroleum in the well, the well was considered dry in that no exploration/production contract; (b) seismic commercial accumulation of oil and gas were surveys covering about 800 line km in the Teral discovered. Basin, including the Churia Hills; (c) geochemical and geological studies; (d) exploration promotion 3.07 At this point some US$3.5 million were left to stimulate the interest In petroleum exploration In the Credit, and His Majesty's Govemment of in Nepal among lOCs; and (e) a training program Nepal (HMGN), encouraged by the interest shown for DMG staff. by the lOCs, felt that with the help of further exploration work financed by donors, other lOCs Proiect Implementation might be attracted by a second round of promotion. The Govemment requested, and IDA 3.05 Legal consultants were hired to revise the agreed, that the Credit should be extended on a petroleum legislation and prepare a model year by year basis to support further promotion Production Sharing Agreement (PSA). The new efforts. Two more years of seismic work, by legislation was promulgated In time for the first Petro Canada International Assistance round of promotion meetings. The broad Corporation (PCIAC), from Canadian International reconnaissance seismic survey of the Teral Development Agency (CIDA), were carried out in sedimentary basin was completed in two field 1988 and 1989, and a total of 1630 line km of seasons in the dry seasons (October to April) of additional seismic lines were completed. The 1982/83 and 1983/84 by an expatriate seismic results were reinterpreted and integrated into the contract crew. A total of 1,260 line km of previous data base to provide a new interpretation reflection seismic were recorded with fair to good of the structure below the Terai Basin. The results in the Terai Basin. The primary objective results were encouraging. A second promotion of the surveys was to identify and evaluate the campaign was completed in 1990, however there hydrocarbon prospectivity of the geological were no further offers from the lOCs. The IDA structures under the Teral sedimentary basin. Credit was finally closed on December 31, 1990. This objective was achieved and as a result of the analysis of the seismic data, prospective Promotional Results structures were identified for exploration and dnlling. The total cost of the seismic survey was 3.08 The first round of promotional meetings US$3.841 million, considerably less than the were held In London, Houston and Kathmandu in estimated US$7.2 million. This was due to lower March 1985. The attendance at the meetings was than expected contract prices which resulted in good and several interested lOCs purchased data large savings at the end of the first part of the packages. The primary objective of the project project. The geological study and geochemical was achieved In that the results of the data acquired and structural analys..i done In the Teral one exploration well during the first exploration Basin created an awareness of the prospectMty period of four years. This work program was of the basin and induced some positive response completed satisfactorily. Although this was the from the aOCs. The offer from the joint venture only offer receiveon In response to the flrst partnership of Shell and Triton Included an promotion campaign, it generated further Interest exploration program comprising gravity and from other lOCs at least in purchasing the detailed seismic surveys and an obligation to drill available data for further review. Box 3.p1: Findinas and Lessons Leared from Ne aalas PEPP Although the initial efforts resulted in a dry hole, the PEPP initiative In Nepal can be considered to have a limited success in that for the tirst time it initiated exploration activities by aOCs in Nepal. Obviously, the negative results of the exploration well in Block 70 drilled by Shell and Triton, and the lack of success so far in the Ganges plain in norther India have been strong setbacks to the continued search for hydrocarbons in Nepal. The well result was particularly disappointing as it was part of a wider play in which Shell drilled a second well in NW Bangladesh. Nevertheless, as the well tested only the extreme easter end of the Teral Basin, the results of this wen are not sufficient for condemning the prospecivity of the whole basin. Additional data acquisition and analysis are required in this basin in order to better delineate and evaluate the prospectivity of the oil bearing structures in the rest of the basin. This new set of activities could be funded under grant funds from bilateral donors for which Bank assistance in coordinating the donors activities will be most helpful. Nepal's need for indigenous hydrocarbons is as great as ever and efforts should continue to attract the lOCs. It was clear that the terns of the agreement offered to bring the oil companies into what is a low prospectivity and high risk area, where the field conditions are severe and field operations relatively xpensive, should be made more flexible, to allow data acquisition options without the commitment to drill which is often expensive. During the promotion, several uOCs expressed interest in carrying out surveys in blocks but were reluctant to undertake obligations to drill. These aOCs should have been encouraged to take concession under a data acquisition option. These seismic or geological options are also useful as they increase the knowledge of the area, and ff the results are encouraging, lOCs are usually reluctant to give up acreage which shows promise without drilling. ft would also help ff the regulations requiring a limited period for bids was removed in the concession contracts. This limited period arrangement is suitable for a bidding round in a highly prospective area where there is strong competition such as Indonesia, but in Nepal it would be better for the Government to leave the blocks on offer as open acreage so that interested parties could make offers at any time. The DMG should be equipped to be able to play a central role in coordinating donor financed efforts and finding means of continuing the promotion effort. There are sufficient technical personnel in DMG now to carry out the routing work, and their role in assembling and reinterpreting the data as it is acquired is critical. Less reliance should be placed on part-time efforts of consultants, and more use made of donor technical assistance to introduce new technology. DMG must also, ff necessary with donor help, seek new ways to contact groups of lOCs to take up blocks under novel conditions. 3.09 The results of the Nepal's PEPP Since it had no data base, and no track record of demonstrates the level of achievement that can exploration activities, It was necessary that the be expected for a country which, for the first time, efforts under the PEPP should be concentrated in was being Involved In oil and gas exploration. obtaining as much of new data as possible, and -10 - these data promoted on regular basis until there delta area were more complex than those of the Is enough confidence in the oil potential of the eastem fold belt. In spite of considerable efforts country. Therefore, NEPAL like Zambia, throughout the country during this period no represents a country in which further technical significant oil or gas discoveries were made. All assistance to the Govemment would be required these led to a negative perception of the beyond one promotional effort to ensure petroleum prospects of the westem part of the continued lOCs's interests. Hence, given the fact country. that Nepal was a virgin territory In regard to oil and gas exploration, the Bank proceeded 3.11 In 1974 there was a further burst of prudently. The Bank extended the closing date of exploration activities by the lOCs when the the credit to allow two promotions and political situation had become more settled and encouraged bilateral donors such as CIDA to the offshore area was opened to bidding. assist in acquiring additional data. The PEPP However, this round of activity was also program and subsequent promotions helped unsuccessful except for the discovery of gas in confirm the level of prospectivity of Nepal and one of the offshore wells, Kutubdia, located in the since the whole exercise amounted to little cost, mouth of the delta. By 1978 the lOCs had it is believed that the exercise was worthwhile. withdrawn from the offshore areas after making Furthermore, it was considered prudent on the extensive seismic surveys and drilling seven part of the Bank and the Govemment that an offshore exploration wells. In 1981, activities by NOC was not created prematurely as there was the lOCs resumed when Shell took up an area in no resources to be managed. However, future the Chittagong Hill Tracts, but there was little activities to promote exploration by lOCs would other outside interest In oil and gas exploration. have to be monitored by a well-staffed and equipped department of the Ministry of Energy. 3.12 In 1982 all of the oil used in Bangladesh It is, therefore, recommended that future was Imported at a cost of US$543 million, which assistance of the Bank to Nepal for petroleum was 87% of the country's total foreign exchange exploration should include the development of an eamings. Development of the gas fields close to efficient cadre of staff in the Ministry of Energy to the markets had begun with help from various be able to continue the promotional exercises. donors, and by the end of 1982 annual gas production by the national oil company, PETROBANGLA (later on changed to Bangladesh TYPE B: BANGLADESH Oil and Gas Mining Corporation,BOGMC), had reached 45 BCF. It was clear that a considerable PETROLEUM EXPLORATION PROMOTION exploration, appraisal and deveiopment effort PROJECT7 would be needed for gas production to be Credit 1402-BD increased to a point where it could make a significant contribution to the energy Backaround requirements, and also for liquid hydrocarbons to be discovered to relieve the economic pressure of 3.10 By 1971 the lOCs who had discovered Importing oil. Local funds were not available for the main gas fields in the eastem part of the such high risk operations,particularly the country during the 1960s had left the country, and exploration for oil, and the obvious need was for in 1972 the oil and gas sector was nationalized by a promotional campaign to induce the lOCs to the new Govemment of Bangladesh (GOB) and a Invest financial and technical resources In such national oil company - PETROBANGLA - was activities In Bangladesh. It was against this created. The rise in oil prices In the early 1970s background that the project was approved by the together with a series of bad harvests and floods Board on July 12, 1983. exacerbated an already desperate economic situation. In their efforts to find oil, GOB sought ProJect Objectives and Description and obtained assistance from the USSR for drilling several exploration wells. These 3.13 The project's main objective was to exploration efforts were concentrated In areas support GOB's efforts to stimulate Interest among around the relatively well defined structures of the foreign Investors to resume petroleum exploration gas fields in the eastem fold belts because the in Bangladesh through a proper assessment of geological structures in the west and In the main the petroleum prospects and a promotion campaign comprising three promotion meetings The PCU organization worked very well. to be held In London, Houston and Dhaka at However, responsibility for procurement, contract which time, acreage blocks In Bangladesh would bidding evaluation, and policy decisions remained be offered for bids by the lOCs, with the hope of in the various committees In BOGMC and GOB finding oil in the westem part of the country. The and decisions were often delayed. For example, project was also to assist in the acquisition of it took almost a year to have the conditions of the critical data needed to delineate and develop the promotion offer cleared by GOB after they had existing gas fields, and provide technical been discussed and agreed with the assistance to strengthen Petrobangla's technical PCU/BOGMC. capabilities. Project Implementation and Promotion 3.14 The project scope and components comprised: (a) acquisitlon of new seismic data 3.16 Except for 275 km of seismic line in the covering around 2,400 line-km; (b) implementation difficult terrain of the Sundarbans area of the of a Hydrocarbon Habitat Study (HHS) that will Southwest Delta, which had to be abandoned collate, interpret and integrate the newly acquired because it was continuously waterlogged all the seismic, geological and geochemical data into a year round and where an attempt made to use a comprehensive exploration data base; and (c) special telemetric recording system did not implementation of a program of technical, produce the required quality results, the rest of financial and legal assistance to BOGMC, the seismic surveys were completed successfully including the review of the existing petroleum by two expatriate crews and a BOGMC crew in legislation and the preparation of a model the two field seasons of 1984/85 and 1985 /86. production sharing agreement for use in the The seismic data quality was generally good. As promotion campaign. part of the institution building for upgrading the capability of BOGMC, a seismic data processing Proiect Design and Oraanization center was established in Dhaka in 1985 with contractor personnel and counterpart BOGMC 3.15 The PEPP project was funded ($23 staff. All the data from the seismic surveys was million) by IDA in 1983 in order to identify the processed in the center. The processing was up petroleum potential of the westem area and to to industry standards, and local personnel were ascertain the prospectivity of the Southwest trained to the point where they were able to run sedimentary basin by undertaking a the center themselves. New equipment was comprehensive geological and geochemical provided to upgrade BOGMC petrophysical and study. The project's concept was akin to that geochemical laboratories, and BOGMC personnel implemented successfully in several other similar were trained to use the new equipment. developing countries,which were considered gas prone but in which additional new data were 3.17 Although the HHS, which was the main required to justify exploration for oil in new areas study in support of the promotion campaign, was of the sedimentary basin. Intemational completed successfully on schedule by a team of consultants were hired to acquire and analyze consultants assisted by BOGMC staff working in new geoscientific data, conduct a comprehensive Dhaka, the promotion campaign was delayed by hydrocarbon habitat study (HHS) for which two two years due mainly to difficulties in obtaining seismic contractor crews were provided in GOB approval for the terms of the model addition to technical advisors for BOGMC seisrnic agreement and the acreage blocks to be offered. crew to carry out the reconnaissance and detailed The promotional meetings were finally held in seismic surveys. Map No. 17101R shows the June and July 1989 In London, Houston and project areas and where additional data were to Dhaka. The deadline for the receipt of the be collected. BOGMC formed a Project anticipated offers was set at January 15, 1990. Coordination Unit (PCU) staffed by BOGMC professional and support staff to supervise project 3.18 The HHS report indicated that there are implementation. A Chief Coordinator, reporting to good oil and gas prospects in Bangladesh which BOGMC's management, supervised the PCU warranted further investigation, and which could which included professional counterpart staff interest the lOCs. A comprehensive data base seconded from BOGMC. In addition, overseas was developed and this formed a useful basis for training was provided to selected staff of BOGMC. the promotion efforts. Over 70 companies - 12 - attended the promotions and 21 companies the Govemment was not seriously interested in purchased data packages. To date, there have negotiations. All of the acreage is now open, been no submissions for offered acreage. except for areas where BOGMC drilled, and there Meanwhile, BOGMC has drilled nine wells in some may still be renewed interest in these acreages. of the best acreage with identified structures and discovered commercial quantities of gas. 3.20 A model contract was written with the Reportedly some companies were interested in assistance of legal consultants to help improve that same acreage. legislation for petroleum exploration. It was a type of production sharing agreement which was 3.19 After the ciosing of the promotion, several generally acceptable to the lOCs for exploration companies approached BOGMC seeking terms and development. The terms however were different than those offered in the promotion, but tough,and In retrospect were found not conducive no agreements have been reached. This is to gas production and development In that kt did largely attributable to the political disturbances not include a gas producer pricing formula,nor before the elections, a subsequent change in incentive for gas development by the private Govemment and the perception by the lOCs that sector. As a result, the companies were reluctant to explore for gas in the country. Box 3.2: Lessons Leamed from Bangladesh's PEPP The PEPP initiative in Bangladesh was not considered successful in that it did not generate significant interest of the lOCs and did not promote any increase in the exploration activities in the country. These could be attributed to the following factors: (a) Realising that about 25 Trillion Cubic Feet (TCF) of Gas have already been proven in Bangladesh and that the country was generally regarded as gas prone, there was no definite provisions made in the concessional agreements to compensate the exploring companies for finding additional gas in the form of Incentives to permit such companies to find alternative uses for new gas that may be found. Furthermore there was limited infrastructure for the transmission of gas,and there was no provision by the Govemment for expanding this infrastructure, as a result the lOCs did not see any incentive for finding any new gas; (b) The state oil company had a coordinating role in the implementation of the PEPP but unclear authority towards the award of concessions or in negotiation of concessions with the lOCs, and as a result, there were delays in decision making. The lines of authority between the standing committees in the Govemment of Bangladesh (GOB) and BOGMC were muddled and the GOB was viewed as an obstacle. Although a Project Coordination Unit (PCU) staffed by BOGMC to supervise the project worked very well, responsibility for procurement, contract bidding and policy decisions remained with the committees. For example, after BOGMC approved the conditions of the promotion, it took almost a year to receive GOB's approval. This delay in decision making, coupled with the absence of an attractive gas utilisation policy are considered the main contributing factors to the failure of the PEPP to attract and sustain lOCs interest in Bangladesh,as these were perceived as lack of interest by the Government in the promotional initiative; and (c) allocating the best and easily accessible acreage to the national oil company further dampened the enthusiasm of the lOCs. 3.21 This promotion underscores the criticism of commitment by the Govemment and Its by lOCs of the need for a positive demonstration institutions in the promotion exercise as a - 13 - prerequisite for success of the PEPP initiative, and technology was applied in obtaining a very detail also highlights the repercussions created by the and comprehensive basin analysis using the undue influence of the NOC and the Govemment existing data. in the overall process. Furthermore, it seems that proper attention was not paid to the fact that this 3.23 Promotions which were held in 1984 and was a gas prone country. In the future, 1985 in a number of cities, were attended by over assistance should be provided to ensure that an 100 oil representatives, and resutted in 15 bids on attractive gas utilisation policy Is developed by the 14 blocks with investment commitments totalling Govemment that Includes adequate incentives some $30 million over the first two-year period. that would encourage private sector Investment During this time, commercial quantity of oil and and forestall the lukewarm response of the lOCs. condensate were discovered at Juha and lagifu The lessons leamed from the implementation of by Chevron. These are now being developed. this PEPP initiative are summarized in Box 3.2 above. 3.24 As there was no national oil company, one of the Bank's objective was to strengthen the capabilities of the Department of Minerals and Energy to enable It to Implement the PEPP and TYPE C: PAPUA NEW GUINEA monitor IOC's activities. The Bank, therefore, provided assistance during the project PETROLEUM EXPLORATION PROMOTION implementation, for the formation and staffing with PROJECT qualified consultants, of a small but competent Petroleum Resources Assessment Group (PRAG) within the Ministry to organize and supervise the 3.22 Prior to the initiation of the PEPP, PEPP program and subsequently to monitor the significant deposits of natural gas had been found IOC activities. offshore along the southwestem coast of Papua New Guinea (PNG). Because of the limited 3.25 The quality of the analysis of the existing infrastructure and lack of market for gas seismic and geoscientific data undertaken by domestically, these discoveries were abandoned, consultants was satisfactory and contributed to and only minimal oil exploration activities were the positive outcome of the promotion. These being carried out onshore by some small data were packaged in a way to reflect the Australian independent companies and four other prospectivity of the basins. The basins were then lOCs. PNG has about four large onshore divided into concession blocks (Map IBRD sedimentary basins (Map IBRD 16390R). 23508R). The blocks were not equal in area, Although some oil seeps had been discovered however, attention was paid to ensure that each inland in some of these basins, exploration block circumscribe as closely as possible activities inland were unattractive because of the potential hydrocarbon structure(s). During the difficult terrain, caused by thick karst topography promotion, over $1.5 million worth of complete which made acquisition of good seismic data data packages on the sedimentary basins were dffficult and, with the limited infrastructure, made sold to about 50 companies and many of these exploration onshore very expensive. The Bank companies are currently exploring in PNG. The approved the PEPP in November 1982, to be project was kept on track as a result of proper jointly financed by an IDA credit of SDR 2.7 supervision and implementation. The flexibility million and an OPEC loan of US$1.7 million. The shown in redesigning various elements of the PEPP was to provide assistance for: project to accommodate lOC's interest was very (a) assessing PNG's petroleum potential and instrumental in the successful outcome of the identifying new exploration leads; (b) assembling promotion. Bank staff made visits to several lOCs past exploration data and organizing a data bank; prior to the promotion, and the project which was (c) strengthening the capacity of the Govemment to have been completed in December 1986 was to offer exploration acreage to lOCs and monitor extended to June 1988 to ensure positive company activities; and (d) evaluating the response from the lOCs. potential for commercial development of known gas resources. It should be noted that in case of PNG no new seismic data was collected (because It would be very expensive), rather, modern - 14 - Prolect Results 3.27 The lessons leamed from the results of this initiative are highlighted in Box 3.3. The few 3.26 PNG was cleardy a success story. The shortcomings of the project were: Bank's efforts in improving the data on PNG's sedimentary basin, through the reprocessing and (a) lack of clarity on the future role of the Bank in reinterpretation of existing data, paid off in that case commercial discovery was made. In the companies took several onshore acreage. Over case of Pakistan (para 3.33), the Bank a dozen lOCs and joint ventures between smaller provided further assistance in encouraging Australian independent oil companies have joint venture and expanding oil and gas entered into agreements with the Govemment on transmission network. This has not been exploration concessions. Furthermore, the done In PNG, and as a result when successful results of Chevron's exploration commercial quantity of oil was found by activities at Juha and laglfu were also contributing Chevron and gas by other oil companies, factors in encouraging other companies to be PNG did not have sufficient funds to deveiop interested in PNG. Now, about $300 million have the Infrastructure to bring the oil and gas to been committed by Chevron and several other oil market; and companies for exploration and production activities in PNG. The first commercial oDl (b) since an NOC was not created, further production from Chevron's lagifu oil discovery technical assistance should have been began in October 1991 and production is provided to the PRAG group, which had been expected to build up rapidly over the next 2-3 set up to implement the PEPP, to ensure that years, reaching some 130,000 b/d of high quality it could monitor the lOCs activities effectively. crude in 1992 and 150,000-200,000 by the mid- 1990s. Exploration is now continuing on a large 3.28 This format may be useful for Petroleum scale in the onshore regions (Map IBRD No. Exploration Promotion Programs that are being 23508R). PNG is exploring opportunities for contemplated in some of the newly emancipated marketing Its proven natural gas reserves and is countries/republics of central and eastem Europe considering an LNG export project. If a market is In which exploration data exist but in the absence identHfied, there would be even more interest in of modem technology, the data have been poorly the gas-prone offshore areas. interpreted or analyzed. Box 3.3: Lessons Leamed from the PNG PEPP (a) Sometime the acquisition of new data may not be necessary to ensure a successful promotional effort. Rather, the assistance to be provided could be in the application of modem technology to the analysis (particularly the reprocessing and interpretation) of the existing data and the packaging of this data in a meaningful way to facilitate decision making. (b) Provision of appropriate consultancy services and training program to the staff of the local institutions to upgrade their capability in planning and monitoring of exploration activities. (c) Establishment of an independent unit (in this case PRAG) separate from the Ministry or the national company, that will focus mainly on the monitoring of exploration activities. Such a unit, however, should be given complete autonomy to independently evaluate and approve concession on a competitive basis in line with govemment policies. -15 - TYPE D PAKISTAN 3.31 In order to revitalize exploration activities, the Bank sponsored a PEPP with objectives to PETROLEUM EXPLORATION PROMOTION improve the legislation for gas Incentives to PROJECT producers and provide assistance to the national oil company (OGDC) to form joint venture Backaround exploration agreements with both foreign and domestic companies. An underlying goal was to 3.29 Petroleum exploration activities In increase domestic production of oil and gas Pakistan were Initially undertaken by the private through encouraging private sector participation sector lnternational oil companies which included In financing and Implementation of petroleum Amoco, and Burmah Shell. The first oll and gas exploration and development activities. discoveries made between 1915-45 were small with little commercial potential. It was not until Project Objectives 1952 that the first commercial quantity of gas was discovered at SUI by Burmah Shell. This 3.32 Specifc components of the PEPP discovery created a new surge for exploration in Included: (a) drilling six exploratory wells to test Pakistan. However, by 1961 after 48 exploration the structures for gas deposits; (b) acquiring wells have been drilled, only 5 additional gas regional seismic data for basin studies to identify discoveries were made and these gas finds were prospective geological areas for oil and gas of very poor quality and considered exploration and to use the results in the uncommercial. These results which were not promotion; (c) Improving the capability of the considered encouraging bythe lOCs (whose main Directorate General for Petroleum Concessions interest was to find oil) gave rise to the perception (DGPC) to effectively monitor exploration activities that Pakistan's petroleum potential was limited by the oil companies; and (d) purchase of and at best was mostly gas. This together with equipment and materials to support these the inadequate incentives provided by the then activities. The project scope was later modified to existing gas producer pricing formula and the lack include the drilling of additional wells to quickly of potential for exporting gas, resulted in most of appraise any commercial discovery of gas. the major oil companies abandoning their acreages by 1960. Project Imriementation 3.30 In order to bridge this vacuum In 3.33 New seismic and geological data of the Petroleum exploration, the Govemment In 1961, sedimentary basin of the Indus (IBRD Map No. established the Oil and Gas Development 17072R1) were acquired and consultant services Corporation (OGDC) as a national oil company. were procured to analyze this data and to OGDC was given a very wide mandate to explore, implement a comprehensive Hydrocarbon Habitat develop, produce and market petroleum products. Study of the Indus Basin. The results of these OGDC with its limited expertise and funding, analysis formed the backbone of the promotional carried out geological and geophysical work all effort and the delineation of the available areas over the country and identified several areas for Into exploration acreages/blocks to be promoted exploration drilling. During the period 1960 -70, to lOCs. The size of each block (which was OGDC drilled about 26 exploration wells and about 5000 sq. kms) was dictated mainly by the made three discoveries-two oil and one gas. Due type and size of hydrocarbon structures identified to the limited availability of funds and expertise, In the habitat study. The promotion package was OGDC was not able to maintain an active well prepared and two promotional seminars were exploration program. As a result the country held in late 1988 in Houston with 65 attendees remained dependent on imports of oil to satisfy its and In London with 43 oR company domestic need. This situation was further representatives. Six joint venture agreements excarbated by the increase in world prices of oil resulted immediately from the promotion. In light and hence in 1985, the Bank was approached to of this encouraging response from the lOCs, the provide assistance in encouraging private sector Bank agreed to finance a Petroleum Resources investment in the exploration and development of Joint Venture Project that would allow the oil and gas resources. participation of OGDC as a minority partner in such joint ventures with lOCs In exploration activities and also provide it with technology - 16 - transfer by t association. wcth the eOCs. This pegged to two-third the border price of fuel o:. effort resulted in the signing of additional 30 joint These actions were viewed posftively by the venture agreements between OGDC and the BOCs companies. While the PEPP helped strengthen which further Increased exploration activities Oe DC, the company's role was unclear in the (IBRD Map No. 24095). promotion process because it was both a prospective joint venture partner with private oil 3.34 OGDC set up a project team to companies as well as a competftor In that ft implement the PEPP and evaluate any joint continued to carry out its own hydrocarbon venture proposals. During the Implementation of exploration and development program. Its the PEPP, a regulatory framework was established technical performance was viewed as satisfactory and the gas producer pricing formula was although there were continued concems with the changed such that the producer price of gas was efficiency of the financial management system and accountability of OGDC. Box 3.4: Lessos bLeameed from Pakistan PEPP The PEPP tor Pakistan succeeded (whereas that in Bangladesh tailed) because: (a) the PEPP Initiative was tied to a comprehensive energy strategy which was developed, by the Govenment with the assistance of the Bank, for the countly and, which inter alia aimed at Increasing: the domestic supply of energy resources; resource mobilization for the development of the energy sector and improving the efficiency of the sector institutional capabllity; (b) particular attention was paid by the Govemrment and the Bank during the design of the project to forestall the impact the perception of the lOCs, that the country was gas-prone could have on the success of the PEPP by developing and promulgating an aggressive petroleum policy that ensured that appropriate incentives were included in the policy to attract IOC investment to the sector, such as a reasonable producer pricing formula for oil and gas; (c) the Bank provided assistance to the Goverment for encouraging the formnation of Joint venture agreements between the natonal oil company and the IOCs; (d) assistance was provided for the expansion of the gas transmission and distribution infrastructure, as a means of increasing the marketability of gas domestically. This le to an increase in the usage of gas as a substitute fuel for liquid petroleum products which were being imported at a relatively high cost to the economy; and (e) unlike in Bangladesh, the Government bureaucracy and decision making mechan ism was not an obstacle in that after the Initial promotion, the responsibility for awarding concessions was taken away from OGDC and vested in a separate regulatory body - the Directorate General for Petroleum Concession (DGPC) with the authority to evaluate and award concessions on competitive basis. These actions, as a result of good planning and foresightedness of the Bank and the Government, have been amply rewarded by the positive response of the lOCs and the sustained interest by them In the exploration activities In Pakistan. - 17 - Box 3.5: Summary of Lessons Leamed from the Case Studies: The above four case studies have highlighted the Impact of the following issues in ensuring the success of the PEPPs: (a) flexibility in project design in line with the unique geologic characteristics of the individual country; (b) importance of the future role of the Bank and involvement both as a catalyst in attracting lOCs and also in the provision of further TA for limited downstream activities in case of discoveries; (c) type of incentives provided in the legislative framework and concession contracts; (d) the promulgation by Govemment of effective petroleum policy that takes into consideration the investment climate both in the country and the oil industry; (e) perception of the oil companies on the prospectvly of the country; (f) timeframe for implementing the project and allowances made for repeated promotion; and (g) that the PEPP initiative must be In line with the overall objective of the govemment's development strategy for the energy sector. 3.35 Through the PEPP, the technical were formed for exploration purposes. capability of the OGDC staff was upgraded in well Hydrocarbon discoveries were made. Although drilling, data acquisition and interpretation skils. the success of a PEPP should not be judged as OGDC is now better equipped to undertake a a success strictly by the amount of oil or gas higher quality of seismic data acquisition and discovered but rather by the sustained interest in interpretation activities. Competition to OGDC's exploration activities, In the case of Pakistan, not drilling capability was introduced by bringing in only was a sustained interest of the lOCs drilling contractors at lower costs. There was achieved but additional oil and gas were good supervision of the PEPP and of the discovered. As a result of the continued IOC's consultant's activities under the project. The only Involvement in developing the acreage promoted criticism was that the time schedule was under the PEPP, the level of oil production unrealistic, as the efforts of the promotion between 1985-90 increased from about 16,000 program took about three years to materialize. b/d to over 60,000 b/d, and gas production The delay was not due to the poor design of the increased from about 500 million cubic feet per PEPP but rather due to the negative perception day to 1,250 million cubic feet per day. The by the lOCs of the investment climate in Pakistan lessons leamed from this PEPP initiative are given as a result of the political instability. During the in Box 3.4 , while Box 3.5 summarizes the major implementation of the PEPP, the Govemment was lessons leamed from the four case studies. changed three times. Prolect Achievement 3.36 The project was a success In terms of attracting sustained interest by the lOCs and investment capital. As a result of the promotional efforts and Bank's continued assistance to the Govemment, over 36 joint ventures with OGDC - 18 - CHAPTER IV COMMENTS OF OIL COMPANIES ON THE PETROLEUM EXPLORATION PROMOTION PROJECTS Introduction efficient manner. Most agreed that the Involvement of the Bank was instrumental In their 4.01 The success and failures of the PEPP forming joint ventures with NOCs because they initiative were reviewed with the management and considered the Bank helpful poiftically and as a staff of the Bank and of intemational onl catalyst In providing additional resources for the companies who had been involved in the PEPPs, project. The Govemments on the other hand as well as with the Govemments of the countries were appreciative of the Bank's Involvement in In which the PEPPs were implemented. Their that t Increased the level of competition for their comments have been grouped under the acreages and provided opportunity for exposing following headings: The BanKls Presence in the their countries to lOCs for exploration activities. Project; Technical Assistance; Supervision; Effect Furthermore, In countries where the Bank had of Procurement Guidelines; Level of Funding; ongoing activities, the existence of a good Adequacy of Timeframe; Role of the National Oi dialogue between the Bank and the Govemment Company; the Contractual Framework; the were considered by the lOCs to have contributed Investment Environment; and Coordination with to the success of the PEPP. International Oil Companies. This section discusses these comments and attempts to draw (b) Level of Technical Assistance conclusions as to which of the criticisms are considered to have significant Impact on the 4.04 Technical Assistance (TA) was a°very outcome of the program. important Bank objective in structuring the PEPP. The level and type of TA provided and the 4.02 The comments reviewed here refer only to activities for which they were targeted were the Bank-run promotions. For comparative dependent on several factors including the level of purposes, it would be useful In the future to available local expertise, the status of exploration review some successful promotions which were activities and the level and quality of avaiiable organized by private companies/consultants data In the particular country. In countries such without the involvement of the Bank, as was done as NEPAL, which were "virgin territories", and in in several countries, such as Chile, in order to see which no known exploration activities were if the comments discussed below are also ongoing or planned, and in which no relevant for such private promotions. comprehensive data base existed prior to the Initiation of the PEPP, the TA was focussed on undertaking reconnaissance surveys and the (a) Reactions to the Bank's Presence acquisition and interpretation of basic geological in the Project: and geophysical data to permnit a better understanding of the potential of the sedimentary 4.03 Initially, the lOCs resisted the Involvement basin. Similarly, In countries that had some form of the Bank In Petroleum Explorationr They of exploration and production prior to the initiation perceived that Bank's presence was going to of the PEPP, but that were neglected by the hinder the progress of their negotiations with the IntematIonal oil companies either because they Govemmentsand create unnecessarycompetition were considered gas prone or for lack of and delay in obtaining favourable conditions from comprehensive basin data, the TA was focussed the Govemments, particulariy In countries where on updating the existing data base by undertaking they had activities ongoing or were planning to a comprehensive basin evaluation to highlight take concessions. Later on, and In particular areas of additional potential for exploration and during the actual promotion, the attitude of most hence tum around the negative perception of the of the companies changed as they began to potential of the countries. Therefore, the level, realise that the involvement of the Bank ensured type and amount of new data, particularly seismic, that the promotions were run In a fairer and more that were collected under the PEPP and the -19 - format for their promotion varied for each of the (c) Supervision of PEPPs: countries. 4.07 The amount of Bank resources allocated 4.05 The oil companies' attitude to the TAs, for the supervision of these projects was not was positive and there was a general agreement uniform and In some cases inadequate. In that the assistance of the Bank in the acquisition countries such as Pakistan for which adequate and interpretation of new and old seismic data supervision resources were provided, the and the generation of new geoscientific database monitoring/supervisory role of the Bank greatly of the prospective basins, were very useful. Influenced the success of the PEPP, and this was Although the seismic and data packages were appreciated by both the lOCs and the often not enough to make a go decision", they Govemments of the countries. In a few instances definitely helped in targeting the companies' such as Bangladesh, the PEPP failure was largely interest to potential frontier areas. Some of the attributed to the lack of adequate and frequent lOCs, however, would have liked the TA's to be supervision of the activities by the Bank staff, focussed not on inducing competition, but rather country staff or the consultants selected. In on improving the investment climate Issues, which countries where It became apparent (during were of importance to the companies. The project implementation) that the results of the Bank's technical assistance was appreciated PEPP would be delayed or of poor quality because it complemented existing data and because of poor performance by the consultants allowed a more comprehensive review of the or by the Govemment, the Bank could not geological characteristics of the sedimentary Intervene at all, or not until It was too late due to basins through the application of modem limited Bank resources for supervision. For technology and current state of the art in seismic similar reasons, in a few cases, the Bank was not data acquisition and processing. Most able to prevent procurement problems by importantly, it provided training and in some monitoring the process more closely. In the cases (such as Bangladesh and Pakistan) the Bangladesh's case, the lOCs believed that the acquisition of modem data processing equipment Bank should have assisted in ensuring that and upgrading the capability of the national oil negotiations for concessions were undertaken In companies (NOCs). The govemments were a fairer and more transparent manner. convinced that if Bank had not financed the seismic or data work, this would not have been (d) Level of Funding: done for years simply because the areas were low on the IOC's priority lists. The lOCs generally 4.08 Generally, the level of funding for the concurred that increasing the country's seismic PEPPs was considered adequate, especially and technical data base, and packaging them in viewed in terms of the potential payoff. Staff a more meaningful way, were obviously some of stressed the high benefits received for very little the most valuable contributions of the TA to the money; i.e., the returns to the country were success of the PEPP program. enormous In countries where the PEPP was successful. Some lOCs and the Governments 4.06 In regard to institution building, both the would have liked the level of Bank's funding and lOCs and the Govemments considered that the involvement extended to include activities beyond Bank's assistance did not go far enough, in that promotion such as infrastructural development. the Bank fell short of providing assistance after the promotion was over; unless there was a new (e) Timeframe for Judging the Effectiveness loan, the country was left without resources to of PEPPs: continue to monitor operations, buy spare parts or be able to retain consultants to do any follow- 4.09 There is consensus among the polled through. The lOCs felt that the Bank's effort staff of the Bank and the lOCs, that the timeframe should have included ensuring the development by which the promotions are judged a success or of a good petroleum policy, pricing and faiure should be longer, especially if the country infrastructure development particularly In had poor data or had not yet entered into oil countries where gas rather than oil was found. activities. The lOCs expressed the fact that the decisions to participate in exploration activities often occurred several months (and In some - 20 - cases a few years) after the promotions, In that on the other hand liked them because they felt participation In such new ventures need to be that the Bank's procurement guidelines induced compared with other investments before final more competition and fairer prices. The countries decisions are made by their managements. By lacked the technical expertise to appraise the definition, this Involves most of the PEPPs. competition or proposals for concessions and Countries like Nepal, Zambia and to a certain appreciated Bank's involvement in policing the extent Honduras are cases in point. It should be procurement. realised that for these categories of countries where exploration was being initiated for the first (g) Role of the National Oil Company: time, there should be plans for repeated promotion and additional assistance provided for 4.12 Where national oil companies (NOCs) continuous discussions with the lOCs. exist In developing countries, the lOCs expect such NOCs only to have monitoring role, catalytic 4.10 Furthermore, some of the initial negative in promoting their investment and as sources of results occurred from the Bank's conducting the information on local logistical Issues, but not as promotions during the wrong time, e.g., during competitors. In cases like Pakistan, the existence political Instability in the country or when of a strong and capable NOC initially affected the exploration capital was constrained and the decision of the lOCs on whether to participate In investment climate both extemal or internal to the the PEPP. IOCs want to work with competent country was not conducive to promotion. counterparts In either a Ministry or the NOC, but Unfortunately these negative resuits were are Indifferent as to where the expertise is Interpreted by some members of the Bank's located. It was important, therefore that the mnanagement and staff to Imply the non- Govemment demonstrated its commitment to the usefulness of the PEPP initiative rather than objectives of the PEPP by ensuring that: (a) the properly attributing the negative resufts, In cases NOC is not a competitor and hence does not where they occurred, to the prospectity of the reserve the best acreages for itself; and (b) that countries, the format of the promotion and the the Govemment's petroleum policies included changes that were occurring in the oil Industry necessary Incentives to induce the involvement of environment and in the country at the time of the the lOCs. This was critical in most countries promotion. The recommendation is that a flexible where the programs were successful. Where this timeframe and implementation program be was not the case and where the role of the adopted in such cases to ensure success of the national agency carrying out the PEPP was not PEPP. clearly defined or showed elements of conflict of interest, the PEPP failed (e.g. Honduras, and (f) Effect of the Bank's Procurement Bangladesh). Guidelines: 4.13 The lOCs justifiably voiced the opinion 4.11 The consensus by the lOCs was that the that It was not prudent for some of the poorer procurement guidelines had no negative impact countries, with limited or unproven petroleum on the immediate outcome of the PEPP because resources, to spend scarce resources on the the implementation of PEPPs per se required creation of an NOC, especially one which would mostly procurement of consultants' and in some eventually become competent enough to act as a cases contractors' services to which relatively competitor with the lOCs for acreage. This flexible guidelines apply and did not involve the opinion was shared by the Bank and the lOCs. However, for exploration or development formation of new national oil companies was not projects under joint venture agreements with the encouraged (e.g. PNG and Nepal). However, in NOCs, Bank guidelines for the procurement of countries where an NOC already existed, the goods and services were widely perceived to be Bank found it difficult to discourage the a major problem by the oil companies. They participation of such NOCs. This was the case in were viewed as a headache by the lOCs, a Pakistan, where OGDC was de facto mandated by delaying factor and an infiltration by the Bank Into the Govemment to form joint ventures with all their way of doing business. For Bank staff who iOCs interested in exploration in the country in were managing projects, they created more addition to being entitled to prime exploration reporting and oversight responsibilities. Countries acreages. Companies felt initially that the Bank -21- should not support the growth of NOCs beyond had been the domain of NOC monopolies or the acquiring the competence necessary to facilitate bigger exploration companies. Furthermore, most the work of the lOCs. Later, if the finds were of the lOCs agreed that the PEPP's have Induced sufficient, they could build up expertise and the NOCs and the Govemments of these become a partner of the lOCs preferably a non- countries to develop greater commercial operating partner. By the IOC's evaluation, the awareness to the risks involved in hydrocarbon countries would be better off by first eaming exploration, and to become more pragmatic in revenues from taxes and royalties paid by the negotiating concessions. In addition, through the companies and plowing the money back into joint venture arrangements, the NOCs have *something worthwhileZ rather than bureaucracies. benefitted from the technoiogy transfer and began This was especially true with regards to the NOCs to operate more like lOCs with proper attention owning expensive equipment and technologies paid to the efficiency, economic and financial which international companies traditionally aspects of exploration. provided more efficiently as part of their activities. (h) Contractual Framework for Producer 4.14 In addition, for countries such as Pakistan Govemment Agreements: and Bangladesh that had national oil companies, the reputation of such NOCs was a major factor 4.16 Bank staff opinions were mixed on in discouraging several lOCs from investing in whether the Bank put too much or too little joint ventures with them. Generally, the emphasis on the legal framework and whether it involvement of the lOCs in exploration could be should continue to do so in the future. There was hampered In such countries where the agreement that a suitable legal framework In the govemment permits the NOC to act both as a form of a well articulated Petroleum Policy, was a regulator and an operator in a joint venture. pre-condition for the success of the PEPP and Furthermore, the inefficiencies of the NOCs were that the countries needed the Bank's guidance. viewed as negatives and major deterrents to Most lOCs thought that the Bank was helpful In doing business with them. In short, companies providing assistance in setting up an appropriate did not mind working with the NOC provided it legal framework and financing negotiators for the was professional, efficient and reasonable in its govemments. Basically, they preferred dealing terms, and would facilitate accessibility of the staff with govemments who 'knew what they were of the lOCs to the areas of activity. doing* with some level of sophistication. 4.15 On the other hand, the development of 4.17 Some of the lOCs, on the other hand, national expertise either through the formation of perceived and Bank staff acknowledged a an NOC or within a Ministry is a very sensitive hardening of the government's position when issue to the countries. The govemments of many negotiators, financed by the Bank, became countries consider it necessary for them to be involved, although the Bank itself did not draft the involved directly rather than passively in the agreements nor did it interfere with the exploration and development of their hydrocarbon -negotiations. In the few instances in which the potential. While there is no major disagreement Bank became - directly involved In the relation to this view, it should, however, be realised that a between the govemments and the lOCs, it was key objective of a PEPP is not the formation of an heavily criticized. Institutions such as the UNDP NOC, but rather the creation of an environment and the Commonwealth Secretariat (UK) and suitable for attracting private sector investments other multilateral institutions used in-house to exploration which is a high-risk proposition. consultants. These were regarded by the Therefore attempts should be made to ensure that companies as excessively pro-country and biased the involvement of the Govemment of the in advocating unrealistic terms. Unfortunately, countries or their NOCs would not hinder the some lOCs did not distinguish between these infusion of private sector funds to high risk advisors and the professional negotiators financed exploration activities. This is especially relevant to by the Bank. countries with marginal potential. Irrespective of these shortcomings, most of the lOCs particularly 4.18 The heaviest criticism was launched at the the smaller sized independent companies, agreed Bank's involvement in drafting specffic contractual that the Bank's PEPPs Initiative has resulted in the terms, especially what is perceived by the lOCs opening up in the 1980s of some countries which -22- as the Bank's Insistence on a standard Motiel commerciality of a discovery. Others felt that the Contract. With a few exceptions, the rate-of- terms were often too tough for the country and return based concept which had been suggested did not reflect their geology or investment risk. In by the Bank at one point, was intensely disliked, other cases (Bangladesh) companies have come because It was viewed as preciuding the lOCs back to the negotiating table under more lenient from the upside potential of a discovery. The terms than those offered In the Initial PEPP lOCs considered it a deterrent to exploration developed model contracts. The Bank perhaps except In a few countries where the return was should have been more aware of the quite high. it also required the lOCs to open their competitiveness of the terms that the legal books to the countries. The companies, however, consultants were advocating. appreciated the Involvement of the Bank when it recommended a successful contract model, e.g. 4.21 The lOCs' comments should be the Indonesia or Colombia models, and when it considered a normal response since they feel that recommended that the risks for gas discoveries contracts are a commercial matter which should be compensated through a reasonable producer remain the sole prerogative of the parties taking gas pricing policy, like it did In Pakistan. the risks. it appears that the Bank In its attempt to ensure that the country obtained competitive 4.19 A problem that the Bank did not proposals for its acreage, sometimes was too anticipate was that some countries Insisted on eager to push contract models which led to the 'the Bank contract (I.e., the rate-of-retum strong criticism that the Bank did not understand concept) during negotiations with the lOCs, Investment risk. The Bank got caught In the whereas that particular model might have been middle where the companies thought the Bank unsuited to the country's investment climate, or . favored the countries excessively, and the not applicable to that country In terms of risks, countries often looked on the Bank as a tool of particularly In areas where hydrocarbon potential the oil companies. has not been cleauiy established. Although the companies complained that they had a hard time (i) The Investment Environment: changing the country's view because the contract was recommended by the Bank. This point was 4.22 Oi companies were universal in well taken. However, the rate of retum concept Is highlighting the investment environment, In still one of the best quantitative way of deterring addition to geology, as the key factor in the financial and economic viability of an investment decision to take acreage. The investment climate and should be applied on a case by case basis Indudes poiitical stability of the country; where adequate data exists to justify its considerations such as terms and conditions of application. On hindsight, what the Bank should the concession agreement, existence of have done was to help only in the preparation of transparent and reasonable taxes and royalties; the model contract, emphasize the quaiitative and prospects for short term payback of the quantitative economic and financia advantage of investment; reputation of the national oil the terms and conditions which should then be company; degree of faimess In the negotiations left open for negotiation. For example, the and award of acreages for exploration; presence problem encountered in Nepal and Bangladesh of infrastructure to support rapid development of was that the legal consultants left the borrowers new discoveries; and altemative investment with an inflated idea of the prospectiity of their choices in the country. sedimentary basins by working from a base which was suitable for an oil province with many bidders 4.23 The companies thought the Bank did not rather than designing contracts to attract the lOCs pay attention to the Investment trends In the oig to poorer prospect areas. industry and even Bank staff conceded that, in retrospect, one of the problems of the PEPP was 4.20 In a few cases, the Bank endorsed terms that little provision had been made to address the which were considered by the lOCs not political and economic risks of concem to the reasonable. For example, a number of Industry. Except in Pakistan, the Bank did not companies surveyed rejected the onerous assist in providing adequate incentives for lOCs to contractual terms in the 1983 Phflippines PEPP, take gas-prone acreage or go into areas with namely the inconvertibility of revenues Into hard limited infrastructure. In Pakistan, the Bank was currency and the conditions for determining the - 23 - more sensitive to such conditions. Its assistance couid have been severely criticized for ignoring In convincing the Govemment of Pakistan to some companies which were not alerted to the modify and promulgate a new petroleum policy promotion on the basis of the perceived size of and adopt a gas producer pricing policy pegged their exploration budgets. Therefore, it seems to the border price of fuel oil, and In supporting best that the Bank held general promotions in key the expansion of the gas transmission network cities to attract the largest number of possible were instrumental to the success of Pakistan's participants. There seems little dispute that the promotion project. Unfortunately, this was not Bank succeeded in giving wide and well selected replicated In other countries such as dissemination of the promotions materials. The Bangladesh8. Paying greater attention to the relevant conclusions from these comments are investment climate might have resulted in more summarized in Box 4.1. success stories. U) Coordination with Intemational Oil Companies: 4.24 Companies perceived the Bank as doing what the govemments wanted In holding the promotions rather than matching them to the interests and priorities of the companies. A formal mechanism to coordinate with the lOCs might have been appropriate, but there should have been more informal consuftation as in PNG, with the lOCs at the earlier stages in the design of the promotions. The Bank realized this too late and tried to correct this oversight by the creation of the PGU. In some cases, the Bank stayed in contact to see that things were going well (for example In Pakistan), but in others It did not view this as part of its supervision role. 4.25 Some lOCs suggested that the Bank should have made an attempt to better match the targeted prospects in the countries with companies, e.g, small companies with small areas, the technically tougher areas with technically more sophisticated companies, etc. There were sometimes problems where small companies took acreage, and then tumed out not to have adequate financial resources and staying power if initial results were poor or If natural gas was found. This, however, Is a no-win situation. There is no yardstick for the Bank to measure which company will be interested In which country and what acreage. Therefore it is unfair to criticize the Bank or the Bank staff on this issue. 4.26 On the other hand, some companies thought it would have been desirable to conduct either large or individual promotions (in company offices) based on the perceived Interest In the country. In faimess, the Bank was not equipped and did not have the resources to do this and - 24 - Box 4.1: Conclusions of Comments from the lOCs The following conclusions can be drawn from the comments from the lOCs: (a) the overall reaction of the lOCs Is In support of the PEPP initiative, although it took them some time to appreciate the rationale for Bank involvement in Petroleum Exploration; (b) in countries where the initial response of the lOCs was lukewarm or additional data is considered necessary; Bank's future assistance should Include allowance for additional or repeated promotions; (c) In order to ensure faimess and competitiveness, the Bank should continue on a public promotional format rather than individual discussions with selected lOCs. Private promotion could later be followed up (after the main public promotions) with specific lOCs that have shown interest during the main promotions; (d) Bank should continue to provide assistance to countries in the development and promulgation of effective petroleum policies that reflect the prospectivity of the countries. Bank involvement should include assistance in ensuring the development of an appropriate exploration strategy and standard exploration concession contracts but the Bank should not be involved directly with the negotiations of concessions between the lOCs and the country unless specffic assistance is requested from both parties; (e) The Bank should ensure that the award of concessions to NOCs is on a competitive basis as is the case for lOCs - most /OCs believe that the NOCs would be better served through participating in joint ventures with them, and in such cases NOCs should not be operators; and (t Flexibility should be provided in the Bank's procurement guidelines on 'goods and services to allow lOCs involved in joint ventures with the NOCs to use their procurement procedures once It is assured that such procedures promote faimess and would accelerate implementation. CHAPTER V CRITERIA FOR EVALUATING THE PEPP Benefits of the PEPP (Box 5.1). Indeed it was hoped that the promotions would lead to a discovery, but the 5.01 In light of the short time frame ( 3-4 main objective was to attract private capital to years), for the implementation of the PEPP In explore for the countries' resources. A negative each of the countries, It Is considered premature result following a good exploration program is still to judge the success of the PEPP solely by valuable in that for a relatively small amount of whether or not oil or gas was found. Rather, the investment, it has helped in increasing the success of the program should be evaluated on knowledge on the prospectivity of the basins and the basis of the increase in exploration activities further provided a database for good long-term as well as the sustained commitment by the planning. Additional benefit of the promotions to companies in the country after the promotion the countries was in bringing foreign Investment - 25 - and In exposing the national oil companies to 5.02 Quantitatively, the number of companies modem technology in oil and gas exploration. In the country before and after the PEPP, and the Even in cases where the results of exploration level of investment generated as a result of tumed out to be dry holes and there was no exploration activities could be used as a proxy to subsequent oil or gas development, such as in determining the level of success of a PEPP'. Nepal, a lot of money was spent by the lOCs In However this can be misleading. For example, It relation to funds attracted by Bank projects to the may be more rewarding to get one sizeable and other sectors. It Is estimated that, aside from reputable company into a virgin area (Nepal) to royalties and taxes, some 30% of the IOC's stimulate further exploration activities, than to exploration investment onshore stays within the attract only a few companies into a 'good' area country, and 10% from offshore seismic and such as Colombia. Box 5.1 lists some of the exploration drilling stays within the country. major parameters for determining the success of Although It was not the purpose, some countnes a PEPP. even made money on sales of the seismic data and promotion packages. All in all, at the end of the promotion, the borrower country has acquired a well organized data base, some ideas on promotion and contract negotiations as well as a better understanding of Its own prospects, and a good exposure to the oil industry. Box 5.1: Parameters for Evaluatino a Successful PEPP Generally, a PEPP should be considered successful if it contributed to: (a) Establishment and implementation of a favorable and efficient petroleum policy; (b) Institution building to provide a cadre of national expertise that could implement and monitor exploration activities; (c) Increased knowledge of the geology/seismic and hydrocarbon potential of the country; (d) Attract and sustain the continued Interest of the private sector, particularly the Intemational OJ/ Companies In hydrocarbon exploratIon of the county; (e) Establishment of a comprehensive data base that can be regularly updated from new data from wells drilled on prospective areas; (f) Increase the level of resource mobilisation from the private and bilateral sources for petroleum development; and (g) Discovery of new or addltional oil and gas reserves in the country. 5.03 As shown in the analysis of the successful PEPPs, there was a positive experience of the PEPPs implemented In contribution In all five categories. The attached Bangladesh, Nepal, Pakistan and Papua New IBRD Map Nos. 16390 and 23508R, clearly show Guinea, the 'successful PEPPs are those which the Immediate results of the Bank sponsored In general show some level of achievement In all PEPP. IBRD Map No. 16390 shows the situation of the above criteria. In the case of Papua New prior to the initiation of the PEPP. IBRD Map Guinea, which was considered as one of the 23508R shows the situation three years after the - 26 - implementation of the PEPP. It Is seen that there benefits from its association with the lOCs. As a Is a significant Increase in exploration activities result, there are currently over 36 joint ventures based on the number of concessions being operating in Pakistan and over 2/3 of the explored by several oil companies. Currently the sedimentary basin is being explored. level of ol and gas discovered has Increased, and now, PNG is an exporter of oil. With respect to 5.05 Between 1988 - 1991, over $100 million Bangladesh, which was widely regarded as a has been Invested by several companies for oil failure, although the PEPP Increased the and gas exploration and development in Pakistan. seismic/geologic knowledge of the country, the By 1991, three years after the promotion, oil project failed to establish an effective petroleum production in Pakistan rose from 16,000 barrels policy or Increase the level of resource per day to 60,000 barrels per day of which 60% mobilisation for exploration activitles 'O. was contributed from IOC Joint venture activities. Simllarly in Nepal which was quasi successful Similarly, gas production rose from 500 million because at least one joint venture operation was cubic feet per day to over 1,500 million cubic feet formed, there was no sustained Interest of the per day over the same period. The downside of lOCs. However, the PEPP has contributed to the these achievements was that these successes geological knowledge of the country's Induced the NOC (OGDC) to consider itself sedimentary basin. The Nepal experience offers capable and efficient enough to compete with a valuable lesson on the limit of expectatlon for lOCs rather than act as a catalyst for attracting countries that are new in petroleum exploration external risk capital. There was no way to activities. forestall the creation of this situation. However, the Bank is currently working with the 5.04 In the case of Pakistan the results of the Government to reorient OGDC's mission away PEPP were equally as encouraging as In PNG In from expanding its own exploration activities with that positive achievements were realised in all the public funds and toward promoting foreign above mentioned five areas. A new petroleum investment to mftigate the effects of this situation. policy was promulgated that was considered One of the ways agreed is to cut the allocation of effective in attracting and sustaining the private budget funds to the NOC, which should now be sector interest In oil and gas exploration. The self-financed and borrow without Govemment Bank's continued Involvement In the petroleum guarantee from the financial markets. sector In Pakistan helped to maintain the Furthermore, efforts are being made to privatize momentum of exploration activities, and thereby the company and hence completely remove its ensuring the success of the PEPP Initiative. In dependency on the Govemment. The success of particular, this was one of the most adequately the Pakistan case, is also attributable to the keen supervised. The Bank worked closely with the Interest taken by the Govemment In ensuring the Govemment and its entities In ensuring that efficient and timely implementation of the bureaucratic delays were reduced in decision promotion program and the cooperation of the making by supporting both technically and NOC Itself. A qualitative evaluation of this financially the establishment of a monitoring unit success Is shown in IBRD Map Nos. 1 7072R1 and within the Ministry of Petroleum and Natural 24095. IBRD Map No. 17072R shows the status Resources (the Directorate General for Petroleum of exploration prior to the Initiation of the PEPP, Concessions, DGPC) to be solely responsible for while IBRD Map No. 24095 shows the direct effect the evaluation of proposals and award of of Bank's PEPP, as illustrated by the number of concessions. Furthermore assistance was concessions under exploration by several provided in the development of a model contract companies". and in the establishment of a comprehensive database which was computerized to allow regular update. In addition, realizing that Pakistan was generally dismissed as a gas prone country, the Govemment with Bank assistance developed a gas producer pricing formula that provided necessary Incentives to the lOCs and expanded the capacity for gas transmission. The Bank also upgraded the capability of the state oil company (OGDC) to ensure that it derived technological - 27 - CHAPTER VI SUGGESTIONS FOR IMPROVEMENTS AND FURTHER STUDY Introduction the level of PEPP in future Bank's lending as stand alone projects, adequate resources should 6.01 On the basis of the comments be provided for supervising the program. It summarized in Chapters IlIl and IV, and the results seems that the limitation of resources for of the analysis of the PEPPs in the four countries supervision has discouraged Bank rnanagement studied, modifications In the general format of the from continuing to support PEPP Initiatives. design and implementation of the programs are Realising that limited expertise is now left in the warranted. This section discusses the rationale Bank to manage the technical aspects of PEPP for such modifications. They relate to the role of projects, this limitation can be overcome by the national oil company, packaging and attaching the PEPP programs with larger loans or supervision of the programs and other technical activities In the petroleum subsector of the factors. The recommendations are Inter-related country and hiring qualified consultants, who but emphasized the need to pay proper attention understand their tasks and are capable to to the investment climate, contractual framework continually monitor the progress of the PEPP and risk, as well as obtaining the Govemment's component. The services of such consultants interest In the program. Without addressing these would be provided to the countries as part of the issues realistically, the PEPP would be unlikely to Technical assistance for the project. succeed because the international oil companies, The Bank should therefore continue to support who in the final analysis select the prospects and the PEPP initiative particularly in the smaller invest heavily to develop them, would not be countries, realising that the PEPPs have provided attracted to the hydrocarbon potential in the adequate basis at lower costs for better countries. understanding of the petroleum potential of a country and for developing a strategy for the 6.02 Recognizing that modifications are development of the petroleum sector. needed, this study nonetheless concludes that the PEPP was a worthwhile effort by the Bank and Technical Factors should be continued. This is especially important when viewed in terms of the potential benefits 6.05 The existence or development of a relative to costs if a discovery is made. comprehensive technical database and the means to maintain them are essential in ensuring the The National Oil Companv objectives of the PEPP. The data base must be updated through regular acquisition of seismic 6.03 The Bank needs to ensure that the NOC data and geoscientific information on source and and/or Ministry is committed to the project - reservoir rock, maturation data and well data. otherwise, the promotion will be unsuccessful. This material should then be packaged in a way The Bank should not fund an ambitious plan for that would aKtract investors and also facilitate the creating a bureaucracy such as an NOC if not evaluation of the prospectivity of the country's warranted, and should ensure that govemment sedimentary basins. Since most lOCs will redo bureaucracy do not impede decision making any seismic interpretations done by the country's process. Furthermore, the future role and consultants, It does not seem worthwhile for the structure of the NOC, in the event of a discovery, country to spend scarce funds on detailed which is now ignored in the PEPP should be interpretation and data analysis. addressed earlier before the implementation of the program. Investment Climate Adeauate SuRervision 6.06 The companies are adamant that the Bank and countries need to pay more attention to 6.04 Adequate supervision and proper the Investment climate Issues if they want to packaging of the results of the analysis are pivotal attract their capital. There are still more to the success of the PEPP. In order to increase prospects than there are dollars to develop them, - 28- especially now that some countries such as the risks in that country. The Bank should be Venezuela, AJgeria, Romania and Bulgaria, whose very cautious and should not be involved if a oil sectors were previously closed to foreign country is inflexible or unrealistic in its terms. investment, are now opened. Moreover, the This would also hurt the credibility of the Bank former USSR will require huge expenditures of the and its ability to assist in resource mobilisation magnitude of the North Sea for development. from the private sector for other promotions. The higher risk countries, with limited or unknown prospects, will have to offer very good terms to 6.10 In many respects, the Bank's role In attract Investors. Investment dollars will flow providing specffic advice on contractual where together the terms and the geology are framework, which In essence quantifies risk, has most favorable. proven the most controversial. Rather than providing "Modei Contracts' that could be 6.07 The international oil companies are under considered sacrosanct by the countries, the Bank pressure from their stockholders to show a profit should provide technical assistance to the and ward off hostile takeovers. They worry about countries to acquire expertise to assist In positive cash flows and weathering periods of low establishing their own contractual frameworks that oil prices. Unlike the booming '70s and early reflects the prospectivity of their basins, and also '80s, they are not willing to hang in forever In high in negotiating contracts with foreign companies. risk projects and are more likely to walk away Furthermore, and In order to avoid the after a few dry holes. All new prospects are considerable downside risk inherent in providing scrutinized much more severely. Therefore the contract advice, the appropriate role for the Bank documents for the promotion should Include in this case, should be to fund outside advisers' adequate Incentives, particularly favorable foreign expertise on the legal framework, such as exchange remittance criteria, flexible investment, customs, corporate and tax laws. legal/contractual packages and proper pricing policies including a free hand to the lOCs to 6.11 Common contract models can be develop the resource and their own markets provided as general guidance to the countries, particularly if gas is discovered. but it should be stressed that there are a number of acceptable contracts and that contract terms 6.08 Given the 1990s outlook of investment for for one country are not necessarily a model for oil exploration and development by the lOCs, the another country with different geology and costs Bank should concentrate the PEPP In those and investment risks. The Bank should not play countries where appropriate macroeconomic an active role in the countries' selection of a policies including favorable investment policies model contract, although it could point the are being implemented. Although the companies country in the direction for guidance. Providing * will not disclose to the Bank their prime acreage funds to hire outside advisors could be a proper of interest, they would cooperate if they were role for the Bank. informally surveyed of their potential participation for a specific PEPP. The Bank should Indicate, Need for Future PEPP especially in difficult areas, what would its future role be in the event of a discovery. The 6.12 This evaluation has highlighted the companies have come around and often would positive and catalytic role of the Bank and the welcome the Bank for investment security; the effect of the PEPP on the acceleration of knowledge that the Bank could help finance hydrocarbon exploration in the countries in which development costs if a discovery is made could they were Implemented. Obviously there are be very important. areas (some of which are mentioned in this report) for which specific modifications are Knowiedge of Risk and Contractual Framework necessary in the design and implementation of the PEPP. 6.09 It is Imperative in the 1990s that countries 6.13 For countries like Pakistan and Papua assess their relative competitive positions and be New Guinea, the PEPP resulted in over a fourfold realistic in the terms and conditions of their increase In the investments attracted from the contractual agreements with lOCs. Companies will private sector towards exploration. If future PEPP only invest if the rewards are commensurate with are well designed and made country specific, the -29 - impact of them on overall economic development knowledge on the basin's characteristics and of the countries will be positive, make available to all concerned, essential data for better evaluation of the basins potential. 6.14 Whether the Bank should be Involved In future PEPP as repeated promotions, should be 6.17 Finally, the dependency of most countries reviewed in the light of: (a) the hydrocarbon on oN imports has not improved, and hence they potential,geologic complexity and prospectivty of still need assistance In developing their domestic the country; (b) the need for applying new potential. Since the investment required by these technology to exploration in the country; (c) the countries for implementing PEPP are small, the size of the sedimentary basins and the exploration promotions are excellent candidates comprehensiveness of the Initial exploration for funding by donor agencies with grants and activities; (d) the capabilifty of the country's soft loans, as demonstrated by the successful institution In organizng and managing petroleum involvement of CI DA through PCIAC In Nepal, and exploration to attract foreign investors; and (e) the OPEC for Papua New Guinea. The Bank, as the perception of the exploration companies as to the major financial benefactor to most of these hydrocarbon potential of the country and its countries, has a comparative advantage In investment climate. For the above reasons, many assisting to organize such fund ings. A compelling countries can still benefit from repeated argument is that in these countries where oil promotions. exploration has been delayed because of the likelihood of finding small fields or the local 6.15 .Future PEPPs need not be in 'Virgin logistics are difficult, the hydrocarbon potential of areas but could be done in countries where a country might never be known without this seed exploration activities have been limited due to (PEPP) investment. lack of modem technology and the geologic complexity. Examples Include countries such as Romania, Bulgaria, Central America and some of m:AeoXakinpatrlNovember 19, 1992 the CIS countries. In Romania and Bulgaria, for example, the capabilifties of the NOCs have been limited in exploring deeper and geologically complex horizons and hence the intervention of competent lOCs will be required. These countries have requested Bank assistance in the design and implementation of an effective promotion to attract lOCs. For such countries, the format for the PEPP will be different. It would be based on providing technical assistance for applying modern techniques to exploration and development on a limited scale, enough to demonstrate the potentials of the deeper and geologically complex horizons. Results of such limited exploration could then be promoted to induce the interest of lOCs. Furthermore, In countries perceived to have political instability the involvement of the Bank provides an added confidence required by the lOCs to invest in such countries. 6.16 The other groups of countries that could benefit from PEPP include those In which the sedimentary basins extend beyond their political and regional boundaries such as in Africa, Central America and Europe. Generalized cross country basin studies under a PEPP arrarngement sponsored by the Bank or by bilateral donors for such countries will provide cross-fertilization of -30- Ust of Footnotes and References 1. Refer to Thomas O'Connor and Ted Gorton - Paper on Petroleum Exploration Promotion Projects: Retrospective Evaluation and Recommendations. 2. OU prices Increased from $2.50/barrel In 1970 to $16.00/barrel by 1977. 3. In this paper, petroleum refers to both oil and gas uniess the two are distinguished. 4. This was conducted by the Bureau d'Etudes Industrieles et de Cooperation de rnstltut Francais du Petrole (BEICIP), the consulting arm of the French Petroleum Institute. 5. Please refer to the content of Bank's Operational Manual OMS 3.83 of 1984. 6. Petroleum Exploration Promotion Projects: Retrospective Evaluation and Recommendations by T. O'Connor and Ted Gorton, Worid Bank, October 1990. 7. For more details please refer to the Project Staff Appralsal Report and the Project Completion Report 8. Even though a gas clause was Induded In the Bangaidesh model contract no indications of prices were given, thus rendering it ineffective. 9. In Pakistan It Is estimated that the BanK's funded promotion project was indirectiy responsible for attracting over $100 million of private sector funds for petroleum exploratlon and development over the last three years (1989-91). 10. Petrobangla has a bid evaluation and contract negotiating unit responsible for monitoring and storing the data - this unit has negotiated three contracts since the change in Govemment. The PEPP was extended by one year to help set up the unit. 11. A detailed summary of the Bank's Involvement In the exploration activities In Pakistan have been summarized in a paper presented by Mr. Akin Oduolowu at the Intemational Petroleum Seminar In Islamabad, Pakistan, in November 1991. The paper aRole of the World Bank for Sustaining Oil and Gas Development in Pakistan is to be published In the proceedings of the seminar. Annex 1 Page 1 of 3 Petroleum Exploration Promotion Proiects AFRICA Loan Project Amt. Loan i Countrv c9iftaor Amount (Millions S) Year (Millions S _ Cr. 1207 Benin C 8.0 9.95 FY82 (PPF) Burundi A 0.1 0.1 FY80 Cr. 1978 Central African Rep. A 2.5 2.5 FY89 Cr. 971 Congo C 5.0 5.6 FY80 Cr. 1386 Ethiopia B 7.0 8.3 FY83 Cr. 1304 Eq. Guinea B/C 2.4 2.7 FY83 Cr. 1187 Gambia A 1.5 1.7 FY81 (0.6 PEP) Cr. 1373 Ghana C 11.0 12.0 FY83 Cr. 1438 Guinea A 8.0 12.4 FY84 Cr. 1095 Guinea-Bissau A 6.8 6.9 FY81 Cr. 1334 13.1 13.1 FY83 Cr. 2065 Kenya C/D 4.0 5.3 FY82 Cr. 1675 6.0 9.6 FY86 Cr. 1907 Uberia A 5.0 6.1 FY81 Cr. 1580 2.6 3.4 FY85 Cr. 1016 Madagascar D 12.5 14.6 FY80 Cr. 1134 Mali A 3.7 4.0 FY81 Cr. 1175 Mauritania C 3.0 3.2 FY82 Cr. 1323 Senegal A 9.5 25.2 FY83 Cr. 1043 Somalia A 6.0 7.2 FY80 Cr. 1513 Sudan D 12.0 13.3 FY85 Cr. 1604 Tanzania B 8.0 11.0 FY85 Cr. 1561 Uganda A 5.1 6.1 FY85 Cr. 1049 Zaire C 4.5 5.3 FY84 Cr. 2152 Zambia A 6.6 8.1 FY82 TOTAL 153.9 197.6 Annex 1 Page 2 of 3 EUROPE. MIDDLE EAST AND NORTH AFRICA Loan Amount Project Amt Loan No. Countrv Cateaorv *f(Millions $lions S Year Ln. 2371 Jordan C 5.0 5.0 FY84 Lri. 2351 Pakistan D 51.5 107.1 FY84 Ln. 2024 Portugal C 20.0 26.0 FY81 Ln. 1773 Tunisia D 5.5 9.0 FY82 Ln. 3023 5.5 9.0 FY89 Cr. 1050 Republic of Yemem C/D 9.0 10.0 FY80 Cr. 1216 Yemen Arab Republic C/D 2.0 2.4 FY82 TOTAL 98.5 168.5 LATIN AMERICA Loan Amount Project Amt. Loan No. Country Cateaorv * (Millions t (Millions $) Year Cr. 1208 Guyana A 2.0 2.3 FY82 Ln. 1861 Honduras A 3.0 3.6 FYB0 Ln. 2017 Jamaica A 7.5 8.4 FY81 Ln. 1954 Panama A 6.5 8.0 FY81 TOTAL 22.0 26.2 Annex 1 Page 3 of 3 ASI Loan Amount Project Amt. Loan No. Countrv Ceao (Millions SI (Millions S) Year Cr. 1091 Bangladesh B 23.0 25.5 FY84 Cr. 1260 Nepal A 9.2 10.9 FY82 Cr. 1279 PNG C 3.0 5.6 FY83 Ln. 2201 Philippines D 13.5 69.4 FY83 Ln. 2202 24.0 (combined) TOTAL 72.7 111.4 TOTAL (42 347.1 503.7 Projects) There were no exploration promotion projects in FY90 or FY91. The Algeria First Petroleum Project, which was approved in FY92, include an US$8 million IBRD loan for Sontrach, the Algerian National Oil Company, to undertake a comprehensive Hydrocarbon Habitat Basin Study. * / The broad categories in whic these countries have been divided are based on the following characteristics: (a) Countries with limited geologic information on their hydrocarbon potential and with no ongoing petroleum exploration prior to the initiation of the PEPP. (b) Countries generally perceived to be gas prone and hence not attractive to the lOCs. (c) Countries with geologically prospective hydrocarbon basins but in which exploration is considered too expensive and uneconomic. (d) Countries with prospective hydrocarbon potential how ongoing activities by the NOCs, but for political reasons and non-extensive of a petroleum policy were found not conducive to foreign investment by the 1oCs. m:\ao-\pexp4o MAP SECTION I 7 1I -v -. Wug *t -] Rlt8- ts~~~~~~~~~~~~~..... ............. : .-- L /N 05 -<@N ... .. .. . .. .. . .. .. . .. . - - a~~~'"''2 -' 14 . ...... ............ ........ .. S -"~~~~~........ ............> -Bg_ | m 4 sr z &, r n 5 . ; O~~~~~~~~~~~~~~~~~ t i r t X 2~~~~~~~O IBRD 17101 Rl t :_, 8~~9. 9 ' 92- BANGLADESH 9 PETROLEUM EXPLORATION PROMOTION PROJECT / / \; ) '. ^ TO SEISMIC UNES (RECONNAISSANCEI 26' COMPLETED PRODUCTION SEISMIC SURVEYS 26 o\r_ rvi g. _INTERNATIONAL EOUNDARIES 'T ~~~~~~~~~~~~~~~~~~~~~~~25t [,, m;'ST'"pE '9 I~~~,,AMA .$. oo w'.cI N D I A 1 vC 9n:,'At-''~~~~~~~~~~~~~~~ti.\B X t~~ALA ..Oo,P-C .. of h.oMo o,*O do% ; on f A ;!Nf4 ~~~~~~ / ~ s" / 4 ~ i/ I-J Z .8'OD 240P5 APP- ~~PAKISTAN 3 ,4. y;;_ f. 0Xwc_ EXPLORATION PROMOTION REVIEW hT.-bd C N < CNCESSIONS AS OF NOVEMBER 1991 ~ f CO ANS WEGH FXSOA ON CONCESSIONS i iSIAM, IlEP , i 5 1 BAtUCHlSrAN w S ^ - " _ ,~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~NOC PKITN XMRTIN T CANADA NMSWSIt INSGY tM CAWNIUISLY R!SOOIJSCF LIM N.nSeN inset A for detaI ASMO Ct PAISTN ID; +t;Eri- M'" PAKISTAN OA CO, CO 1| A OIl AND GAS DI tt'M'NI CO"I OCCIDENTAL OF PAKISTAN LTD. I, ~~~~~~~~~~~2 ~~~~~66- . 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