ENI’s exit from Pakistan – Another blow to the Oil & Gas sector?

June 23, 2020 (MLN): Last week, Eni Company announced that it is planning to wind up operations in Pakistan after having a successful run in the country for two decades. The Italian multinational Oil & Gas Company further informed that it is actively seeking investors to buy its upstream projects, as well as several producing assets in Bhit, Badhra, and Kadanwari, along with its processing facilities and several non-operating assets.

As per the media reports doing the rife, the decision to exist Pakistan followed after the company witnessed substantial declines in profit margins, mainly due to the fluctuations in international oil prices. The company had even requested the government back in February to provide incentives on oil and gas production to help them sustain their profit margins, but to no avail.

Eni’s exit from Pakistani markets does not come as a surprise for many, as the Oil & Gas sector was already undergoing a massive turmoil, especially after the COVID-19 outbreak. The sector has underperformed the KSE-100 index by nearly 9%, with a negative return of 10% during the ongoing fiscal year. The oil/gas exploration sector itself underperformed heavily and generated a negative return of 11%, i.e. the worst of all sectors.

According to a report by Topline Securities, the divestment of all the major assets and upstream businesses shall be done vie three entities – Eni Pakistan Ltd, ENI AEP, and ENI Pakistan M Limited. The first entity comprises of Kirthar, Tajjal, and Mubarak Block, the second entity entails Block 20 and SW Miano Block, while the third one includes Dadu Block and Latif Block.

Currently, the reserves of ENI Company have a remaining life of nearly 4 years, which can be increased further via drilling of more exploratory and appraisal wells. Almost 75 percent of the company’s revenue is generated by the assets located in Bhit, Badhra, and Kadanwari, the report revealed further. The company is reportedly pricing the assets in Bhit and Badhra as per the Petroleum Policy 2001, and the ones in Kadanwari are being based on Furnace oil. On the contrary, the assets in Mitha are being priced according to the Petroleum Policy 2012.

If the assets and reserves of Eni are bought by one of the listed local companies of Pakistan, such as MARI, OGDC, PPL, and POL, it would help in the exploration of further opportunities and enhance the reserve base of their respective blocks over the long term, the report added. Moreover, the impact on the financial books of these companies, in terms of revenue contribution and net profit, is estimated to be Rs. 17.4 billion and Rs. 6.95 billion, respectively. By virtue of these estimations, the report suggests that the major beneficiaries of this transaction are expected to be Mari Petroleum and Pakistan Oilfields Limited.

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