8 incentives to encourage pilot projects for the exploration of shale gas in Pakistan

Qamar Yasin's picture
Qamar Yasin, Research Associate, China University of Petroleum (East China)
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In order to encourage pilot projects for the exploration and exploitation of shale gas in Pakistan and to make such discoveries commercially viable, the following special incentives are recommended for pilot projects testing and production phases:

1. Award of Concession License

In order to expedite exploitation of shale gas and keeping in mind the current licensing regime, it is suggested that the competent authority may grant (case to case basis) special concession for exploration and production of shale gas as provided below:

  • Free area (which is currently not held by any company) special concession for shale gas shall be directly awarded to companies for pilot projects under this frame work. The competent authority when granting the rights shall take into account the technical, operational and financial consideration associated with carrying out such pilot projects.
  • Existing exploration licensing area: In the areas where shale gas work program has not been confirmed by existing licensee, interested companies who are pioneering in shale gas exploitation should be permitted ring fenced farm-in for shale gas, for which special concession will be directly awarded, provided such companies propose pilot projects including at least one firm vertical well commitment.
  • The competent authority shall, in consultation with the E&P companies assign work unit to different type of technical activities including: unconventional surveys, special G&G studies and multi-component seismic surveys. In addition, well operations such as horizontal drilling, multilateral drilling, multiphase hydraulic fracturing shall be performed during the course of a particular pilot projects.

2. Special Gas Price

In the case of gas discovery from shale reservoir, the gas price per MMBTU shall be 100% of C&F Karachi price of high sulfur fuel oil (HSFO) 180 CST as published in Platt’s oilgram price report under spot price assessment, Arab Gulf, FOB.

As an alternative, the gas price per MMBTU shall be 70% of C&F Karachi price of imported basket of Arab/Persian crudes.

3. Corporate Taxation

The corporate tax rate for shale gas pilot projects shall be reduced from 40% to 30%.

4. Extendable Tax Losses

Losses shall be allowed to be carried forward for a period not exceeding 15 years.

5. Windfall Levy

No windfall levy shall be applicable to the shale gas production.

6. Royalty

Royalty shall not be applicable for a period of 10 years from the date of the first production. Later, the royalty shall be payable in accordance with the new (as draft by competent authority) or existing petroleum policy.

7. Import Duty

Import duty shall be not payable on all materials, equipment, plants, and machinery imported for shale gas pilot projects and further the development and production from shale.

In the case of discovery, lease life shall be for 30 years with 10 years renewal possible.

8. Support of Country Economy

Besides the development of shale gas production to meet its energy crisis, the recommended higher gas price will yield additional profit to the Government of Pakistan in the form of additional sales tax, royalty and corporate tax. In addition, the successful exploitation of shale gas would result in significant reduction in drilling and services cost in Pakistan, which would make existing marginal discoveries economically viable and reduce the economic threshold for future discoveries. This would also generate employment opportunities and development of human resource in the country.

It is also important to consider the other benefits which include:

  • Possible solution of the energy crisis in Pakistan
  • Attract foreign investment
  • Reduce heavy burden of foreign exchange
  • Human resource development
  • Technology transfer
  • Build infrastructure in cement and fertilizer

Share your insights and join the conversation: Do you agree with these eight incentives? Are there any others you believe to be important? Leave your comment below.

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