MANY oil companies in Pakistan are looking at cost-cutting options to maintain their health without scaling down oil and gas exploration operations, expecting high returns that a growing economy promises.

“The oil companies cannot possibly be immune to the global price crash fallout. Yes profit margins have shrunk. The government will also feel the pinch as the revenue collection from the sector has been declining. However, what the government is saving on oil import bill more than balance it out,” a source who works for a key oil company shared his opinion.

“No we have not suspended or deviated from oil exploration plans and are going full steam. It makes perfect business sense as the country currently produces hardly one fourth of oil it requires,” Zahid Mir, acting managing director of Oil and Gas Development Company Ltd, told Dawn over phone. “There is pressure from the FBR over declining revenues but the Ministry of Petroleum is supportive.”

“Yes, like oil companies around the world we have taken a beating as crude price came crashing down from $110 per barrel to $35 over the past year and a half. The domestic gas price that is somewhat insulated from volatility in global price, helped.

“Earlier 65pc of OGDCL profits came from oil sales. Now the equation has reversed as today gas sales make up 65pc of revenue inflows. Last year OGDCL posted a profit of Rs87bn.

The company in the first six half of this fiscal year posted a profit of Rs34bn,” he said.

“We are reshuffling projects giving them a hard second look to cut costs. Recently, we have redesigned the Nashpa project located in Karak and Kohat districts of Khyber Pakhtunkhwa. The original cost of $200m was brought down to $150 million.”

“Our BOE (barrel of oil equivalent) cost of exploration is among the lowest in the world, but we are striving to bring it further down by administratively merging fields in Balochistan and Punjab where returns are negative. For cutting wage bill and managing excess staff from the field operations, we have created a ‘reserve pool’. Workers placed in the pool draw basic salary without multiple fat allowances”, he said.

“There is, however, no compromise on the exploration drive. We intend to break the record of last year by spudding 18 wells in the current year,” bubbly Zahid was confident.

Kamran Ahmed, CEO of Ocean Pakistan Ltd, said several oil majors like Shell, Exxon and BP have already left and the chances of FDI inflows in the sector are slim.

“Yet oil companies still here believe Pakistan has a huge business potential and that was precisely the logic behind our decision to acquire BHP Billiton’s local operations recently. We are in transformation mode fairly positive about our future in the country,” he said over phone.

“I believe the current business environment in the oil sector is forcing innovation in companies. Everyone is getting rid of dead wood and focused on making operations competitive to achieve better returns. We hope to come out leaner and stronger”, another executive asserted.

Farooq Rehmatullah, who served in a top position in a foreign oil firm gave a muted opinion. “In the global context the stakes of oil majors in Pakistan were tiny. They decided to withdraw from Pakistan as they embarked on a consolidation strategy and moved to places where prospects were better,” he said.

Petroleum Minister Shahid Khaqan Abbasi was not able to pitch in his response within the deadline but insiders in the ministry told Dawn that all oil companies, both private and public, appear to be upbeat despite challenges.

“If there is anxiety in the sector it has not surfaced in our interaction with the hierarchy of oil companies. I find oil executives energised and approaching the ministry to get NOCs for new exploration sites to expand their footprint,” a senior official in know of the matter told Dawn.

A report of global market research firm ‘Deloitte: 2016 outlook on the oil and gas industry’ available online resonates views expressed above and I quote from a write-up: “In less than a year, upstream oil and gas companies faced a 50pc drop in revenues. Looking ahead to 2016, Deloitte sees positive developments that could help the industry evolve to a better place. Demand, decline, production, and a leaner, stronger industry will all have an impact”.

John England, US Oil and Gas leader, Deloitte LLP commented: As 2015 comes to a close, I am struck by what a unique year this was in the always-fascinating and dynamic world of oil and gas. In less than a year, upstream oil and gas companies faced 50pc drop in revenues. He further explained that the industry responded by experiencing five stages of grief: denial, anger, bargaining, depression and acceptance.

Published in Dawn, Business & Finance weekly, March 14th, 2016