"MARI GAS COMPANY LIMITED DIRECTORS' REVIEW"
1 MARI GAS COMPANY LIMITED DIRECTORS’ REVIEW We are pleased to present to you financial statements for the half year ended December 31, 2009. FINANCIAL RESULTS Gross sales for the 2nd quarter amounted to Rs. 6,940 million whereas gross sales for six months to December 31, 2009 aggregated Rs 13,991 million against cumulative sales for the corresponding period of Rs 13,280 million. The increase is mainly due to increase in volume by 4.38% and increase in average selling price from Rs 155.25 to Rs 156.69/ MSCF. The operating results in the financial statements for 2nd quarter show profit after tax of Rs 304.5 million as against Rs 815.8 million for the corresponding quarter of the previous income year. The cumulative profit after tax for the six months to December 31, 2009 is Rs 969.3 million against Rs 1,663.2 million of the corresponding period of the previous income year. The main reason for decrease in profit is decrease in well head price and increase in taxation for the current period due to adjustment of surplus and increase in financial charges. Presently the shareholders are entitled to guaranteed rate of return of 30% per annum. The return to shareholders is escalated in the event of increase in the Company’s gas production beyond the level of 425 MMSCFD at the rate of 1% for each additional 20 MMSCFD of gas or equivalent oil produced, prorated for part thereof on annual basis, subject to a maximum of 45% per annum. Accordingly, based on this arrangement under Gas Price Agreement, additional return at 2.00% was provided for in the annual financial statements of the Company for the year ended June 30, 2009. Any adjustment/ variance do not affect the minimum guaranteed rate of return to the shareholders. OPERATIONS The company continued un-interrupted gas supply throughout first half under review to all its customers namely, Engro Chemical Pakistan Limited, Fauji Fertilizer Company Limited, Fatima Fertilizer Company Limited, Pakistan Electric Power Company Limited (PEPCO), Foundation Power Company Daharki Limited and Sui Southern Gas Co. Ltd. The gas produced during the first half ended December 31, 2009 was 89,281 MMSCF at a daily average of 485 MMSCF as against 85,535 MMSCF at daily average of 465 MMSCF for the corresponding period of last year, which is as per the requirement/withdrawal of the customers. In addition, 1,371 BBL of oil was produced and sold in the current period against 259 BBL in the comparative period. Regular maintenance of gas gathering network and production facilities was carried out and production optimization plans were followed to avoid any water coning and loss in production through effective production & reservoir management system and as per the good oil/gas field practices. 2 FUTURE CHALLENGES Commencement of Goru-B Gas Production MGCL has successfully completed construction of production & process facilities as a part of Mari Goru-B development Project in order to supply 109 MMSCFD to two IPPs. The gas supply to Foundation Power Company Daharki has already been started on as and when required basis for commissioning of turbines. The Site Acception Test (SAT) of Dehydration plant is completed. The gas & condensate produced from Goru-B Reservoir during the July 1, 2009 to December 31, 2009 was 583.6 MMSCF & 725 BBLs respectively. Start of Gas Production for Fatima Fertilizer Company Limited. After signing & execution of 2nd supplemental GPSA for 110 MMSCFD with M/s Fatima Fertilizer Company Limited, gas supply to Fatima Fertilizer has started on November 27, 2009 by gradual curtailment from PEPCO. To meet the gas requirement of PEPCO, un-utilized gas allocated to Fatima Fertilizer is being supplied to PEPCO as per approval of GOP. Drilling of Mari Deep-14 Well. Mari Deep-14 reached target depth of 4150 meters on November 24, 2209. Two zones at Chiltan & Sembar formation identified from open hole logs were tested, however, no commercial quantity of gas was produced. Subsequently, the well has been completed in Goru-B formation as gas producer. Development of Zarghun Gas Field Consequent to Government’s letter dated May 8, 2009 guaranteeing a minimum gas price pending execution of ZS-GPA, DG (Gas) letter dated August 01, 2009 was received referring further changes in Draft GPA as directed by Law Division. Accordingly a further revised Draft ZS GPA was submitted to DG (Gas) on September 01, 2009 after obtaining JV Partners approval. EOI for seeking participation of reputed firms for field development was published in national & international print media. A total of 35 firms submitted their interest to participate in different options. Accordingly, 15 Firms submitted documents for pre- qualification out of which 9 firms were declared qualified. Invitation to Bid (ITB) document was issued to 9 pre-qualified vendors in July 2009. The last date for the submission of bids was extended twice on the request of bidders and due to Law & order situation. Bids were submitted on December 02 2009. Technical bids were opened on December 07, 2009 and technical evaluation is in progress. Reservoir Simulation Study of Mari SML/SUL formation The SML/SUL reservoir simulation study is being conducted by M/s Petresin Integrated Technology Houston USA and the Consultant has submitted the Draft final report. According to the study, the Gas in-place in Mari SML/SUL formations is 143 BCF. 3 EXPLORATION ACTIVITIES The company’s working interests share in onshore exploration licenses in Pakistan and overseas are as follows: MGCL’s Working Name of Sr. # Name of Block Interest Operator 1 Ziarat Exploration License 60% MGCL 2 Karak Exploration License 60% MGCL 3 Sukkur Exploration License 65% MGCL 4 Hanna Exploration License 40% MGCL 5 Harnai Exploration License 40% MGCL 6 Sujawal Exploration License 100% MGCL 7 Dadhar Exploration License 27.67% PPL 8 Hala Exploration License 35% PPL 9 Kohlu Exploration License 30% OGDCL 10 Kalchas Exploration License 20% OGDCL 11 Kohat Exploration License 20% OGDCL 12 Bannu West Exploration License 10% Tullow Pakistan 13 Oman 43B (Overseas Block) 25% MOL Operated Blocks Ziarat Block The Extended Well Test (EWT) on well Khost # 2 has been completed and 4185 bbl of crude oil was produced and dispatched to M/s BYCO Petroleum Pakistan Limited (formerly Bosicor Pakistan Limited). During production, the change in well behavior was observed on various choke sizes. Production Logging Tool (PLT) job was carried out to diagnose reasons for decline in oil production and increase of gas and water cut in comparison with DST results. The results of PLT were shared with JV partner in OCM//TCM. Ziarat Joint Venture has decided to drill an appraisal well Khost # 3 during 2nd quarter of 2010 for which the location has been stacked on ground. In addition to that MGCL has planned to acquire 170 line km 2D seismic data during 3rd quarter of 2010 subject to conducive environment of security. The new seismic data will help in evaluating the remaining potential of the block and will also help in locating additional exploratory/appraisal and development wells. Future planning regarding Khost # 2 would be reviewed based on production / drilling results of Khost # 3. 4 Karak Block Processing of newly acquired 230 line km 2D seismic data is in final stage at M/s Western Geco Cairo. Based on results of in-house interpretation/mapping of newly acquired & vintage 2D seismic data and integration of all G&G data, a prospect has been delineated to drill the committed exploratory well, which is expected to be spud- in during 2nd quarter of 2010, subject to its firming–up. Subsequently, 110 line km 2D selected seismic data has also been sent to M/s TBI, Canada, for reprocessing, over Halini Prospect to obtain second opinion, regarding the integrity of the prospect. An application for 7 months extension in 3rd license year has been submitted to DGPC w.e.f January 01, 2010. However, their response is awaited. Sukkur Block The laying of gas pipeline work from well-site to delivery point (13.5 KM) and installation of Dehydration plant along with other production facilities are completed and first gas delivery from Koonj-1A well was injected in SNGPL network on January 28, 2010. The GSA with M/s SNGPL to supply gas is under progress. Reprocessing of about 240 line km 2D seismic data has been completed at M/s SAGeo, Islamabad. Based on the interpretation and mapping, the well location has been finalized for the drilling of 3rd committed exploratory well which is planned to be spud-in during 2nd quarter of 2010. Hanna Block The contract for 2D seismic data acquisition was awarded to M/s BGP and accordingly advance party of seismic crew has been mobilized on December 17, 2009. Subsequently, parameter testing was carried out on January 21, 2010. The planned 190 line km seismic recording has commenced. Decision on requests for one year extension in 2nd license year is pending with DGPC. Harnai Block The contract for 2D seismic data acquisition is being awarded to M/s BGP. The seismic activity will commence soon after the completion of seismic survey in Hanna Block. Decision on requests for one year extension in 2nd license year is pending with DGPC. Sujawal Block The Sujawal-X1 well has been spud-in on February 06, 2010 having well total depth of 3910 meter to test the hydrocarbons potential of Lower Goru sand using MGCL’s own drilling rig. Presently drilling is in progress at depth of 487 meter as of February 18, 2010 One year extension in the 3rd license year has been granted by DGPC up to June 19, 2010. 5 Non Operated Blocks Dadhar Block The Operator (PPL) has submitted the relinquishment notice to DGPC on December 04, 2009, for surrendering the Dadhar Block based on discouraging results of Tangna Pusht Well X-1. Hala Block The JV is planning for drilling of an exploratory well during 1st renewal period w.e.f March 11, 2010. Accordingly, based on the interpretation of 3D seismic data, a prospect has been firmed-up. The installations of EWT production and processing facilities have been completed. The 1st gas was injected into M/s SSGCL’s transmission network on December 12, 2009. Kohlu Block There were no exploration activities due to the security reasons. Kalchas Block Operator is planning to process the newly acquired 143 line km 2D seismic data to be followed by interpretation. Remaining 196 line km 2D seismic data falling in Balochistan Province, will be acquired later subject to security clearance from the concerned agencies. Kohat Block First exploratory well Shekhan # 1 was spud-in on November 12, 2009. Primary targets are to test the hydrocarbon potential of Lockhart, Hangu, Lumshiwal and Datta formations. Currently, the drilling is in progress into Chichali Formation at the depth of 2080 meter as of February 18, 2010. Bannu West Block Geological and Geophysical activities are pending due to security clearance. Oman 43 B Block A Technical Committee Meeting was held on November 07, 2009 wherein, the work completed during 2009, proposed work for 2010 including seismic data acquisition over Hawasina Window, 2nd half budget for 2009 and proposed budget for 2010 were discussed and agreed. Operator presented the results of source, reservoir facies studies and geological studies. Subsequently, an Operating Committee and Joint Management Committee meetings held on January 13, 2010 in Muscat, Oman, wherein, the work programme and budget 2010, were approved. 6 The Block Bidding Round - 2009 Based on geological & geophysical evaluation of sedimentary basins of Pakistan, three blocks were identified as prospective for exploration of hydrocarbons i.e Gahuri, Zindan and Digri. Subsequently, a block bidding round for the grant of Petroleum Exploration Rights on 53 exploration licenses in Pakistan was held on September 30, 2009 at DGPC office, Islamabad. MGCL has participated in three exploration licenses as an Operator namely; Digri, Zindan and Ghauri blocks. It is worth mentioning that the recommended bocks received great response from other E&P companies and highest financial commitment of bidding round was made on Digri Block. MGCL won Ghauri Block and accordingly the block was awarded provisionally to MGCL. The execution of PCA and Exploration License was held on February 16, 2010. The Company continues to pursue its evaluation of potential sedimentary basins of the country to identify new exploration areas as well as assessing prospects and negotiating terms for Company’s participation in the already awarded blocks through farm-in arrangements with other companies. For and on behalf of the Board Islamabad Lt Gen Hamid Rab Nawaz HI(M) (Retd) February 19, 2010 Chairman