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The Company is in a continuous
process to implement,
monitor and improve its risk
management policy. Risks
are identified, prioritized
and incorporated into a risk
management response to
effectively address risks.
Following are some material
risks being faced by the
Company along with mitigation
measures:
Oil price volatility:
The pricing for the Company’s
oil and gas production is
benchmarked with international
prices of crude oil and related
products. Any unfavorable
variance in the international
prices adversely affect the
Company’s profitability.
Exploration risk:
Exploration activity is prone
to the risk of not finding
commercial quantities of
hydrocarbons due to a number
of factors such as incorrect
selection of exploration
acreage, poor quality of seismic
data, error in processing or
interpretation of seismic data,
incorrect selection of drilling
site. The Company is mitigating
exploration risks by using
latest technologies and hiring
experienced professionals.
The Company is in continuous
process to explore new
opportunities and increasing
the chances of success by
joining hands with other E & P
companies by way of farm-in
and farm-out agreements.
Drilling risk:
Oil and gas drilling by its very
nature is a high risk activity.
The Company is exposed to
a number of hazards during
drilling of wells including well
blow out, fishing, fire hazards
and personal injury. In addition,
the risk of not discovering
oil and/or gas as expected,
would have an adverse effect
on earnings. The Company
is mitigating these risks
by selecting efficient and
professional teams and also
by having strict criterion for
selecting rig and other allied
services/equipment. Further, the
Company also obtains control
of well insurance cover for all
drilling wells.
Under performance of major oil
and gas fields:
The Company’s future earnings
and profitability is dependent
upon the production and
reserves of its oil and gas fields.
The actual production from
fields may differ materially from
estimates due to possible under
performance of the oil and gas
reservoirs or other production
related factors.
Procurement planning related
risk:
Vulnerability to the procurement
process is a possible threat to
the Company’s profitability.
The vulnerability can give rise to
the following risks
• Commercial risks
• Operational risk– not having
materials
• Contractual risk– exposure
to liquidated damages
The company is mitigating these
risks by preparing of detailed
well prognosis before the spud
date and timely placement of
procurement orders for long
lead items.
Reservoir engineering and
process:
The over estimation of reserves
and production can lead to
investment of significant capital
in the form of plant design by
the engineering function. As
far as practical, the Company
obtains third party reserve
certification to mitigate this risk.
Laws & Environmental
regulations:
The oil and gas industry is
regulated by a number of
government regulations
which are required to be
strictly followed. Default in
this regard can have serious
consequences. E&P Companies
must take extra precaution to
ensure they are complying with
all mandatory regulations when
proceeding on a project. The
risks of non compliance can
range from cost overruns, fines,
prosecution, work stoppage and
physical security threats. This
industry must also be cautious
about where they are drilling
and be well informed and aware
of the applicable laws.
Increased competition:
With increased competition in
the oil and gas exploration and
production sector, particularly
RISKS AND OPPORTUNITIES
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PAKISTANOILFIELDS LIMITED