Petroleum Exploration & Production POLICY 2012: Government of Pakistan Ministry of Petroleum & Natural Resources

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PETROLEUM
EXPLORATION
&
PRODUCTION
POLICY 2012
GOVERNMENT OF PAKISTAN
Ministry of Petroleum & Natural Resources
(January 2012)
Petroleum Exploration & Production Policy 2012

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Contents
1 Introduction -1-
1.1 Background -1-
1.2 Previous Policies -1-
1.3 Policy Objectives -2-
1.4 Requirements of Policy -2-
1.5 Outline of Pakistans 2012 E&P Policy -3-
1.6 Promoting Involvement of Pakistani Companies in the Countrys
Upstream Petroleum Industry -4-
Section I Licensing Process -4-
2. Companies entitled to acquire petroleum right -4-
2.1 New Local Entrants -4-
2.2 Requirement for an Applicant -5-
2.3 Direct Negotiation with Strategic Partners -5-
3. Licensing System -6-
3.1. Types of Exploration and Production Rights -6-
3.2. Procedure for the Granting of E&P Rights -7-
3.3 Bid Evaluation Procedure -9-
3.4 Post Award Process -9-
Section II Exploration and Production Regimes - 10 -
4 Onshore Petroleum Concession Agreement (PCA) - 10 -
4.1 Royalty, Income Tax and Windfall Levy - 10 -
4.2 Block System - 14 -
4.3 Rentals - 14 -
4.4 Non Fulfilment of Work Obligations - 15 -
5. Offshore Production Sharing Agreement (PSA) - 16 -

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5.1 Royalties, Corporate Tax and Windfall Levy - 16 -
5.2 Depreciation - 17 -
5.3 Direct Government Participation - 17 -
5.4 Production Sharing - 17 -
5.5 Cost Limit - 18 -
5.6 Profit Oil and Profit Gas Splits - 18 -
5.7 Production Bonuses - 19 -
5.8 Import Duties and Taxes - 19 -
5.9 Marine Research and Coastal Area Development Fee - 19 -
5.10 Local Employment, Training and Social Welfare Contributions - 20 -
5.11 Exploration Period - 20 -
5.12 Extended Well Testing - 20 -
5.13 Retention Period - 21 -
5.14 Total Lease Term - 21 -
5.15 Five Year Lease Term Renewal - 21 -
5.16 Policy for Grant of Lease after Expiry of Lease Term - 22 -
5.17 Block System - 22 -
5.18 Rentals - 22 -
5.19 Non Fulfilment of Work Obligations - 22 -
5.20 Incentive for Offshore Discovery - 22 -
Section III - Regulatory Process & Obligations - 23 -
6. Regulatory Process - 23 -
6.1 Miscellaneous - 23 -
6.2 Application Fees - 23 -
6.3 Non-compliance - 23 -
6.4 Confidentiality of Data and Records - 24 -

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6.5 Performance Guarantees - 24 -
6.6 Profit Sharing - 25 -
7 Foreign Exchange - 25 -
8 Assignment or Transfer of Interest - 26 -
9 Domestic Supply Obligation & Gas Allocation - 26 -
9.1 Domestic Supply Obligation - 26 -
9.2 Remittance of Proceeds Abroad - 26 -
9.3 Delivery Point and Field Gate for Natural Gas - 27 -
9.4 Sale of Natural Gas within Pakistan - 27 -
9.5 Pipeline Construction and Operation - 27 -
Section IV Pricing and Incentives for Petroleum Exploration & Production - 30 -
10 Oil and Gas Pricing - 30 -
10.1 Crude Oil, Condensate and Liquefied Petroleum Gas (LPG) Pricing - 30 -
10.2 Gas Pricing - 30 -
10.3 Associated Gas Pricing - 31 -
10.4 Low BTU and Shale Gas Pricing - 31 -
10.5 Tight Gas Price - 31 -
10.6 Royalty Calculation in case of Sale of Gas to Third Parties - 31 -
10.7 Extended Well Testing Gas Pricing - 32 -
10.8 Ring Fencing - 32 -
Section V: - Implementation and Removal of Difficulties:- - 33 -
11 Implementation of the Policy, removal of difficulties, addressing
of anomalies, framework for institutional development and
strengthening of the Policy Wing - 33 -
12 Applicability and Effect of Policy - 34 -
Section VI Conversion to 2012 Policy - 35 -

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13 Conversion of Regimes - 35 -
Annexures
Annexure 1 - The Block System - 36 -
Annexure 2 Block Maps of Pakistan - 40 -
Annexure 3 - Employment, Training and Social Welfare Program - 42 -
Annexure 4 Information required from an interested company - 44 -
Annexure 5 Concept of Work Units - 45 -
Annexure 6 - Documentation for Block Award Process - 48 -

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1 Introduction
1.1 Background
The importance of the domestic petroleum industry to the economy of Pakistan is a core issue
of national security, national self reliance and as a major source of government revenue.
Pakistans average daily production of crude oil and gas in 2009-10 was 65,000 barrels and
4,063, million cubic feet, respectively. Pakistans indigenous oil and gas production meet
around 53% of its total energy requirements while other indigenous sources provide 19%. As
a result around 27% of the countrys energy needs are currently being met through imports.
Even at conservative estimates of economic growth over the next decade, Pakistans total
energy requirements are expected to grow substantially. While the Government of Pakistan
(GOP) is focused on securing its energy future through gas imports, it is also conscious of
minimizing its energy import bill through maximizing development of its indigenous
resources. Domestic gas production and supply presently fails to meet the demand of
domestic users, the industrial sector and power generation. Furthermore, gas supply may soon
become insufficient due to increasing demand and depletion of present reserves. This, in turn,
will force Pakistan to soon begin importing large volumes of gas at international prices to
feed the domestic market.
Furthermore the GOP is cognizant of the dramatic changes that have taken place in the
pricing and cost environment of the international oil and gas industry. The drastic increase in
the crude oil prices in the international market has changed the complexion of the E&P
sectors which requires drastic changes in the approach towards the sector. In addition, the
GOP recognizes the operating challenges and considerations for the Pakistan oil exploration
and development industry. Today, more than ever before, the GoP stands committed to
providing fiscal and regulatory incentives that would enhance and facilitate E&P companies
in accelerating their exploration and development programmes in order to maximize domestic
oil and gas production in the coming years.
1.2 Previous Policies

In 1991, GOP introduced the first petroleum Policy document. This was then followed by
new Petroleum Policies of 1993, 1994, 1997, 2001 and 2007 and 2009. Whenever previous
policies were superseded by a subsequent Policy document, the existing rights granted under
licences/Petroleum Concession Agreements (PCAs) / Production Sharing Agreements (PSAs)
were not affected.
The 1997 Policy, while preserving the provisions of the 1994 Policy with respect to onshore
areas, introduced a new offshore package of terms based on production sharing arrangements.
Under the 1997 Policy, existing licence holders in offshore areas were given an option to
convert their concession agreements into Production Sharing Agreements (PSAs).
The 1997 Policy was replaced in 2001 by Petroleum Policy 2001, coupled with Petroleum
(Exploration and Production) Rules 2001, a model offshore Production Sharing Agreement
and a model onshore Petroleum Concession Agreement. In 2003, a revised model offshore
production sharing agreement was introduced complemented by the Offshore Petroleum
(Exploration and Production) Rules 2003.
Policy 2009 had to be amended by this Petroleum Policy 2012 as the new market conditions
warranted urgent changes required for investment promotion in view of increasing

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international energy prices. It also reflects the resolve of Government of Pakistan to

accelerate exploitation of indigenous natural resources by attracting foreign investment with
technology as well as promoting local companies to participate in E&P activities on a level
playing field.
There has been paradigm shift in the natural gas scenario due to higher trend of consumption
of natural gas in the country and overall energy requirement was changing so therefore there
was great need to bring new policy with additives.
The purpose of this Petroleum Exploration and Production Policy 2012 (Policy) is to
establish the policies, procedures, tax and pricing regime in respect of petroleum exploration
and production (E&P) sector.
1.3 Policy Objectives

The principal objectives of this Policy are:
1. To accelerate E&P activities in Pakistan with a view to achieve maximum self

sufficiency in energy by increasing oil and gas production.
2. To promote direct foreign investment in Pakistan by increasing the competitiveness

of its terms of investment in the upstream sector.
3. To promote the involvement of Pakistani oil and gas companies in the countrys
upstream investment opportunities.
4. To train the Pakistani professionals in E& P sector to international standards and

create favourable conditions for their retaining within the country.
5. To promote increased E&P activity in the onshore frontier areas by providing

globally competitive incentives.
6. To enable a more proactive management of resources through establishment of a

strengthened Directorate General of Petroleum Concessions (DGPC) and providing the
necessary control and procedures to enhance the effective management of Pakistans
petroleum reserves.
7. To ensure the energy secure of the country by enhancing domestic exploration
8. To decrease reliance on imported energy by providing additional incentives to

exploration and production companies for enhancing indigenous production
9. To undertake exploitation of oil and gas resources in a socially, economically and

environmentally sustainable and responsible manner.
1.4 Requirements of Policy

In order to achieve these objectives, it is necessary for this Policy to:
1. Provide stimuli for increasing exploration and production investment by modifying

current contracting terms and incentives while taking into consideration the market
conditions.

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2. Adopt licensing terms, conditions and processes to attract newcomers including oil and
gas majors and independents, National Oil Companies (NOCs), and Pakistani private
companies.
3. Provide a balance between prices and incentives through the rationalization of the
pricing formula so as to suitably compensate exploration and production risk.
4. Implement pro-active Policy management.
5. Successfully align the Policy with GOPs objective to achieve maximum self
sufficiency in domestic energy resources for the larger public good.
6. Provide a transparent and non-discriminatory licensing and contracting system

managed by DGPC.
1.5 Outline of Pakistans 2012 E&P Policy

The Petroleum Exploration & Production Policy 2012 maintains a system based upon the two
different types of agreements to obtain E&P rights in Pakistan:
For onshore operations, a system based upon a Petroleum Concession Agreement
(PCA)
For offshore operations, a system based upon a Production Sharing Agreement(PSA)
This document is structured in six Sections:
Section I: Licensing Process;
Section II: Exploration and Production Regimes;
Section III: Regulatory Process and Obligations;
Sections IV: Pricing and Incentives for Petroleum Exploration & Production;
Section V: Implementation and Removal of Difficulties;
Section VI: Conversion to 2012 Policy.
This Policy has incorporated the significant achievements of the Pakistani petroleum industry
with established good international oilfield practices.
This Policy will be enhanced by DGPCs continued active support of:
1. The implementation of best practices for assessing petroleum projects and efficient
regulatory process.
2. Vigorously promoting exploration and production investment opportunities within

Pakistan to both the domestic and the international petroleum industry.
3. Vigorously promote the access to and sale of public domain upstream geological and
engineering data sets both in Pakistan and abroad.

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1.6 Promoting Involvement of Pakistani Companies in the

Countrys Upstream Petroleum Industry
GOP is also committed to promoting the active participation of Pakistani companies in oil
and gas activities in order to stimulate growth of domestic industry and capture the maximum
economic benefit for the country and its workforce.
Furthermore, GOP views the increased involvement of Pakistani companies in partnerships

with foreign companies, combined with the involvement of the local stakeholders, to be one
of the keys to unlocking the potential of the petroleum reserves in the frontier areas for the
benefit of the country.
Section I Licensing Process

2. Companies entitled to acquire petroleum
right:-
1. Every company interested to acquire petroleum right will be required to furnish the
details as to the nature of and the principal place of business of the company, the
authorized, subscribed and paid-up capital of the company, the names and nationality of
the directors thereof and the names and holdings of the principal shareholders. In
addition, every company other than the existing operator of a license/lease shall also
furnish evidence as to his financial and technical qualifications and as to his ability to
conduct the activities under the relevant petroleum right in accordance with the good
oilfield practices.
2. All local and foreign companies presently operating in Pakistan will be eligible to acquire
petroleum right.
3. Foreign companies not operating in Pakistan but having operated concessions in other
geographical areas of the world will also be eligible to acquire petroleum right subject to
demonstration of technical and financial capability.
4. All companies having joined a consortia of companies in a concession and have gained at
least three years of experience as a non-operator will be eligible to become operator
subject to demonstration of technical and financial capability.
2.1 New Local Entrants

Smaller local Pakistani companies will be allowed to join consortia with other E&P
companies as non operator in order to gain the necessary industry experience to allow
them to expand their capacity to take on operating roles in future. In the event, local
Pakistani company does not have requisite past operating experience, such company
shall be required to either produce an agreement with an internationally renowned E&P/
services company acceptable to DGPC or a high calibre technical and management team
with proven track record of overseeing and managing operations in the international
petroleum industry.

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2.2 Requirements for an Applicant

2.2.1 Legal Capacity and Residence Requirements
The applicant company must:
1. Be eligible to apply for a petroleum right in accordance with the applicable Rules and
to execute any subsequent agreement, and that such status is likely to remain valid
for a period longer than the life of any subsequent agreement plus one year;
2. Declare that there is no pending litigation, legal process or other circumstance that
might cause it to breach its obligations; and
3. Provide a sworn statement that it is not incapable of contracting with GOP and/or
Government Holdings (Private) Limited (GHPL).
4. Within a period not exceeding ninety days after award of petroleum right to a
qualified company, it must either become incorporated in Pakistan or obtain
permission to operate as a registered branch office of a foreign company to operate in
Pakistan.
2.2.2 Submission of Misleading Information or an Adverse

Material Change in Status
1. DGPC reserves the right to disqualify any company should there be an adverse
material change in the status of a company after filling of an application.
2. DGPC reserves the right to refuse authorisation to participate should erroneous or

misleading information be supplied by the applicant.
2.3 Direct Negotiation with Strategic Partners

GOP may assign the status of Strategic Partner to national oil companies representing
foreign governments. GOP will promote direct negotiations with selected strategic partners in
order to:
1. Explore and develop specific acreage selected by DGPC for strategic partnerships.
2. Develop acreage of significant petroleum potential identified by DGPC in regard to

which GOP considers that a strategic partnership would improve the exploitation of
any petroleum resources.
3. The party to whom block is awarded would remain the majority share holder of such
block(s). The block awarded to the strategic partner can only be farmed out to Public
Sector Companies of the same country acceptable to the GOP or Pakistani Public
Sector E&P companies including GHPL.
Strategic partners will be required to undergo the same procedure as other companies
outlined above; however, they will be given privileged award of petroleum rights without
following competitive bidding for certain blocks selected by DGPC on mutually acceptable
terms and conditions.

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3. Licensing System
3.1. Types of Exploration and Production Rights
Four different types of E&P rights will be available, as outlined in the table below:
Type Name Petroleum Right Granted Term Maximum
Acreage
1. Reconnaissance Non-exclusive right for 1 year initial term with Unlimited in open
Permit geophysical, geochemical possible renewal of 1 year. areas.
& geological operations,
including the drilling of
stratigraphic wells.
No rights to negotiate or
convert into onshore
Licence or offshore PSA
Petroleum Exclusive right for Five years initial term Maximum 2,500
2.
Exploration exploration, including (Phase-I of 3 years and km2 with
Licence Onshore drilling and production Phase-II of 2 years) plus subsequent
testing, on terms specified two renewals of one year progressive area
in the licence, Rules and each. relinquishment of
related agreement. 30% of the original
For appraisal operations, a
area after Phase-I
separate application can be
of initial term,
made under the Rules
20% of the
allowing a maximum period
remaining area
of appraisal renewal for one
after Phase-II of
year.
the initial term and
Plus a possible additional 10% of the
five years retention period1 remaining area on
for gas market. or before the start
of second one year
renewal
Development and Exclusive right to develop Up to 25 years with a Maximum acreage

Production Lease and produce hydrocarbons possibility of a renewal for retained under
from within a designated five years. development and
portion of a Petroleum and production lease as
Exploration Licence, issued defined in the
when conditions laid down Rules.
in the Rules are satisfied.
3. Petroleum Exclusive right for Five years initial term Maximum 2,500
Licence Offshore drilling and production Phase-II of 2 years) plus subsequent
Shallow Water testing, on terms specified two renewals of one year progressive area
in the licence, Rules and each. relinquishment of
related PSA 30% of the original
area after Phase-I
of initial term,
made under the Rules 20% of the
remaining area
of appraisal renewal for one
after Phase-II of
year.
the initial term and
of second one year
renewal

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Production Lease and produce hydrocarbons possibility of a renewal for retained for
portion of a Petroleum and production as
4. Petroleum Exclusive right and PSA for Five years initial term Maximum 2,500
Licence Offshore drilling and production Phase-II of 2 years) plus subsequent
Deepwater and testing, on terms specified two renewals of one year progressive area
Ultra Deep Water in the licence, Rules and each. relinquishment of
related PSA 30% of the original
area after Phase-I
of initial term,
made under the Rules
20% of the
remaining area
of appraisal renewal for one after Phase-II of
year. the initial term and
of second one year
renewal
Production Lease and produce hydrocarbons possibility of a renewal for retained for
portion of a Petroleum and production as
1
For details of the retention period for gas market arrangements, please see 4.1.7 below
2
For details of the retention period for gas market arrangements, please see 5.13 below
3.2. Procedure for the Granting of E&P Rights

Onshore and Offshore E&P rights will be awarded via three distinct procedures:
1. The granting of Petroleum Exploration Licences for entering into PCA or PSA in relation
to onshore and offshore blocks offered through competitive bidding as per procedure laid
down herein below.
2. The granting of Petroleum Exploration Licences for entering into PCA or PSA in relation
to onshore and offshore blocks without competitive bidding to Strategic Partner
Companies on Government to Government basis.
3. The granting of non-exclusive Reconnaissance Permits for undertaking studies and multi-
client surveys after direct negotiation.
An application for any offshore permit or licence will be filed to DGPC. However, GHPL
will hold the rights to such permit or licence and will contract the applicant company to
perform the required work via a contractor agreement (PSA).
In order to further streamline the procedure for expeditious disposal of applications for the
grant of exploration licences for both onshore and offshore; DGPC will continue the
competitive bidding process as given below. In addition, the existing procedure for
clearances by Provincial Governments and security agencies through a predefined "White

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and Green Area Map" will continue. No area clearance would be required for concession
blocks falling inside white/green areas.
3.2.1 Invitation to Bid

1. DGPC will issue an Invitation to Bid as per the format at Annexure 6, in national
newspapers, the MPNR website. Invitation to Bid may cover the nominated blocks and
such additional blocks as DGPC may deem appropriate.
2. An Invitation to Bid will remain valid for at least 60 days and all companies providing
the requisite information would be eligible to contest Invitation to Bid.
3. It is a pre-requisite that the standard Model Petroleum Concessions Agreement and

Model Production Sharing Agreement are followed by all companies participating in
Invitation to Bid. All the economic terms and conditions will remain fixed as defined in
this Policy, unless mutually agreed by the parties and approved by GOP. All participating
companies will be required to furnish an undertaking to the effect that in the event, they
are considered for the award of petroleum right by DGPC, they will not seek any change
or modification or amendment or revision to terms and conditions applicable to Invitation
to Bid including that of Model Petroleum Concessions Agreement and Model Production
Sharing Agreement.
4. Upon a written request of an interested company, DGPC will make every effort to
provide bid documents within 15 days of the request, which will include but not be
limited to copies of: (a) the Policy; (b) the applicable Rules; (c) Model Petroleum
Concessions Agreement and Model Production Sharing Agreement, whichever is
applicable; and (d) information which is available or can be purchased.
5. Bids will be invited based on criteria of the highest work programme determined on the
basis of Work Units above as set-out in Annexure 5 and the minimum threshold indicated
in PCA.
6. Any company can submit a bid for any block included in Invitation to Bid in accordance
with the Policy/Rules.
7. All Bids will be opened publicly in the presence of authorized representatives of the
bidders should they chose to be present. If only one bid is received, the bidding company
can be considered for award in accordance with the Rules provided the company offers a
reasonable Work Programme commensurate with the prospectivity of the area.
8. Award of petroleum rights to Pakistani state owned companies will also be subject to the
same process mentioned herein above.
9. DGPC will ensure that the conditions and requirements concerning the exercise or
termination of the Invitation to Bid are established and made available to interested
companies along with the bid documents. Furthermore, any changes made to the
conditions and requirements in the course of the bid procedure are to be notified to all
interested companies immediately by means of bulletins posted to the website and
through registered mail to the companies buying bid documents.
10. Bids are to be submitted in a sealed envelope.
11. All bids are to be made in accordance with the applicable Rules.

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12. All bidders are required to notify DGPC should there be an adverse material change in
their status after the bidding. GOP will retain the right to refuse the granting of any rights
when there is adverse material change in the information provided.
13. DGPC will make every effort to conclude and sign a Petroleum Concession Agreement or
Production Sharing Agreement as the case may be based strictly on the model provided
with the bid documents within 15 days after the closing date of Invitation to Bid subject
to completion of all documents to be submitted by the applicant companies.
14. The Government reserves the right to exercise the powers to accept or reject any
application and cancel or annul the bidding process.
15. DGPC reserves the right to call bidding rounds as and when required.
3.2.2 Direct Negotiation of Non-Exclusive Rights

A potential investor may apply, in accordance with the Rules, for a non-exclusive
Reconnaissance Permit via direct negotiation with DGPC in any area currently open and
considered by DGPC to be suitable for this purpose.
3.3 Bid Evaluation Procedure

1. Each bid must contain the necessary information regarding Work Units for Phase I of the
initial term of the licence that the bidder offers as a firm commitment. The bid with the
highest firm Work Units for Phase I of the initial term will be declared the winner.
2. If more than one bidder offer the same number of Work Units and there is a draw, then
the successful bidder will be decided on the basis of following process:
a. Within 15 days of bid opening date, the bidders offering the equal number of the
highest Work Units will be asked to re-bid the Work Units and the bidder
offering the higher Work Units in the re-bidding will be declared the winner,
provided however, bidders cannot offer Work Units lower than the one
previously offered.
b. The above process will be repeated until there is a clear winner.
3.4 Post Award Process

Following a successful bid, either a PCA for onshore acreage or a PSA for offshore acreage,
will be concluded between Government/ GHPL and the successful bidder as per the Model
PCA/PSA made available to the applicants at the time of the announcement of the invitation
for bids. No modification to the terms of the model agreement nor to the terms of the bid will
be allowed during the finalisation of execution copies of the PCA or PSA.

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Section II Exploration and Production Regimes

4 Onshore Petroleum Concession Agreement
(PCA)
4.1 Royalty, Income Tax and Windfall Levy
1. Royalty will be payable at the rate of 12.5% of the value of petroleum at the field gate.
2. The royalty will be paid in cash or kind at the option of GOP on liquid and gaseous
hydrocarbons (such as LPG, NGL, Solvent oil, gasoline and others) as well as all
substances including sulphur, produced in association with such hydrocarbon. The lease
rent paid during the year shall not be deductible from the royalty payment.
3. Tax on income will be payable at the rate of 40% of profit or gains in accordance with
the Fifth Schedule of the Income Tax Ordinance, 2001. Royalties will be treated as an
expense for the purpose of determination of income tax liability.
4. Windfall Levy (WLO) will be applicable on crude oil and condensate using the following
formula:
WLO = 0.4 x (M-R) x (P-B)
Where:
WLO - Windfall Levy on crude oil and condensate;
M - Net production (petroleum produced & saved);
R - Royalty;
P - Market Price of crude oil and condensate as set out in paragraph 11
below;
B - Base Price, which will be as under:
a. The base price for crude oil and condensate will be USD 40 per bbl.
b. This base price for crude and condensate will escalate each calendar
year by USD 0.5 per barrel starting from the date of first commercial
production in contract area.
Notwithstanding above, in the event Market Price of Crude Oil/Condensate exceeds US$
110/barrel, the 100% benefit of Windfall Levy will pass on to the Government. The ceiling
would be reviewed as and when pricing dynamics significantly change in the international
market.
5. For sale of natural gas to parties other than GOP, Windfall Levy (WLG) will be
applicable on the difference between the applicable GOP Zone price and the 3rd party sale
price using the following formula:
WLG = 0 .4 x (PG-BR) x V
Where:
WLG - Windfall Levy on share of natural gas;
PG - Third Party Sale Price of natural gas;
BR - Base Price;
V - Volume of gas sold to third party excluding royalty.
The Base Price will be the applicable Zone price for sale to GOP as outlined in section
IV (10) below. Where the 3rd party sale price of gas is less or equal to the base price, the
windfall shall be zero. The windfall levy shall not apply on sales of natural gas made to
GOP.

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6. 50% of the royalty will be utilized in the district where oil and gas is produced for
infrastructure development.
4.1.1 Import Duties, Taxes and Fees

Incentives in respect of Import Duties/Taxes and Fees for the E&P companies and the
service companies are as per applicable SRO on the effective date of execution of the
Exploration Licences/PCAs. .
4.1.2 Production Bonuses

Production bonuses will be payable on a contract area basis as follows:
CUMULATIVE PRODUCTION AMOUNT
(MMBOE) (USD)
At start of commercial production 600,000
30 1,200,000
60 2,000,000
80 5,000,000
100 7,000,000
1. Local Operator companies will pay their share of production bonuses in the Pakistan
Rupees equivalent of United States Dollar converted at the prevailing exchange rate on
the day of transaction.
2. GHPL will not pay the production bonuses as long as GOP is the majority shareholder of
this company.
3. It is intended that production bonuses will be expended on social welfare projects in and
around the respective contract areas according to guidelines to be issued by the
government from time to time.
4.1.3 Incentives for Exploration and Production Companies

incorporated in Pakistan
There is a need to develop a strong indigenous base in Exploration and Production sector and
to minimize foreign exchange outlays. Therefore, the following incentives will continue to be
offered to qualified E&P Companies incorporated in Pakistan, which pay dividends and
receive payments for petroleum sold in Pakistani currency.
1. Such E&P companies will be encouraged to operate exploration blocks with 100%
ownership.
2. In case of joint ventures with foreign E&P companies, local E&P companies shall have
working interest of 20% on full participation basis (hereinafter referred to as required
minimum Pakistani working interest). The local E&P companies shall contribute their
share of exploration expenditure in Pakistani currency upto required minimum Pakistani
working interest. In the event any local E&P company subsequently intends to reduce its
working interest in a joint venture whereby the collective working interest(s) of local
E&P companies becomes lower than the above threshold specified for required minimum
Pakistani Working Interest, GHPL/Provincial Government Holding Company shall have

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the first right to make up the balance required minimum Pakistani working interest on
point forward basis without reimbursement or payment of any past cost.
3. Consortia of companies not meeting the minimum required Pakistani working interest
can still be granted an exploration licence provided such companies advertise in the press
within 15 days of the grant, inviting Pakistani incorporated companies to participate in
the joint venture on the full participation basis under standard Joint Operating
Agreement. The Pakistani incorporated companies GHPL/Provincial Government
Holding Company shall have the option to participate in the joint venture within 30 days.
4. The foreign E&P companies shall be deemed to have fulfilled their obligation with
respect to the minimum Pakistani participation if Pakistani incorporated companies
and/or GHPL/Provincial Government Holding Company do not take any interest fully or
partially.
5. Local E&P companies will, on a case to case basis, be entitled during the exploration
phase to receive foreign exchange against payment in Pakistani currency to meet their
day to day obligations under permits, licences and PCAs/PSAs. After commercial
discovery, local E&P companies would be paid up to 30% of their sale proceeds in
foreign currency to meet their day to day operational requirements. For project financing
after commercial discovery, local E&P companies will be required to make their own
foreign exchange arrangements except for companies in which GOP holds majority
shareholding.
6. There shall be a working interest of 5% on full participation basis i.e., 2-1/2% each of
GHPL and Provincial Government Holding Company where the block will be located.
GHPL/Provincial Government Holding Company shall have option to accept the
participating working interest.
4.1.4 Local Employment, Training and Social Welfare

Local employment, training and social welfare obligations will be applicable as per
Annexure-3.
4.1.5 Exploration Period

See paragraph 3.1.above.
Upon a written request of an Operator DGPC may, on a case to case basis, extend the term of
the licence on the following grounds only:
a. If seismic and drilling services are not readily available in the country for the
timely discharge of minimum work obligation, a proof to this effect will be
required before the Government considers accepting or denying a request for
extension of an exploration licence. Such a request for extension will be required
to be made after the holder of the exploration licence has exhausted all other
options including but not limited to pooling resources to undertake coordinated
activities with other petroleum right holders, if possible;
b. If a holder of an exploration licence commits to undertake additional work which

is equivalent to at least 10% more than the minimum work obligation of
subsequent phase or renewal;

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c. If a holder of an exploration licence makes additional accelerated area

relinquishment equivalent to 10% of the original licence area; or
d. If the party was unable to perform work because of circumstances beyond his
control such as law and order situation or for unforeseeable reasons including but
not limited to a flood or earthquake etc.
Notwithstanding above, in no circumstances shall an extension or extensions cumulatively

exceed 24 months during the currency of an exploration licence.
4.1.6 Extended Well Testing

1. Subject to approval from DGPC, an Operator may be permitted to undertake extended
well testing (EWT) during the appraisal phase and before declaration of commerciality
and approval of the development plan. Such approval will be granted provided that the
Operator inter-alia complies with the requisite royalty, tax, rentals, and training/social
welfare commitments as applicable under the lease.
2. A request for approval of EWT (including associated temporary production facilities)

will be made to DGPC providing information with regard to (a) technical justification for
EWT; (b) proposed duration for EWT and (c) a plan with regard to disposal of gas during
the proposed EWT period. The duration of EWT will be allowed keeping in view the
reservoir uncertainty and the proposed investment outlay on EWT. DGPC will not grant
approval to undertake flaring for EWT for a period longer than 30 days, unless under
exceptional circumstances.
3. Where the specification and quality of the gas from an approved EWT is acceptable to
the buyer, the gas price shall entail a 5% discount from the applicable gas price for on
spec gas and 10% discount for off spec gas.
4. The facilities that are required to undertake EWT shall be constructed and operated in
accordance with good international oilfield practices.
4.1.7 Retention Period

1. In the case of a significant gas discovery a retention period of up to 5 years will be
considered for onshore licences, on a case to case basis, provided such discovery can be
declared a commercial discovery when inter-alia adequate gas pipeline transportation
facilities are installed and gas markets have been sufficiently developed for sale of
natural gas on commercial basis. In case the discovery is of low BTU for which outlet is
not readily available or gas infrastructure can not be utilized, the Government can
consider extension in above mentioned retention period on case to case basis.
2. A discovery containing oil and gas or oil, gas and condensate is considered to be a gas
discovery for the purposes of obtaining a retention period only when liquids production is
not considered economic without marketing the gas stream.
4.1.8 Total Lease Term

Total term of an onshore development and production lease will be up to 25 years plus five
years renewal subject to paragraph 4.1.9 below.

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4.1.9 Five Year Term Renewal

So as to provide the Operator with a suitable return on late term investment in the lease, the
production period of a lease may be renewed for one term of five years. A revised field
development plan will be required to be submitted for approval by DGPC. In order to obtain
such a renewal the Operator must meet the following conditions:
1. The submission of a request for a renewal has been submitted not less than three years
in advance of the expiry of initial term of the production period; and
2. That the exploitation area has been producing on a regular basis on the date of the
request.
4.1.10 Policy for Grant of Lease after Expiry of Lease Term

1. For grant of petroleum rights after the expiry of lease period, DGPC can renew the lease
term for another five years term in case the existing lease holder agrees to pay an amount
equivalent to 15% of the wellhead value to the Government otherwise DGPC will invite
bids using the call for bids one year before the end of the lease period from pre-qualified
companies seeking to have a petroleum right over the lease area, in relation to any
producing field for an additional ten years. The bids will be evaluated on the basis of
Signature Bonus, which would be spent for social welfare of the area in which the field is
located. A procedure for transfer of funds generated through signature bonus would be
the same as being applicable for transfer of royalty.
2. Each bidder(s) shall provide a bid bond of 10% of the offered signature bonus at the time
of bidding.
3. DGPC shall be under no obligation to grant any extension.
4. The above Policy for grant of lease after expiry of lease term shall also apply to leases
granted under Pakistan Petroleum (Exploration & Production) Rules of 1986 and 2001.
4.2 Block System

A block system based on latitudes and longitudes as indicated in Annexure 1 and 2 will be
followed for grants and relinquishments of all onshore / offshore acreage.
4.3 Rentals
1. All holders of exploration licence will be required to pay an advance rental charge at the
following rates:
a. In respect of the five years of the initial term of the licence; Rs.3500 per square
kilometre or part thereof; or in respect of each year of the initial term of the
licence; Rs.800 per square kilometre or part thereof;
b. In respect of each renewal of the licence; Rs.5000 per square kilometre or part
thereof; or in respect of each year of the renewal of Licence; Rs.2750 per square
kilometre or part thereof.
2. During the lease period, the following annual advance rental charges will apply:

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a. Rs.7,500 per square kilometre or part thereof covering the lease area during the
initial lease period.
b. Rs.10,000 per square kilometre or part thereof covering the lease area during the
renewal period of a lease and further lease term extension.
4.4 Non Fulfilment of Work Obligations

A holder of a reconnaissance permit or exploration licence will be liable to pay the
Government financial compensation for non-performance of work obligations (work units),
within the stipulated timeframe. In respect of an exploration licence, the compensation to be
paid will be calculated based upon the number of work units unfulfilled multiplied by the
applicable USD rate for work units whereas for a reconnaissance permit, such compensation
will be based on minimum expenditure obligation specified in the permit deed.

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5. Offshore Production Sharing Agreement (PSA)

The economic package for Offshore Licenses Zone is detailed below and will be included in
a model PSA to be released in line with this Policy. Offshore Licenses Zone covers three
distinct offshore areas; shallow, deep and ultra deep as defined in Annexure 2.
This Policy will apply to all new grants of offshore PSAs.
5.1 Royalties, Corporate Tax and Windfall Levy

5.1.1 Royalties
Following Royalty schedule will be applied:
First 48 Calendar Months after Commencement

No royalty
of Commercial Production
Months 49 to 60 inclusive 5% of field gate price
Calendar Months 61 to 72 inclusive 10% of field gate price
Calendar Months 73 and greater 12.5% of field gate price
1. The royalty will be paid in cash or kind at the option of GOP on liquid and gaseous
hydrocarbons (such as LPG, NGL, Solvent oil, gasoline and others) as well as all
substances including sulphur, produced in association with such hydrocarbon. The lease
rent paid during the year shall not be deductible from the royalty payment.
2. Royalties will be treated as an expense for the purpose of determination of income tax
liability.
5.1.2 Corporate Income Tax

Subject to any incentives offered to Operators by GOP, corporate tax will be payable at the
rate of 40% of profit or gains in accordance with the Fifth Schedule of the Income Tax
Ordinance, 2001.
5.1.3 Windfall Levy

Windfall Levy (WLO) will be applicable on crude oil and condensate using the following
formula:
WLO = 0.4 x (P-R) x SCO
Where:
WLO - Windfall Levy on share of crude oil and condensate;
P - Market Price of crude oil and condensate as set out in paragraph 11
below;
SCO - Share of crude oil and condensate allocated to a Contractor;
R - Base Price, which will be as under:
a. The base price for crude oil and condensate will be USD 40 per bbl.
b. This base price for crude and condensate will escalate each calendar
year by USD 0.5 per barrel starting from the date of first commercial
production in contract area.

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Notwithstanding above, in the event Market Price of Crude Oil/Condensate exceeds US$
110/barrel, the 100% benefit of Windfall Levy will pass on to the Government. The ceiling
would be reviewed as and when the pricing dynamics significantly change in the international
market.
For sale of natural gas to parties other than GOP, Windfall Levy (WLG) will be applicable on
the difference between the applicable GOP Zone price and the 3rd party sale price using the
following formula:
WLG = 0.4 x (PG-BR) x V
Where:
WLG - Windfall Levy on share of natural gas;
PG - Third Party Sale Price of natural gas;
BR - Base Price;
V - Volume of gas sold to third party excluding royalty.
The Base Price will be the applicable Zone price for sale to GOP as outlined in section IV
(10). Where the 3rd party sale price of gas is less or equal to the base price, the windfall shall
be zero. The windfall levy shall not apply on sales of natural gas made to GOP.
5.2 Depreciation
The following depreciation rates will apply:
On successful exploration and development 25% on Straight Line

wells
Will be expensed immediately upon commencement

On dry holes (exploratory wells)
of commercial production or relinquishment
whichever is earlier.
Non-commercial well (exploration wells) Expensed upon relinquishment of licence
On facilities and offshore platforms 20% Declining Balance
Carry forward of any unabsorbed depreciation until such depreciation is fully absorbed.
5.3 Direct Government Participation

A sliding scale production sharing arrangement will be used instead of direct government
participation.
5.4 Production Sharing

1. The agreement will be a sliding scale production sharing arrangement.
2. The production sharing agreement will be executed by the Contractor with GHPL who
will be granted the Exploration Licence and Development and Production Lease. The
Contractor will therefore initially receive the profit oil and profit gas shares and will be
responsible for the management of the production sharing agreements.

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5.5 Cost Limit

Cost limit is 85% including the royalty of 12.5%. The Contractor can recover 100% of the
costs from up to a maximum of 85% of the gross revenues.
5.6 Profit Oil and Profit Gas Splits

The profit split is set on the basis of a sliding scale for shallow, deep and ultra deep grid
areas as shown in Annexure 2. The sliding scale is based on cumulative production
permitting a rapid recovery of investments and a higher net present value.
1. Profit oil & gas share for wells in shallow grid area of less than 200m water depth
and depth to reservoir shallower than 4,000m
Cumulative Available Oil/ Government Holdings Share Contractor Share of Profit
Available Gas from Contract of Profit Oil/Profit Gas in Oil/Profit Gas in Contract
Area Contract Area Area
MMBOE Crude Oil/LPG/ Natural Crude Oil/LPG/ Natural

Condensate Gas Condensate Gas
0 100 20% 10% 80% 90%
> 100 200 25% 15% 75% 85%

> 200 400 40% 35% 60% 65%
> 400 800 60% 50% 40% 50%
> 800 1200 70% 70% 30% 30%
> 1200 80% 80% 20% 20%
2. Profit oil & gas share for wells in deep grid area of more than or equal to 200m and
less than 1,000m water depth or deeper than 4,000m to reservoir in shallow grid
area
MMBOE Crude Oil/LPG/ Natural Crude Oil/LPG/ Natural Gas

Condensate Gas Condensate
0 200 5% 5% 95% 95%
> 200 400 10% 10% 90% 90%

> 400 800 25% 25% 75% 75%
> 800 1200 35% 35% 65% 65%
> 1200 2400 50% 50% 50% 50%
> 2400 70% 70% 30% 30%

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3. Profit oil & gas share for wells in ultra deep grid area of more than or equal to
1,000m water depth

Crude Oil/LPG/ Natural Crude Oil/LPG/ Natural Gas

MMBOE
Condensate Gas Condensate
0 300 5% 5% 95% 95%
> 300 600 10% 10% 90% 90%

> 600 1200 25% 25% 75% 75%
> 1200 2400 35% 35% 65% 65%
> 2400 3600 45% 45% 55% 55%
> 3600 60% 60% 40% 40%
5.7 Production Bonuses

Production Bonuses will be as outlined in the table below.
CUMULATIVE PRODUCTION AMOUNT
(USD)
600,000
Within 90 days of start of commercial production
1,200,000
Upon reaching 60 MMBOE
2,000,000
5,000,000
7,000,000
1. The Production Bonus amount for offshore would be expensed in accordance with
the guidelines to be issued by the Government from time to time.
5.8 Import Duties and Taxes

Incentives in respect of Import Duties/Taxes and Fees for the E&P companies and the
service companies are as per applicable SRO on the effective date of execution of the
Exploration Licences/PSAs. .
5.9 Marine Research and Coastal Area Development Fee

A marine research and coastal area development fee will be applicable as per the following
schedule:

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USD 50,000 per year - until first discovery
USD 100,000 per year - thereafter until declaration of commerciality
USD 250,000 per year - during development phase
USD 500,000 per year - during production phase.
Out of the above fee 75% would be expensed on coastal area development and 25% for
marine research.
5.10 Local Employment, Training and Social Welfare

Contributions
Details of local employment, training and social welfare contributions for Pakistani nationals
are given in Annexure 3.
5.11 Exploration Period

See paragraph 3.1.above.
Upon a written request of an Operator DGPC may, on a case to case basis, extend the term of
the licence on the following grounds only:
a. If seismic and drilling services are not readily available in the country for the
timely discharge of minimum work obligation, a proof to this effect will be
required before the Government considers accepting or denying a request for
extension of an exploration licence. Such a request for extension will be required
to be made after the holder of the exploration licence has exhausted all other
options including but not limited to pooling resources to undertake coordinated
activities with other petroleum right holders, if possible;
b. If a holder of an exploration licence commits to undertake additional work which is

equivalent to at least 20% more than the minimum work obligation of subsequent
phase or renewal;
c. If a holder of an exploration licence makes additional accelerated area

relinquishment equivalent to 20% of the original licence area; or
d. If the party was unable to perform work because of circumstances beyond his
reasonable control such as law & order situation, unforeseeable reasons including
but not limited to flood, earthquake etc.
Notwithstanding above, in no circumstances shall an extension or extensions cumulatively

exceed 24 months during the currency of an exploration licence.
5.12 Extended Well Testing

1. Subject to approval from DGPC, a Contractor may be permitted to undertake extended
well testing (EWT) during the appraisal phase and before declaration of commerciality
and approval of the development plan. Such approval will be granted provided that the
Operator inter-alia complies with the requisite royalty, tax, rentals, marine research &

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coastal development fee and training/social welfare commitments as applicable under the
lease.
2. A request for approval of EWT (including associated temporary production facilities)

will be made to DGPC providing information with regard to (a) technical justification for
EWT; (b) proposed duration for EWT and (c) a plan with regard to disposal of gas during
the proposed EWT period. The duration of EWT will be allowed keeping in view the
reservoir uncertainty and the proposed investment outlay on EWT. DGPC will not grant
approval to undertake flaring for EWT for a period longer than 30 days, unless under
exceptional circumstances.
3. Where the specification and quality of the gas from an approved EWT is acceptable to
the buyer, the gas price shall entail a 5% discount from the applicable gas price for on
spec gas and 10% for off spec gas.
4. The facilities that are required to undertake EWT shall be constructed and operated in
accordance with good international oilfield practices.
5.13 Retention Period

1. In the case of a significant gas discovery, a retention period of up to 5 years will be
considered for offshore licences, on a case to case basis, provided such discovery can be
declared a commercial discovery when inter-alia adequate gas pipeline transportation
facilities are installed and gas markets have been sufficiently developed for sale of natural
gas on commercial basis. A further period of up to 5 years will be available subject to
justification acceptable to DGPC. No such retention provision is available for an oil
discovery.
2. A discovery containing oil and gas or oil, gas and condensate is considered to
be a gas discovery for the purposes of obtaining a retention period only when liquid
production is not considered economic without marketing the gas stream.
5.14 Total Lease Term

Initial term of the development and production lease will be up to 25 years in offshore area
with one possible renewal of up to 5 years, subject to paragraph 5.15 below.
5.15 Five Year Lease Term Renewal

A Contractor may, on behalf and with the consent of GHPL, apply to DGPC for the
production period of a lease to be renewed for one term of five years. A revised field
development plan will be required to be submitted for approval by DGPC. In order to obtain
such a renewal the Operator must meet the following conditions:
1. The submission of a request for a renewal has been submitted not less than three years in
advance of expiry of initial term of the production period; and
2. That the exploitation area has been producing on a regular basis on the date of the
request.

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5.16 Policy for Grant of Lease after Expiry of Lease Term

1. DGPC can renew the lease term for another five years term in case existing lease holder
agrees to pay an amount equivalent to 15% of the wellhead value to the Government
otherwise DGPC will invite bids using the call for bids from pre-qualified companies
seeking to act as Contractor to GHPL, over the lease area, in relation to any producing
field for an additional ten years either one year before the end of the initial term of a
lease or if a renewal has been granted, one year before the end of the lease renewal. The
bids will be evaluated on the basis of Signature Bonuses, which would be spent in
accordance with the guidelines issued by GOP from time to time.
2. Each bidder(s) shall provide a bid bond of 10% of the offered signature bonus at the time
of bidding.
3. DGPC shall be under no obligation to grant any extension.
5.17 Block System

A block system based on latitudes and longitudes as indicated in Annexure 1 & 2 will be
followed for grants and relinquishments of all offshore acreage.
5.18 Rentals
Contractors will be required to pay an advance annual acreage rental for the area covered
under the PSA of fifty thousand US dollars plus a further rate of ten dollars per square
kilometre or a part thereof every year.
5.19 Non Fulfilment of Work Obligations

A Contractor working under an Exploration licence will be liable to pay GHPL financial
compensation for non-performance of work obligations (work units) not accomplished within
the stipulated timeframe. Such compensation will be deposited in Federal treasury by GHPL
within fortnight of receipt from defaulting Contractor. The compensation to be paid will be
calculated based upon the number of work units unfulfilled multiplied by applicable USD
amount for work units.
5.20 Incentive for Offshore Discovery

A bonanza of US $ 1/MMBTU shall be given for first three discoveries in offshore area.

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Section III - Regulatory Process & Obligations

6. Regulatory Process
6.1 Miscellaneous
1. This Policy will be applicable to all petroleum operations including but not limited to
seismic activities, exploration, drilling, development and production, except coal bed
methane for which the concerned provincial regulator will be responsible for all matters
related thereto.
2. The Operator shall conduct all petroleum operations in accordance with Good
international oil field practices and the principles and standards as laid down in the
Rules. Consistent with this requirement, the Operator shall endeavour to minimize
exploration, development, production and operation costs and maximize the ultimate
economic recovery of Petroleum.
3. All definitions/terms in this document will be interpreted in line with the Rules, which
will prevail in case of any conflict.
4. In order to expedite commercialization of discoveries, model Sale and Purchase

Agreements for Gas, Condensate and Crude Oil will be finalized in consultation with the
industry and made part of bidding documents.
5. A mechanism would be introduced for quality discount on sale of natural gas to

Government nominated buyer whereby producers would not be overly penalized.
6. Regulator would play the role as a facilitator and performance increment would be given
to regulatory staff on the basis of field activities generated through their efforts like
number of wells drilled, quantum of seismic, new production fields added.
7. Those E&P companies who opt for conversion to this policy would not be entitled to
tight gas policy and/or low BTU policy.
6.2 Application Fees

The following fees will be payable on application for the following rights:
Reconnaissance Permit - Rs 50,000
Exploration Licence - Rs 100,000
Development and Production Lease Rs 200,000
In addition, the Government may require Contractor or Company holding petroleum

right to bear the cost of third party independent evaluation/ assessment of notice of
commercial discovery and proposed development plan submitted by the concerned
party for consideration and approval
6.3 Non-compliance
Any company non-compliant with the terms of a permit, licence, lease, agreement and/or the
Rules will result in enforcement action by DGPC.

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Grounds for the suspension and/or revocation of any permit, licence or lease will be set out in
detail as part of the rules, permit, licence or lease.
6.4 Confidentiality of Data and Records

1. All data and records concerning operations within the permit area, licence area or lease
area are required to be submitted to DGPC. All data is to be treated as confidential and
may not be disclosed by the parties except as provided for in the agreement or where the
data is in the public domain.
2. The parties may disclose data to affiliates and subcontractors, banks, bona fide intending
assignees and their employees, consultants, etc. in connection with petroleum operations,
and as required by laws and the applicable stock exchange regulations.
6.4.1 Geological & Geophysical Data

1. All data, including, but not limited to, well logs, maps, magnetic tapes, cores, samples
and any other geological and geophysical information obtained as a result of petroleum
operations under a permit, licence, lease or an agreement is the property of GOP and
must be delivered to DGPC as soon as it becomes available. The Operator/Contractor and
other interest owners retain the right to make use of such data, free of cost, in connection
with petroleum operations.
2. Geological and geophysical data is to be kept confidential by GOP for a period of three
years from the date of its acquisition, with the exception of disclosure required by the
laws and Rules of Pakistan. However, GOP may disclose data earlier if the Agreement
terminates or upon relinquishment of the area to which the data relates.
3. DGPC may agree to keep the data confidential for longer period if such data is gathered
for commercial purposes under a multi client arrangement with DGPC provided;
however, all such data will be made available by DGPC within five years.
4. DGPC reserves the right to charge a reasonable fee for the purchase of this data by third
parties to cover data storage, handling, reproduction and marketing costs.
6.4.2 Operational, Commercial & Financial Data

Operators and Contractors have the obligation to provide DGPC with relevant information
related to exploration and production activities.
DGPC will disclose information into the public domain according to the following
conditions:
1. Operational: daily, monthly and annually.
2. Commercial & financial: after five years, except commercial sensitive information which
may give unfair advantage to third-parties.
6.5 Performance Guarantees

DGPC shall require successful applicants for petroleum exploration licences to furnish, in an
acceptable form, a guarantee or guarantees, with respect to its work commitments on or
before the execution of the petroleum exploration licence. In the event, the successful
applicant elects to provide any guarantee other than a Parent Company Guarantee during

- 25 -
exploration phase, the guarantee so provided would only be released in case all work
obligations including but not limited to social welfare, training, data, rental etc. are fully
discharged. DGPC reserves the right to deduct payment for non-performance of all such
obligations from the performance guarantee.
The guarantee will be irrevocable and unconditional and in a standard format satisfactory to
DGPC such as the following:
1. Bank guarantee equal to 25% of the minimum financial obligation from a bank of
international repute acceptable to the Government on the prescribed format in
PCA/PSA.
2. Parent Company Guarantee of a multinational exploration and production Company

of international repute with a proven track record or a corporate guarantee of a local
exploration and production company having Operatorship with majority working
interest in a producing field within Pakistan against its own financial commitment.
3. Petroleum production lien equal to 100% of the minimum financial obligation.
4. First and preferred assets lien equal to 100% of the minimum financial obligation.
5. Escrow Account equal to 25% of the minimum financial obligation in a bank of

international repute acceptable to the Government.
6.6 Profit Sharing

The Federal Government in consultation with the Provincial Government may share with
locals of the area, its revenues of royalty, windfall production sharing, windfall levy on crude
oil, condensate and natural gas rentals etc., or revenues raised through any other method i.e.,
increase of gas price etc., whereby the profitability of the E&P Companies are not affected.
7 Foreign Exchange
1. Contractor/Operator will be required to contribute all funds required for the Expenditure
in respect of petroleum operations in foreign exchange and in Pakistani Rupees as
required.
2. Subject to domestic supply obligations and export duties, each foreign E&P Companies
shall be entitled to export its share of the petroleum acquired under an agreement, in
accordance with the applicable laws. Each foreign Contractor/Operator (and its registered
branch in Pakistan) shall have the right to retain abroad and to freely make use of sale
proceeds from the export of its share of petroleum.
3. Foreign E&P companies shall have the right to remit sale proceeds from the sale of
petroleum within Pakistan in foreign currency abroad in accordance with applicable
regulations of the State Bank of Pakistan. GOP shall ensure that the State Bank of
Pakistan shall permit all remittances of funds without any delay or additional cost to such
companies.
4. If a foreign working interest owner assigns its interest in a licence, lease and/or
agreement to a foreign entity with the consent of GOP, such working interest owner will
be allowed to retain abroad all proceeds resulting from such assignment.

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5. E&P company shall have full right of control over movement of funds out of bank
accounts established for the purpose of petroleum operations but may be required to
provide to the State Bank of Pakistan or any Government designated office, bank
statements with an explanation of each deposit, or payment from such account, and shall
supply on a quarterly basis, in a form acceptable to the State Bank, or such designated
office full particulars of foreign exchange transactions related to an agreement.
6. For all currency conversion transactions and calculations in relation to petroleum

operations the rate of exchange shall be at the rate as established by the State Bank of
Pakistan (SBP) prevailing on the date of each transaction. In case SBP ceases to publish
this rate, the arithmetic average of the average inter-bank mid rate may be used.
7. For foreign currency provisions relating to Local Pakistani Companies, please refer to
sub-paragraph 5.1.3.5 above.
8 Assignment or Transfer of Interest

1. The working interest owner shall not sell, assign, transfer, convey or otherwise dispose of
all or any part of its rights and obligations under a licence, lease and/or an agreement, to
a third Party or any of its affiliates without the previous written consent of DGPC, which
shall not be unreasonably withheld.
2. In giving this consent DGPC may impose any such conditions as DGPC considers
appropriate including but not limited to conditions which are for the purpose of ensuring
full payment of royalty, corporate tax and windfall levy by the assignee in respect of the
interests assigned or transferred.
3. DGPC will require payment of an administration fee of Rs 50,000 in relation to any one
application for assignment or transfer of interest.
9 Domestic Supply Obligation & Gas Allocation

9.1 Domestic Supply Obligation
Subject to the considerations of internal requirements and national emergencies, E&P
companies will be allowed to export their share of crude oil and condensate as well as their
share of gas based on export licences to be granted by the concerned regulator. The Wind Fall
price levy shall be applicable on such export licences. For the purpose of the grant of such
export licenses for gas, the export volumes will be determined in accordance with L15
concept provided a fair market value for such gas is realized at the export point. Under the
L15 concept the gas reserves that exceed the net proven gas reserves in Pakistan including
the firm import commitments vis--vis the projected gas demand for next fifteen years can be
considered for export. Once gas has been dedicated for exports, licenses for such export
volumes shall not be subsequently revoked.
9.2 Remittance of Proceeds Abroad

1. If the foreign E&P Companies sell gas to third parties in Pakistan and want to remit sale
proceeds in foreign currency abroad, GOP shall allow these companies to freely remit a
guaranteed percentage of their sale proceeds.

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2. The guaranteed percentage shall be 70% of the total gross revenues from any Lease.
The remaining gross income in Rupees can be used to pay royalties, taxes, windfall levy
and any other payments to the Government as well as to meet local operating costs.
9.3 Delivery Point and Field Gate for Natural Gas

1. For the purpose of pricing and delivery obligations for natural gas, the gas will be
delivered at outlet flange (Field Gate/Delivery Point) and it will be the responsibility of
M/s Sui Southern Gas Company Limited (SSGCL) and Sui Northern Gas Company
Limited (SNGPL) for laying of pipelines for which they will get tariff on transportation
of gas as approved by OGRA. For offshore, the gas will be delivered at the nearest access
point to an existing regulated transmission system; or at the shore within coastal
locations.
2. In the event there is more than one field located in a block; the secondary or subsequent
fields will be connected to either the transmission system, any point inside the outlet
flange of the production facility of the primary field or the pipeline connecting the
primary field to transmission system, as may be approved by DGPC.
3. All field gate locations will be approved by DGPC on case to case basis within the above
criteria following the submission of proposed field development plan by the concerned
company.
9.4 Sale of Natural Gas within Pakistan

1. E&P companies operating in Pakistan will be allowed to contract with gas transmission
and distribution companies and third parties, other than residential and commercial
consumers, for the sale of their share of gas in Pakistan at negotiated prices in accordance
with the applicable laws, rules, and regulations.
2. Subject to overall market demand, E&P Companies may request and GOP will purchase
90% of their share of pipeline specification gas through a nominated buyer which is
effectively controlled by it in acceptable daily, monthly and yearly volumes to meet the
internal demand in an economical manner provided there are no infrastructure
constraints. The E&P Companies shall have right to sale 10% of their share of pipeline
specification of gas to any buyer with the prior consent of the Government. The delivery
point shall be at the outlet flange as outlined in paragraph 9.3 (above). GOP/gas buyer
nominated by GOP shall pay the price for gas at the outlet flange as set out in this Policy.
In addition, the "guaranteed percentage" for foreign exchange remittance as contained in
sub paragraph 9.2.2 above will apply to such sales.
9.5 Pipeline Construction and Operation

1. E&P companies operating in Pakistan will be allowed to construct and operate pipelines
for local requirements and for exports of their share of petroleum which shall be
regulated by the regulator concerned in accordance with applicable laws, rules,
regulations and the Policy based on an open-access (third party) regime. The E&P
Companies constructing such pipelines would be allowed priority access based on a firm
utilization plan.
2. Whether a connecting pipeline from outlet flange to the nearest transmission system, is
constructed and operated by a producer, a third party or a government nominated entity;
such a pipeline shall be regulated pursuant to the provisions of sub paragraph 9.5.1

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above, unless the regulator concerned decides that the pipeline shall be a non-regulated
pipeline.
3. If an inter-connecting pipeline is proposed to be constructed by a third party or the buyer,

the producer will be required to confirm the requisite gas supply volumes, pressures,
reserves and other technical parameters on standard supply term contract basis for a
period to be agreed between the parties.
4. Subject to sub paragraph 9.5.8 below, the basis of the tariff allowed and paid monthly for
delivery from outlet flange into the transmission system will be determined by the
regulator based upon a rate of return on equity basis at the rate of 12% with the capital
cost being amortized over a minimum of 15 years. Allowable costs will include operating
cost and interest payable on the initial capital over the minimum 15 year amortization
period. Post the repayment period the Operator will be able to make a 12% margin over
operating costs. If such pipeline is used by more than one shipper, the calculation basis
for each year shall be done on an overall pipeline volume nomination basis at the start of
each year, through the aggregation of all shippers nomination. Any shortfall or excess of
volume delivered from the nomination in the year shall be deducted/ received from the
tariff payment of that year or charged to the party responsible for such a shortfall.
5. Unless a pipeline is specifically constructed in order to facilitate a third party access

agreement agreed between Operators/Contractors and a third party duly approved by the
regulator; all pipelines from field to outlet flange, in case of offshore, shall be
constructed with an excess capacity equal to thirty percent, depending upon projected
plateau rates unless otherwise allowed by DGPC based on an objective assessment of
future likely use of such capacity.
6. E&P companies are expected to exhaust options to make efficient use of the current
transmission system and may co-operate in the construction and operation of pipelines
upstream of the outlet flange or transmission system. Shared ownership and spare
capacity shall be based upon the combined planned coincidental shared plateau of the
Operators unless otherwise agreed by DGPC or the regulator concerned. Companies are
encouraged to co-operate in any extension of an initial system to ensure economies of
scale, maximum utilization and to ensure that the overall pipeline stays below the tariff
limit as specified in para 9.5.8 hereunder.
7. In the event such pipeline is located in offshore area and the excess capacity is
subsequently utilized by a third party, the tariff will be charged by the party providing
access to such pipeline as approved by DGPC and revenues generated therefrom will be
treated as a part of profit oil/profit gas for its production sharing purposes.
8. The tariff payable to any third party or the producer for pipeline connecting the outlet
flange to the transmission system shall not exceed $0.5/MMBTU in aggregate. Any tariff
in excess of this limit will be determined by the regulator on a case to case basis but only
in exceptional circumstances, and subject to the approval of GOP. The indexation of the
tariff limit will be based on OGRAs recommendation and approved by GOP. The public
utility companies will continue receiving tariff under a separate tariff regime within the
frame work of OGRA Ordinance.
9. Ownership/operation of the pipeline connecting field to the outlet flange and the outlet
flange to the transmission system shall pass to the government consequent upon the
expiry or early termination of the lease that initiated the pipeline unless such pipeline is
not used for shipment of gas from another adjacent area for which specific approval of
the Government and/or the regulator concerned will be required. The transfer should be
free of any lien or encumbrance or other liabilities.

- 29 -
10. Technical committee or Operating committee meetings will be conducted quarterly and
will be chaired by the representative of the DGPC on behalf of the President of the
Islamic Republic of Pakistan.
11. Assignment, change of effective control or acquisition of company whether in Pakistan or

anywhere outside the Pakistan shall entail Capital gain and other liabilities.

- 30 -
Section IV Pricing and Incentives for Petroleum

Exploration & Production
10 Oil and Gas Pricing
10.1 Crude Oil, Condensate and Liquefied Petroleum Gas
(LPG) Pricing
10.1.1 Crude Oil

The Producer Policy Price for crude oil delivered at the nearest refinery gate shall be equal to
C&F price of a comparable crude oil or a basket of Arabian/Persian Gulf crude oils
(Reference Crude or RC) plus or minus a quality differential between the RC and the local
crude oil. No other adjustment or discount will apply other than Windfall Levy. C&F price
will be arrived at on the basis of FOB price of imported crude oils into Pakistan plus freight
on AFRA, which is deemed chartered rate.
10.1.2 Condensate
The Producer Policy Price for condensate will be the FOB price of internationally quoted
comparable condensate delivered at the nearest refinery gate plus or minus a quality yield
differential, based on the value in the Arabian Gulf spot products market of the crude
oil/condensate. No other adjustment or discount will apply other than Windfall Levy.
10.1.3 Liquefied Petroleum Gas

For new projects, the LPG producer price will be as notified by the regulator.
10.2 Gas Pricing

The price for Associated or Non Associated Gas will be indexed to the C&F price of a basket
of Arabian/Persian crude oil import in Pakistan during the first six months period of the seven
months period immediately preceding the relevant price notification period (import Basket)
as published in an internationally recognized publication acceptable to the parties, with the
following discounts.
Applicable % of C&F
US$/BBL Price US$/BBL
0 to 30 100% 30
Plus 50% of
Above 30 to 50 incremental increase 10
Plus 30% of
Plus 20% of
Applicable C&F Price (A+B+C+D) 54
63.33% of discounted
Marker Price Onshore price $34.2
Conversion Factor * assumed (MM Btu/bbl)

5.7

- 31 -
Price in US$/MMBtu at USD 110/bbl 34.2/5.7 $6
Marker Price Offshore-Shallow price 39.9
Price in US$/MMBtu at US$ 110/bbl 39.9/5.7 $7
Marker Price Offshore-Deep price 45.6
95% of discounted
Marker Price Offshore Ultra Deep price 51.3
C&F Price will be arrived at on the basis of FOB price of imported crude oils into Pakistan
plus freight on AFRA, which is deemed chartered rates.
The RCP ceiling of USD 110/barrel would be reviewed after every five years or as and when
the pricing dynamics significantly change in the international market, as provided in the
applicable rules.
10.3 Associated Gas Pricing

The price for associated gas shall be equal to the price of non-associated gas. {
10.4 Low BTU and Shale Gas Pricing

Low BTU and Shale Gas Policies are being prepared and will be notified separately
10.5 Tight Gas Price

Tight Gas Exploration and Production Policy 2012 has already been notified.
10.6 Royalty Calculation in case of Sale of Gas to Third

Parties
For the purpose of calculating the amount due by way of royalty, the value of the petroleum
produced and saved shall be determined by using actual selling price in the following
manner, namely:-
(a) If the petroleum is sold to the national market, the actual selling price means
the price determined in accordance with the relevant sale and purchase
agreement between the petroleum right holder and the Government or its
designee less allowed transportation cost beyond the delivery point.
(b) In all other cases, the actual selling price means the greater of-
(i) the price at which the petroleum is sold or otherwise disposed of less
allowed transportation costs; or
(ii) the fair market price received through arms length sales of the petroleum
less the allowed transportation costs; or

- 32 -
(iii) the price applicable to the sales made under sub-rule (a) above.
10.7 Extended Well Testing Gas Pricing

Gas from Extended Well Tests (EWT) will be priced as per paragraphs 4.1.6 and 5.12 above.
10.8 Ring Fencing

In accordance with the Fifth Schedule of the Income Tax Ordinance 2001, there will be no
ring fencing for the purpose of calculation of corporate tax.

- 33 -
Section V: - Implementation and Removal of

Difficulties:-
11 Implementation of the Policy, removal of
difficulties, addressing of anomalies,
framework for institutional development and
strengthening of the Policy Wing
1. A Committee shall be constituted to address the issues of the implementation of this
Policy, removal of difficulties, addressing of anomalies and approving framework for
institutional development and strengthening of the Policy Wing to enhance its
professional competence for Policy formulation and upstream regulation. The
committee shall comprise of the following:
Minister for Petroleum and Natural Resources Chairman
Deputy Chairman Planning Commission Member
Secretary, Finance Division Member
Secretary, Petroleum and Natural Resources Member
Director General Petroleum Concessions Member/Secretary
2. In order to meet the deadlines, a separate cell headed by Director General Petroleum
Concessions {DG (PC)}, as already provided in Petroleum (Exploration &
Production) Policy 2001, shall be maintained comprising the following
professionals on contract basis:
(a) Legal Advisor,
(b) Financial Consultant,
(c) Petroleum Economist,
(d) Petroleum Explorationist and
(e) Other professionals on need basis.
3. The funds generated through sale of technical data and unspent training amount
generated under PCAs and PSAs shall be utilized for capacity building, strengthening
of the Policy Wing of Ministry of Petroleum and Natural Resources, remunerations
of outside professionals engaged on contract, part time legal advisors/technical
consultants, Policy promotional activities, workshops, seminars, conferences &
symposia etc.
4. Separate procedures/guidelines will be issued by the Ministry of Petroleum and

Natural Resources in relation to the provisions at paragraph 11.2 and 11.3
above.
5. A Technical Committee under the chairmanship of Secretary Petroleum and Natural

resources and comprising of a nominee each of all the Provinces, DGPC, DG (Gas),
OGRA, distribution and transmission companies, PPEPCA and the concerned E&P
companies be empowered to resolve the key issues between E&P and gas marketing
companies.

- 34 -
12 Applicability and Effect of Policy

1. This Policy supersedes the 1991 Petroleum Policy, the 1993 Petroleum Exploration
and Production Policy, the 1994 Petroleum Policy, the 1997 Petroleum Policy , the
2001 Petroleum Policy and the 2007 Petroleum Policy and the 2009 Petroleum Policy
to the extent applicable to exploration and production sector only, without affecting
the rights that may have accrued under the aforesaid policies.
2. In addition to the protection of the Policy under Regulation of Mines and Oilfields
and Mineral Development (Government Control) Act, 1948 and the Economic
Reforms Act, 1992, GOP will ensure/facilitate implementation of the agreements by
the Ministries/Divisions and Organizations concerned.
3. For implementation of this Policy appropriate changes will be made in relevant rules,
regulations and model agreements.
4. GOP reserves the right to change terms of this Policy in response to changes in
national energy Policy or significant changes in the domestic or international
energy market. These changes will not affect any rights that may have previously
accrued under this Policy.
5. This Policy may be reviewed by GOP after 5 years for appropriate adjustments
keeping in view the then prevailing conditions.
6. The incentives of this Policy shall apply to E&P companies who will apply for new
petroleum rights after this Policy comes into effect as well as to those E&P
companies who opt for conversion to this Policy in accordance with section VI
hereof.

- 35 -
Section VI Conversion to 2012 Policy

13 Conversion of Regimes
1. The option for conversion to this Policy will be available to all new exploration efforts
made under the exploration licences & leases:
(a) that stand granted/executed; or
(b) for which provisional award has already been made; or
(c) for which applications are pending and bids have been invited before the date of
approval of the Policy.
2. For the purpose of this section, new exploration efforts means Exploration Wells
under drilling and/or spudded, after the Effective Date of the petroleum exploration and
production Policy, 2007 (i.e. 27th November 2007) and have not declared
commerciality.
3. For all conversions pursuant to paragraph 13.1 above, the gas price allowed for new
exploration effort under the respective exploration licences & leases shall be this
Policy 2012.
4. All pending applications for which bidding process has not been initiated will be
processed under this Policy. However, nothing contained herein will be construed to
have created any right for the applicant.
5. This Policy will not affect any obligation with regard to already agreed minimum work
programme and minimum expenditure obligation and the State participation in an
existing joint venture, if any.
6. The conversion under this Policy will be opted as a package and the companies
desirous of opting for conversion to this Policy shall be required to submit their written
request to DGPC within 90 days from the date of announcement of the Policy failing
which they will not remain eligible for the conversion. Similarly, for those blocks for
which the exploration licences have not yet been granted and PCAs/PSAs have not
been executed as mentioned in sub-paragraph 13.1 (b) and (c), the company concerned
will have the option to apply, in writing, for conversion under this Policy within 90
days from the date of grant of such block. The option once exercised shall be final. The
supplemental agreement to give affect to the conversion shall be executed as soon as
possible but no later than 6 months from the date of exercise of the option.
7. The Companies already exercising the option under Policy 2007 and/or Policy 2009
shall be deemed to have opted for conversion under this Policy provided however, such
conversion will be allowed subject to signing of supplemental agreements within six
months from the date of announcement of this policy.
8. The gas price of Policy 2012 will also be extended to those E&P Companies who will
give additional 10% production over and above the commitment in accordance with
approved development plan by the Government to the extent of additional production
only.

- 36 -
9. The first right of refusal will be granted to the company who has quoted the lowest rate
for supply of rig during last five years in the award of contract for drilling rigs by JV
partners.
Annexure 1 - The Block System

1. Blocks:
a. The Offshore/Onshore area will be divided into Blocks.
b. Blocks shall be bounded on the east and west sides by successive integer meridians
of longitude.
c. Blocks shall be bounded on the north and south sides by successive integer
parallels of latitude.
d. A Block shall be referred to by the degree latitude and longitude of the southwest
corner of the Block; for example, the Block with a southwest corner at 25 degrees
latitude and 64 degrees longitude would be referred to as Block 2564.
2. Grid Areas:
a. Every Block shall be divided into 144 Grid Areas
b. Grid Areas shall be bounded on the east and west sides by meridians spaced at
intervals of five minutes between the east and west boundaries of the Block.
c. Grid Areas shall be bounded on the north and south sides by parallels spaced at
intervals of five minutes between the north and south boundaries of the Block.
d. A Grid Area shall be identified by the letters to which it corresponds in the

following diagram:

- 37 -
NW NE
L La Ll
K Ka Kk
J Ja Jj
I Ia Ii
H Ha Hh
G Ga Gg
F Fa Ff
E Ea Ee
D Da Dd
C Ca Cc
B Ba Bb
A Aa Ab Ac Ad Ae Af Ag Ah Ai Aj Ak Al
a b c d e f G h i j k l
SW SE
3. Sections:
a. Every Grid Area shall be divided into 100 Sections.
b. Sections shall be bounded on the east and west sides by meridians spaced at
intervals of thirty seconds between the east and west boundaries of the Grid Area.
c. Sections shall be bounded on the north and south sides by parallels spaced at
intervals of thirty seconds between the north and south boundaries of the Gird
Area.
d. A Section shall be identified by the number to which it corresponds in the

following diagram:

- 38 -
NW NE
9 90 99
8 80 88
7 70 77
6 60 66
5 50 55
4 40 44
3 30 33
2 20 22
1 10 11
0 00 01 02 03 04 05 06 07 08 09
0 1 2 3 4 5 6 7 8 9
SW SE
4. Naming of Agreements, Sections and Wells:
a. An Agreement shall be referred to by the southwest corner of the Block in which

the southwest corner of the Original Contract Area of the Agreement is located,
separated by a hyphen, followed by the number (by historical signing date) of the
Agreement in that Block; for example, the fourth Agreement having its southwest
corner in Block 2564 would be referred to as "Production Sharing Agreement
2564-4".
b. Sections shall be referred to by specifying the Block, Grid Area and Section
number, separated by hyphens, in declining order of size; for example, the Section
81 located in Block 2564, Grid Area Bb would be referred to as "2564-Bb-81".
c. A well will be described by the Section location of its wellhead. If there is more
than one well drilled from the same Section, each well will be described by its
Section location, separated by a hyphen, followed by the number (by historical
spud-in date) of the well in that Section; for example, the first well drilled in
Section 2564-Bb-81 will be referred to as "2564-Bb-81.1".

- 39 -
Offshore Area
1. The map of the Offshore of Pakistan (Annexure 2) shows each Grid Area as being either
"shallow" (having an average water depth of less than 200 metres) or "deep" (having an
average water depth greater than 200 metres) or ultra deep having an average water depth
greater than 1,000 metres.
2. Maximum Size
A Reconnaissance Permit may be granted for an offshore area of any size.
A Licence shall not be granted in respect of any area of more than 3,200 Sections.
A Lease shall not normally be granted in respect of any area of more than 150 Sections and
the maximum acreage assigned to any one field shall be defined as the vertical projection to
the surface of the outer limit of the reservoir(s).

- 40 -
Annexure 2 Block Maps of Pakistan

Block Map of Offshore Pakistan

- 41 -
Block Map of Onshore Pakistan
3672 3673 3674 3675

3671
3571
3577
3572 3574 3575 3576
3573
3476
3474 3475
3473
INED
FRONTIER UNDEF
3471 3472
3374 JAMMU&
KASHMIR
Disputed Territory
3371 3372 3373

3369 3370
3275
3271 3272 3273 3274

3269 3270
3170 3173 3174

3166 3171 3172
3168 3169
3167
3066 3067 3068 3069 3070 3071 3072 3073 3074
2961 2965 2966 2967 2968 2969 2970 2971 2972

2962 2963 2964 2973
2872
2862
2861 2863 2864 2865 2866 2867 2868 2870 2871
2869
2762 2764 2765

2763 2766 2767 2768 2769
2770 2771
2661 2670
2662 2663 2664 2665 2666 2667 2668 2669
2561
2566
2562 2563 2564 2565
2567 2568 2569
2570
2467 2468 2469 2470

- 42 -
Annexure 3 - Employment, Training and Social

Welfare Program
EMPLOYMENT
Employment programs for Pakistani nationals shall be agreed upon with DGPC on an annual
basis as per guidelines issued from time to time.
TRAINING
Training shall be provided for capacity building of Pakistani employees and GOP officials by
foreign and local E&P companies including internship/scholarships and training of the local
inhabitants in different institutions, as per guidelines issued by DGPC from time to time. The
E&P companies shall incur following expenditures at different levels of their activity:
Onshore Area
USD 25,000 per year - during exploration phase
USD 50,000 per year - during development and production
Offshore Area
USD 50,000 per year - during exploration phase
USD 250,000 per year - during development and production
This shall not form part of Government revenue and shall be used primarily for capacity
building and to meet expenditures connected with infrastructure development as mentioned in
Section V above for which separate guidelines shall be issued with the approval of the
Principal Accounting Officer.
SOCIAL WELFARE PROGRAM
The amount of social welfare funds pledged by the companies (local and foreign) in their
respective agreements must be utilized to give lasting benefit to the communities. Social
welfare projects must be agreed with the local community and the civil administration as per
guidelines issued by GOP from time to time.
The following minimum expenditure shall be incurred on welfare projects:
a. During exploration stage until Commercial USD 30,000 per Licence Year
Production
b. During Commercial Production Phase Amount/Lease Year (USD)

(BOE/d)
Less than 2,000 50,000
2,000 - 5,000 100,000
5,000 - 10,000 200,000

- 43 -
10,000 - 50,000 400,000
More than 50,000 700,000
These amounts will be subject to review from time to time. Local E&P companies will incur
these expenditures in equivalent Pak Rupees.

- 44 -
Annexure 4 Information required from an interested

company
The list below represents the necessary information DGPC will require in order to process an
application.
1. Company name and contact details: the name, address and nationality of the applicant
including information as to the identity of the person who will serve as liaison with the Pakistani
authorities.
2. Company Registration: A copy of the charter or constitution of the applicant and information
concerning its place of incorporation, its principal place of business, its board of directors, the
domicile and nationality of board members, its share capital and shareholdings.
3. Company Structure: A management structure showing clear lines of responsibility and clear
processes for upstream operations is essential. DGPC will look for, as applicable to the acreage
and licence type, strong exploration experience and success and a strong reservoir management
team with considerable experience and the minimum of vacancies in key positions. The key
operations staff should be based in Pakistan.
4. Health, Safety and Environmental Management (HSE): It is essential that all operations
within Pakistan are carried out in a manner that conforms to current HSE legislation and
regulations. Companies seeking new operatorship in Pakistan, therefore, will need to demonstrate
that their HSE management systems are compatible with all national requirements.
5. Management System: Other than the existing licence/lease operator, the applicant should
describe, as relevant, how it will manage in practice an exploration, development or production
operation, clearly describing the division of responsibility between the company's own staff and
sub-contractors, if the latter are to be employed.
6. Worldwide Operating Experience: Companies without substantial operating experience within

Pakistan should demonstrate their operating experience overseas to indicate track record of
effective exploration and/or field management.
7. Companies with no Previous Operating Experience: Companies with no previous operating

experience will be subject to particular scrutiny dependent on the type of licence they are
applying for and will need to demonstrate that they have an agreement with an internationally
renowned E&P/ services company acceptable to DGPC or have a high calibre technical and
management team with proven track record of overseeing and managing operations in the
international petroleum industry.
8. Field Management Resources: Other than the existing licence/lease operator, the applicant when
relevant, provide details of the technical resources available to the prospective Operator. The
applicants own capacity to analyse all technical and financial data including the potential of a field
should also be explained.
9. Training Policy: Well trained staff is considered essential for effective operatorship of a block in
Pakistan. In this regard, a brief description of the companys training policy for appropriate
human resource development may be provided.
10. Reserves and Economics Calculation: Other than the existing licence/lease operator, the
applicant should provide methodology adopted by the company for reserve estimation and field
economics should be outlined.

- 45 -
11. Additional information: Additional information may be sought by DGPC following the receipt
of application.
Annexure 5 Concept of Work Units

1. A "Work Unit" is a unit of work for the purpose of measuring the compliance with the minimum
work obligation under an agreement. Work Units are defined in terms of kilometres of seismic or
numbers of exploration wells drilled.
2. A work unit equates to an approximate expenditure of USD 10,000 and the units defined for each
Zone and sub zone are considered generic averages for those Zones. The current value of USD
10,000 represents the 2012 base value for each work unit. The value will be updated at a rate to
be decided by the Government from time to time before any bidding round. The value of
USD10,000 (or future equivalent value) will be used where units have not been fulfilled to
calculate the WIOs/Contractors unfulfilled obligations.
3. For the purposes of calculating work units only, "Well Depth" shall mean the well depth
measured along the well bore from the seabed/ocean floor to the total depth for offshore wells;
and the well depth measured along the well bore from the rotary table to the total depth for
onshore wells. In case the well is a deepening of an existing well, the well depth is measured
from the deepest point in the existing well to the new total depth. In case a well is side-tracked,
the depth shall not include any depth drilled below the kick off point of the side track, but shall
include the redrilled part of the well from the kick off point to the total depth. In case a well is
horizontally drilled or deviated, the length of the horizontal/deviated segment well shall be added
to the vertical well depth.
Equivalency of Work Units for Offshore Areas
Type of Work Equivalent Work Unit
1 line-kilometre of 2D seismic 0.3

(acquired, processed, interpreted & mapped)
1 square kilometre of 3D seismic 1.0

1 exploration well with a 1,000 metres 300

surface location in
shallow water (< 200m) 2,000 metres 550
grid area with the
following well depths:
3,000 metres 1,000
4,000 metres 1,800
5,000 metres 3,200

- 46 -
6,000 metres 5,800
7,000 metres 10,000

surface location in deep
water (=> 200m & < 2,000 metres 900
1,000m Water Depth)
grid area with the
3,000 metres 1,600
4,000 metres 2,800
5,000 metres 5,100
6,000 metres 9,200
7,000 metres or more 16,000

surface location in ultra
deep water area 2,000 metres 1,300
(=> 1000m) with the
3,000 metres 2,200
4,000 metres 3,600
5,000 metres 6,400
6,000 metres 12,000
7,000 metres or more 21,000
Equivalency of Work Units for Onshore Area



- 47 -
100
1 exploration well with a 1,000 metres

surface location in
onshore with the 2,000 metres 200
3,000 metres 400
4,000 metres 600
5,000 metres 1,000
6,000 metres 2,000
7,000 metres 3,000
Equivalency of Work Units for Onshore Area



surface location in
onshore with the 2,000 metres 80
3,000 metres 100
4,000 metres 200
5,000 metres 330
6,000 metres 600
7,000 metres 900
Equivalency of Work Units mentioned in Annexure-5 may be updated on a yearly basis taking into
account of the Seismic and Rig rates prevalent at the start of the year. Similarly the Minimum Work
Units indicated above may also be revised by DGPC before Invitation to Bid according to size and
prospectivity of the area.

- 48 -
Annexure 6 - Documentation for Block Award Process

Government of Pakistan
Ministry of Petroleum & Natural Resources
(Directorate General of Petroleum Concessions)
Invitation to Bid for Grant of Petroleum Exploration Rights (Date:----------)
Applications are invited for grant of Petroleum exploration rights (Exploration Licence) over the
following blocks: -
Block No.
Block No.
Block No.
2. Bid Documents can be obtained from the office of Directorate General Petroleum Concessions
(DGPC) 1019-A, Pak Plaza, Fazal-e-Haq Road, Blue Area, Islamabad on a written request and
payment of a non-refundable fee of US $ 100(or equivalent in Pak Rupees) in favour of DGPC
through a bank draft.
3. Sealed applications should be submitted by the interested exploration and production companies
to DGPC, 1019-A Pak Plaza Fazal-e-Haq Road, Blue Area, Islamabad, by ---- a.m. (PST) on -----,
200-. Applications will be opened publicly by the Bid Opening Committee the same day at ----
a.m. in DGPC office in the presence of the applicants or their representatives.
4. Bids submitted by all applicants will be considered as irrevocable and unconditional. In case
any applicant states otherwise, his bid will not be accepted and will be treated as non-
responsive
5. The bidding process will be governed by and construed under laws of Pakistan and any question
or dispute regarding grant of a Petroleum Right or any matter or thing connected therewith shall
be resolved by arbitration in Pakistan and in accordance with Pakistan laws as per applicable
Rules of Pakistan Onshore Petroleum (Exploration and Production) Rules, 2012 (in case of
onshore areas) and applicable Rules of Pakistan Offshore Petroleum (Exploration and
Production) Rules, 2012 (in case of Offshore areas).
6. The successful applicant will be selected in accordance with the provisions of the Petroleum
Exploration and Production Policy 2012 and Pakistan Onshore Petroleum (Exploration and
Production) Rules, 2012/Pakistan Offshore Petroleum (Exploration and Production) Rules, 2012
and the Bid Documents. The successful applicant will be notified as soon as possible.
7. Any bidder offering Work Unit lower than the minimum threshold specified in the policy or the
bid documents would be treated as non responsive and his bid would not be further evaluated.
8. In the event, any of the bidder(s) attempts to influence the DGPC in any manner whatsoever, it
shall result in the disqualification of such bidder(s).

- 49 -
9. The Government reserves the right to exercise the powers to accept or reject any application. In
the event of refusal to grant such petroleum right, the Government shall as far as possible provide
the reasons thereof. The Government also reserves the right to cancel or annul the bidding
process without specifying any reason thereof.
Director General, Petroleum Concessions

Ph: +92-51-9204176
Fax: +92-51-9213245

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Ministry of Petroleum & Natural Resources

Petroleum Exploration & Production Policy 2012

1.1 Background -1-

1.2 Previous Policies -1-

1.3 Policy Objectives -2-

1.4 Requirements of Policy -2-

1.5 Outline of Pakistans 2012 E&P Policy -3-

1.6 Promoting Involvement of Pakistani Companies in the Countrys

Upstream Petroleum Industry -4-

Section I Licensing Process -4-

2. Companies entitled to acquire petroleum right -4-

2.1 New Local Entrants -4-

2.2 Requirement for an Applicant -5-

2.3 Direct Negotiation with Strategic Partners -5-

3. Licensing System -6-

3.1. Types of Exploration and Production Rights -6-

3.2. Procedure for the Granting of E&P Rights -7-

3.3 Bid Evaluation Procedure -9-

3.4 Post Award Process -9-

Section II Exploration and Production Regimes - 10 -

4 Onshore Petroleum Concession Agreement (PCA) - 10 -

4.1 Royalty, Income Tax and Windfall Levy - 10 -

4.2 Block System - 14 -

4.4 Non Fulfilment of Work Obligations - 15 -

5. Offshore Production Sharing Agreement (PSA) - 16 -

Petroleum Exploration & Production Policy 2012

5.1 Royalties, Corporate Tax and Windfall Levy - 16 -

5.3 Direct Government Participation - 17 -

5.4 Production Sharing - 17 -

5.5 Cost Limit - 18 -

5.6 Profit Oil and Profit Gas Splits - 18 -

5.7 Production Bonuses - 19 -

5.8 Import Duties and Taxes - 19 -

5.9 Marine Research and Coastal Area Development Fee - 19 -

5.10 Local Employment, Training and Social Welfare Contributions - 20 -

5.11 Exploration Period - 20 -

5.12 Extended Well Testing - 20 -

5.13 Retention Period - 21 -

5.14 Total Lease Term - 21 -

5.15 Five Year Lease Term Renewal - 21 -

5.16 Policy for Grant of Lease after Expiry of Lease Term - 22 -

5.17 Block System - 22 -

5.19 Non Fulfilment of Work Obligations - 22 -

5.20 Incentive for Offshore Discovery - 22 -

Section III - Regulatory Process & Obligations - 23 -

6.2 Application Fees - 23 -

6.4 Confidentiality of Data and Records - 24 -

Petroleum Exploration & Production Policy 2012

6.5 Performance Guarantees - 24 -

6.6 Profit Sharing - 25 -

8 Assignment or Transfer of Interest - 26 -

9 Domestic Supply Obligation & Gas Allocation - 26 -

9.1 Domestic Supply Obligation - 26 -

9.2 Remittance of Proceeds Abroad - 26 -

9.3 Delivery Point and Field Gate for Natural Gas - 27 -

9.4 Sale of Natural Gas within Pakistan - 27 -

9.5 Pipeline Construction and Operation - 27 -