Oil cos drilling activities down

KARACHI - The drilling activities of oil and gas exploration companies down by 26 per cent due to the growing circular debt issue. According to an analyst, the growing circular debt is finally taking its toll on drilling activities of oil & gas exploration companies. This is again negative for the long term profitability of these companies. During 11MFY10, only 81 wells exploratory and development have been drilled versus 110 wells drilled last year, down 26 percent. This includes carry over wells of last year. OGDC, the largest oil & gas explorer in Pakistan, drilled only 33 wells versus 44 wells last year, down 25%. The decline in OGDCs drilling activity is due to growing liquidity constraints as more than 60% of the circular debt is borne by the company alone. This could hurt long-term profitability and dividend paying ability of the company. To develop existing reserves is equally important to explore new hydrocarbons. This year E&P companies focus less on development wells. Out of 81 wells drilled so far in FY10, 55% were development wells versus 70% last year total 110 wells drilled. The industry drilled total 54 wells which is an almost 50% lower than current target of 100 wells. This means the industry not meeting the current year targets, thus endorses that persistent liquidity crunch led by circular debt has taken its toll on drilling activities in the country. Besides 25% declines in overall drilling activity of OGDC including carry-over wells, the company is short of current year drilling target. Only one month is remaining, the company needs to drill 15 wells more which look unrealistic. The company during 11MFY10 has drilled only 18 wells including exploratory and development, 42% lower than targeted wells of 31 for FY10. The major reason behind decline in drilling activities is the sharp increase in companys receivable against gas utilities and oil refineries due to circular debt. The companys over due receivables have risen to Rs 63 billion as at March 2010, 125% higher than Rs 28 billion overdue receivables on June 30, 2009.