Pakistan adopts offshore E&D incentives

KARACHI�The Pakistan government approved a package of offshore exploration and development incentives Jan. 17.

The incentives will apply to new and existing licenses for 5 years.

Exploration periods were increased to 5 years from 3 years, with two optional renewals of 2 years each, with maximum retention of 10 years allowed on a case-by-case basis.

Import duties and taxes for exploration equipment will be waived. After the first commercial discovery, the duties and taxes will be 3%.

In addition, corporate income tax will be reduced to 40% from 50%.

Investors will recover the costs of E&P projects, up to 85%, and thereafter share revenues with the government. A sliding scale royalty will be introduced, with a payment holiday of 4 years. Previously there was a flat 12.5% royalty.

Pakistan has divided its offshore areas into three zones. The shallow designation applies to areas in less than 200 m of water; the deep designation to areas in 200-1,000 m; and the ultradeep designation to areas in more than 1,000 m.

The government's share of the profits in these areas will depend on cumulative production. From shallow areas, the government share will be 10-80%; from the deep areas, 5-70%; and from the ultradeep areas, 5-60%.

A windfall price levy beyond $24/bbl of oil and 2.5 MMbtu of gas will also apply.

The government also approved a production-sharing agreement that it will use as a model for future agreements. It approved a policy to allow current holders of concessions to opt to convert to production-sharing agreements.

To convert, the company must have completed its work obligations for the initial term of the exploration license. It must execute the PSA within 90 days of government approval.

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