Page 62 - Pakistan Oilfield Limited - Annual Report 2022

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PAKISTAN OILFIELDS LIMITED
Directors’ Report
Risks & Opportunities
The vulnerability can give rise to the
following risks
• Commercial risks
• Operational risk– not having materials
• Contractual risk– exposure to liquidated
damages
The Company is mitigating these risks by
preparing detailed well prognosis before
the spud date and timely placement of
procurement orders for long lead items.
6. Reservoir engineering and process: The
over estimation of reserves and production
can lead to investment of significant
capital in the form of plant design by the
engineering function. As far as practical,
the Company obtains third party reserve
certification to mitigate this risk.
7. Laws & Environmental regulations: The
oil and gas industry is regulated by a
number of government regulations which
are required to be strictly followed.
Default in this regard can have serious
consequences. E&P Companies must
take extra precaution to ensure they are
complying with all mandatory regulations
when proceeding on a project. The risks of
non compliance can include cost overruns,
fines, prosecution, work stoppage and
physical security threats. The Company
is cautious about where they are drilling
and be well informed and aware of the
applicable laws.
8. Increased competition: With increased
competition in the oil and gas exploration
and production sector, particularly in
relation to the application and award of
exploration concessions, the Company
may be faced with increased competition.
The Company is in a continuous process
to explore new opportunities by joining
hands with other E & P companies by
way of farm-in and farm-out agreements.
The Company’s LPG marketing business
may also be adversely affected due to
increased competition, decline in margins
or disruption to LPG supply sources. In
LPG marketing business, the Company has
established a good storage capacity for
continuous supply to keep margins intact
and it continues to explore sustainable
cost-effective sources of further supplies.
9. Information technology failures: The
Company’s operations may be adversely
affected due to information technology
failures especially in today’s environment
of reliance on IT systems, regulation and
reporting deadlines. The company has a
separate IT wing to control and monitor all
related functions especially in relation to
back up policy for continuous functioning.
10. Economic and political risks: Uncertain
economic and financial market conditions
resulting from economic or political
instability.
11. Joint Venture Partners: Joint-venture
operations are becoming increasingly
common across E&P companies as these
improve their business by leveraging
the expertise and resources of other
participants. In particular, when some
fields/blocks are new and too challenging
to be handled exclusively and the
operational costs are high, then companies
opt to have another partner in order to
have their expertise and to share the
costs involved. POL is also operating in
a joint venture environment and many
of our projects are operated by other
partners. Our ability to influence partners
is sometimes limited, due to our small
share in non-operated ventures. Non-
alignment on various strategic decisions
in joint ventures may result in operational
and production inefficiencies or delay.
We mitigate this risk by continuous and
regular engagement with joint venture