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Petitioner: Petroleum Exploration (PRIVATE) Ltd VS Respondent: Federal Government Of Pakistan JUDGMENT
Court Name: Islamabad High Court Judge(s): Miangul Hassan Aurangzeb Title:Petroleum Exploration (PRIVATE) Ltd vs Federal Government Of Pakistan
JUDGMENT
Reported As: PLD 2020 Islamabad 214 Result: Petition dismissed Judgment JUDGMENT MIANGUL HASSAN AURAKIZEB, J-Through the instant writ petition, the petitioner , Petroleum Exploration, Private) Limited, is aggrieved by the inaction on the part of respondent No.2/Director General Petroleum Concessions ("D.G.P .C.") to extend the benefit of the "incentive price of gas" under the provisions of the Petroleum Exploration and Production Policy , 2012 ("the 2012 Policy "). The petitioner seeks a direction to the respondents to implement the 2012 Policy with respect to the Badar Gas Field by giving the incentive price to the petitioner . The petitioner also seeks a direction to respondent No.3 (Director General, Gas) to execute a. supplemental agreement to the Badar Gas Pricing Agreement ("G.P.A."). The petitioner also impugns the letter dated 04.09.2018 issued by the D.G.P .C. 2. The facts essential for the disposal of the instant petition are that Pakistan Petroleum (Production) Rules, 1949 ("1949 Rules") were made by the Government of Pakistan in exercise of the powers conferred by Section 2 of the Regulation of Mines and Oil fields and Mineral Development (Federal Control) Act, 1948. On 15.07.1986, the President of Pakistan, in exercise of the powers under the 1949 Rules, granted an exploration and prospecting licence over the Karachi Block covering an area of 1,375 square miles to (i) Canada North West Energy Limited, (ii) Rio Alto Exploration Limited, and (iii) Oil and Gas Development Corporatio n ("working interest owners"). Simultaneously , with, the grant of the said licence, the President of Pakistan and the working interest owners entered into a petroleum concession agreement ("P.C.A.") . Subsequently , the working interest owners relinquished the Karachi Block and in lieu thereof were granted an exploration and prospecting licence for the Ghauspur Block located in Jacobabad and Sukkur Districts, Sindh Province. In this regard, the agreement to transfer the Karachi
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Block work commitment to Ghauspur Block was executed between the Preside nt of Pakistan and the working interest owners on 20.09.1992. 3. Through deeds of assignment, the working interest owners assigned their respective shares in the Ghauspur Block. Presently , the working interest owners in the Ghauspur Block are: (i) the petitioner , who is also the Operator; (ii) Oil and Gas Development Company Limited; (iii) Sherritt International Oil and Gas Limited; and (iv) Spud Energy Pvt. Limited. 4. In February 1994, an exploratory well called Badar-1 was drilled in the Ghauspur Block. In March 1994, the Petroleum Policy , 1994 ("the 1994 Policy") was announced by the Government of Pakistan. Paragraph 2.3(c) of the 1994 Policy made the upstream incentive s in the said Policy applicable to Exploration and Production companies ("E&P companies ") that signed petroleum concession agreements after the announcement of the said Policy as well as to "new exploration efforts ". In order to give effect to the incentives under the 1994 Policy , supplemental agreements were required to be entered into between the Government of Pakistan and the eligible companies that were willing to accept the terms and conditions of the said policy as a package. "New exploration efforts " were defined in the 1994 Policy to mean exploration wells spudded after 01.01.1994. 5. Since Badar-1 Well was drilled in February 1994, the working interest owners applied to the D.G.P .C. for the grant of the additional incentives under the 1994 Policy . In order to grant the additional incentives under the 1994 Policy to the working interest owners, a supplemental agreement was execute d on 12.07.1997 between the President of Pakistan and the working interest owners. 6. On 13.03.2002, the working interest owners issued a declaration of commerciality . On 18.09.2003, mining lease No.151/P AK/2002 ("Badar Mining Lease") over the Badar Gas Field covering 47.1 square miles in District Jacobabad, Sindh was executed pursuant to Rule 29 of the 1949 Rules and Article 5 of the P.C.A. between the President of Pakistan and the working interest owners which included the petitioner . The said lease was for a term of five years with effect from 13.03.2002. Vide letter dated 11.07.2006, the D.G.P .C. granted an extension in the initial term of the said lease for a period of seven years with effect from 13.03.2007. Vide letter dated 07.07.2014, the D.G.P .C. renewed the said lease for a further period of five years with ef fect from 13.03.2014. 7. On 18.07.2003, a gas sale and purchas e agreement for the Badat Gas Field was executed between the working interest owners and respondent No.4/Sui Northern Gas Pipelines Limited ("S.N.G. P.L.") for the sale and purchase of gas produced from the said gas field. On 18.08.2004, a gas price agreement with respect to the said gas field was executed between the working intere st owners and the President of Pakistan. S.N.G.P .L. was also a party to the said agreement. 8. On 30.08.2012, the 2012 Policy was notified by the Ministry of Petroleum and Natural Resources ("M.P .&N.R.") . One of the objectives of the said Policy was to accelerate exploration and production activities in Pakistan with a view to achieve maximum self sufficiency in energy by increasing oil and gas production. The incentives under the 2012 Policy were to apply to the E&P companies that applied for new petroleum rights after the said Policy came into effect as well as to those,_ E&P companies that opt for conversion to the said Policy in accordance with Section VI thereof. 9. Under paragraph 13.1 of the 2012 Policy , the option for conversion to the said Policy was available to all "new exploration efforts " made under the exploration licences and 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 the approval of 2012 Policy . Paragraph 13.2 of the 2012 Policy explains that "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" . Paragraph 13.3 of the 2012 Policy provided that for all conversions to the 2012 Policy pursuant to paragraph 13.1 thereof, the gas price allowed for new exploration efforts under the respective exploration licences and leases shall be the 2012 Policy . 10. Paragraph 13.6 of the 2012 Policy provided inter alia that the companies desirous of opting for conversion to the 2012 Policy shall be required to submit their written request to the D.G.P .C. within ninety days from the date of the announcement of the 2012 Policy failing which they will not remain eligible for conversion. Furthermore, it was
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provided that the option once exercised shall be final and that a supplemental agreement to give effect to the conversion shall be executed as soon as possible but not later than six months from the date of the exercise of the option. 11. Under paragraph 13.8 of the 2012 Policy, the gas price under the said Policy was to be extended to that E&P companies who would give additional 10% production over and above the committed volumes in the development plan approved by the Government. The gas price under , the 2012 Policy was for additional production only. For the purposes of clarity , paragraph 13.8 of the 2012 Policy is reproduced herein below: "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 commitme nt in accordance with approved developm ent plan by the Government to the extent of additional production only ." 12. Vide letter dated 05.09.2012, the petitioner , as the Operator of the Badar Joint Venture ("Badar J.V."), applied to the D.G.P .C. for the gas price to be allowed in terms of paragraph 13.8 of Section VI of the 2012,Policy . 13. Vide letter dated 11.10.2012, the D.G.P .C. informed the petitioner that the Government of Pakistan had allowed the incentive to the petitioner pursuant to paragraph 13.8 of the 2012 Policy if the additional volume produced from the Badar Gas Field was more than the 10% threshold. The petitioner was requested to approach the Director General (Gas), M.P.&N.R. for fixing the gas price under the 2012 Policy for the additional volumes produced from the Badar Gas Field. This incentive was allowed to the petitioner subject to the following conditions:- "i This incentive will be applicable to E&P companies after the date of the notificati on of Petroleum Policy 2012 i.e. 30.08.2012 for which they will execute a Supplemental Agreement to effectuate the incentive. ii. 10% production over and above the commitment will be the minimum threshold which triggers the applicability of the incentive provided in Clause 13.8 of the Policy , 2012. iii. The corresponding level of production committed in Development Plan will be taken with effect from the date of filing of application by the operator E&P Company . iv. 3rd Party Reserves Certification will be provided by the applicant company with the application to the effect that the E&P company is producing more than 10 % in addition vis-a-vis commitment to the existing production profile on the effective date. 12. The petitioner , along with its letter dated 31.10.2012, submitted the draft of the first supplemental agreement to the gas price agreement dated 18.08.200 4 to the D.G.P .C./ Director General of Gas in M.P.& N.R with a request that the same be executed between Badar J.V., the President of Pakistan and the S.N.G.P .L. so as to give effect to paragraph 13.8 of the 2012 Policy . It is an admitted position that a supplemental agreement was not executed at any material stage. 15. Vide letter dated 20.11.2012, the petitioner applied to the D.G.P .C. for conversion of the Badar Mining Lease to the 2012 Policy for the purpose of " new exploration efforts " in accordance with Section VI of the said Policy . 16. Paragraph 13.8 of the 2012 Policy was amended through notification dated 23.09.2013 (S.R.O.813(1)/2013). The amended paragraph 13.8 of the 2012 Policy is reproduced herein below:- "The gas price of Policy 2012 will also be extended to the entire incremental gas production, subject to meeting the minimum threshold of 10% addition in the current production or the volumes committed in approved development plan, whichever is higher . For this purpose, the current production will mean maximum gas production of any day during last six months immediately preced ing the date of approval of this Summary by the CCI i. e. 31st July, 2013. The producer will be required to produce third party certification that the said activities will not adversely affect the total recoverable reserves or damage the reservoir as a whole. The third Party Consultants will be appointed by Ministry of Petroleum and Natural Resources for which cost will be borne by the concerned E&P Company ." 15. Vide letter dated 11.11.2013, the D.G.P .C. informed the petitioner that the M.P.& N.R. appreciates the keenness of Badar J.V. to drill a second well in the Badar Gas Field to increase production of natural gas from the said Field. The D.G.P .C. also confirmed that the additional gas from the said Field shall be allowed additional gas price under the 2012 Policy if it qualifies in accordanc e with the parameters stipulated in paragraph 13.8 of the 2012 Policy as amended by notification dated 23.09.2013.
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16. Vide letter dated 03.01.2014, the D.G.P .C. issued a Well Commencement Notice in respect of Badar-2 Well, and on 16.01.2014, a revised W ell Commencement Notice with respect to the said W ell was issued. 17. Vide letter dated 21.05.2014, the petitioner informed the D.G.P .C.. that Badar J.V. had drilled a second well in the Badar Gas Field and was expecting to complete the same by July, 2014. The increase in the gas production was estimated to be by 12 to 15 MMCFD. The position taken by the petitioner was that the plan, with respect to the second well, would be implemented subject to the execution of the first supplemental agreement to the Badar G.P.A. or the provisional notification of the gas price under 2012 Policy for the gas being produced from the Badar Gas Field over and above 3.6 MMCFD, which was the volume committed in the approved development plan at the time of the submission of the first supplemental agreement, i.e. 31.10.2012. 20. Vide letters dated 30.06.2014, 16.07.2014 and 20.08.2014, the petitioner requested the Director General of Gas, M.P .&N.R to execute the first supplemental agreement to the Badar G.P .A. 21. Badar-2 Well is said to have come on production in April 2016 with an initial production at gas rate of 8.5 MMCFD. On 27.06.2016, the M.P.&N.R. submitted a summary for the Economic Coordination Committee of the. Cabinet ("E.C.C.") proposing that up to 9.5 MMCFD of natural gas from Badar-2 W ell be allocated to the S.N.G.P .L. 22. As per the contents of the said summary , the working interest owners of the Badar Gas Field had carried out extensive geological and geophysical surveys which resulted in the drilling of a new well (Badar-2) along with the infrastructure development of the field to connect Badar-2 to the existing gas system at an investment of nearly US $ 10 Million. It was also stated that Badar Gas Field's potential had improved to produce gas at a higher rate and for a longer period with balance recoverable reserves estimated at 42.9 BCF as in December 2015. Reference in the said summary was also made to the revised production profile from Badar-1 and Badar-2 which provides for a cumulative production of over 17 MMCFD during the year 2016. In the said summary , it was also stated that the Badar Gas Field was already connected to the S.N.G.P .L.'s system and gas from Badar-1 Well was being supplied to the S.N.G.P .L. which had requested for allocation of gas from Badar-2 Well owing to the mounting demand and supply gap on their system. More importantly , it was stated that "the price of gas will be as per the appli cable Petroleum Policy ". 23. On 01.07.2016, the E.C.C. decided to approve the proposal made by the M.P.&N.R. in paragraph 5 of its summary dated 27.06.2016 with the direction that "the price of gas will be determined by the Regulator in accordance with the Petroleum Policy , 2012" . For the purposes of clarity , paragraph 5 of the said summary is reproduced herein below:- "5. It may be noted that Badar field is already connected to SNGPL's system and gas from Badar -1 is being supplied to SNGPL. In view of request of M/s SNGPL for allocation of gas from Badar -2 owing to mounting demand and supply gap on their system and availability of nearest transmission network, Ministry of Petroleum and Natural Resources proposes that upto 5 MMCFD gas from Badar -2 may be allocated to M/s SNGPL. The price of got will be as per the applicable Petroleum Policy ." 24. Vide letter dated 14.07.2016, the Directorate General (Gas), M.P.&N.R. informed the petitioner as well as the S.N.G.P .L. as to the E.C.C.'s decision dated 01.07.2016. 25. A copy of the note file of the M.P.& N.R. was brought on record by the petitioner and annexed at page 368 of the petition. Paragraph 115 of the note file shows that the proposal made by the M.P.& N.R. was that the price of gas would be determined as per the "applicable Petroleum Policy " whereas the E.C.C. had decided that the gas price would be determined by the Regulator in accordance with the 2012 Policy . 26. Vide office memorandum ("O.M.") dated 17.08.2016, the Director General (Gas) requested the Secretary , Cabinet Division to amend the E.C.C.'s decision dated 01.07.2016 so as to make it in conformity with the proposal made in paragraph 5 of the summary dated 27.06.2016. The Director General (Gas) apprehensions in the said O.M. dated 17.08.2016 were expressed in the following terms:- "...the proposal contained in Para-5 of the subject summary clearly stated that the price of gas will be as per the applicable Petroleum Policy . Further the matter was also deliberated during the ECC meeting held on 01.07.2016 and the esteemed forum was apprised that the applicability of relevant Petroleum Policy on gas price will be decided by the concerned regulator . However , the decision so conveyed by the Cabinet Division confers gas
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producer entitlement of Petroleum Policy , 2012 irrespective of the fact as to whether producer is entitled to the Petroleum Policy or otherwise. This may give rise to serious legal and financial repercussions, as on the basis of said ECG` decision the gas producer will claim gas price of subject field under the Petroleum Policy , 2012 leaving no room for the regulator to decide the matter of applicability of respective Petroleum Policy ." 25. Vide O.M. dated 09.09.2016, the Cabinet Division informed the M.P.&N.R. that the E.C.C.'s decision dated 01.07.2016 had been correctly recorded in light of the summary submitted by the M.P.&N.R. and discussion held during the meeting, and that the decision had been issued with the approval of the Chairman, E.C.C. Furthermore, it was stated that if the M.P.&N.R. feels that an amendment in the decision was required to be made, a summary for the E.C.C. could be submitted afresh as only the E.C.C. was competent to amend its earlier decision. It is an admitted position that neither did the M.P.&N.R. submit a fresh summary to the E.C.C. nor was the E.C.C.'s decision dated 01.07.2016 amended at any stage. Instead, the D.G.P .C. made a reference on 07.04.2017 to the Law, Justice and Human Rights Division for an opinion. In the said reference, the position taken by the D.G.P .C. was that the mining leases granted under the Pakistan Petroleum (Production) Rules, 1949 ("the 1949 Rules") do not have any subsurface boundaries whereas the leases granted under the subsequent rules restrict the leaseholder's rights to produce from a specific subsurface geological formation. On this basis, the view taken by the D.G.P .C. was that in development and production leases, the E&P companies can undertake "new exploration efforts" for the purposes of the 2012 Policy whereas this is not possible within a mining lease. Accordingly , in the said reference, it was stated that mining leases were not entitled to convert to the 2012 Policy , and that the incentives under the said Policy were not applicable to the mining leases. After stating all this, the questions posed for the opinion of the Law , Justice and Human Rights Division were as follows:- "a) Whether the Supplemental Agreement executed with the Ghausper WIOs on July 12, 1997 has the effect of allowing WIOs the right to carry out new exploratory efforts in the Mining Lease granted on September 18, 2003 which otherwise is not allowed to the holders of the Mining Lease? If answer to the above question is affirmative then, b) Whether the new exploratory efforts allowed through the execution of the Supplemental Agreement were restrictive only to avail the gas price incentives under the 1994 Policy or the same also entitle WIOs of the said mining lease for availing the gas price incentives under the 2012 Policy?" 28. The D.G.P .C. as well as the M.P.&N.R . are trying to avoid acting in accordance with the E.C.C.'s said decision by taking the'plea that the matters relating to the applicability of the 2012 Policy price fall within the domain of the D.G.P .C. and that any summary for the approval of the 2012 Policy price could have been initiated by the D.G.P .C. and not by the M.P .&N.R. 29. The instant writ petition was filed on 22.10.2016. The reference by the M.P.&N.R. to the Law, Justice and Human Rights Division was made during the pendency of the instant petition. The Law, Justice and Human Rights Division, in its response dated 02.04.201 8, supported the view point of the Law Section of the M.P.&N.R. who opined that since the licence granted to the working interest owners of the Ghauspur Block had expired on 12.12.1997, the petitioner could not drill an exploration well under the mining lease granted on 11.09.2003 since the incentives under the 2012 Policy were only with respect to new exploratory efforts. Another crucial development which took place during the pendency of this petition was that vide letter dated 04.09.2018, the D.G.P .C. informed the petitioner that the Ghauspur working interest owners were not entitled to convert to the 2012 Policy due to the non-availability of new rules which was stated to be a sine qua non for the entitlement to convert under Section VI of the 2012 Policy . Furthermore, it was stated that Section VI of the 2012 Policy provides that the option for conversion to the 2012 Policy will be available to all "new exploration efforts" made under the exploration licences and leases that stood granted/executed. It may be mentioned that the D.G.P .C.'s said letter dated 04.09.2018 was in response to the petitioner's letter dated 21.03.2016. After the D.G.P .C.'s said letter was brought on record, the petitioner amended the writ petition so as to challenge the same.
CONTENTIONS OF THE LEARNED COUNSEL FOR THE PETITIONER :-
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30. Barrister Yousaf Khosa, learned coun sel for the petitioner , after narrating the facts leading to the filing of the instant petition, submitted that after the announcement of the 2012 Policy the petitioner , vide letter dated 05.09.2012, applied to the D.G.P .C. for Badar J.V. to be allowed the gas price in terms of paragraph 13.8 of Section VI of the 2012 Policy for natural gas produced over and above the committed volum es; that the D.G.P .C., vide letter dated 11.10.2012, allowed the incentive to the petitioner pursuant to the said provisions of the 2012 Policy subject to the conditions mentioned in the said letter; that the four conditions set out in the D.G.P .C.'s said letter dated 11.10.2012 had been satisfied by the petitioner; that after the petitioner was allowed the price incentives under the 2012 Policy by the D.G.P .C., vide letter dated 11.10.2012, the latter was estopped from denying the petitioner benefits of the incentive; that since the petitioner's application for the grant of the incentive price under the 2012 Policy had already been approved by the D.G.P .C., it only needed to be effectuated; that on the basis of the D.G.P .C.'s letter dated 11.10.2012, valuable rights had accrued in the petitioner's favour for the execution of a supplemental agreement providing for an incentive price for production over and above the committed volumes by 10%; that along with its letter dated 31.10.2012, the petitioner had forwarded a draft of a supplemental agreement to the D.G.P .C. and the M.P.&N.R.; that the said letter was not responded to; that in order for the petitioner to be given the benefits under the 2012 Policy , an amendment in the gas sales and purchase agreement was required but not in the petroleum concession agreement; that even if a supplemental agreement on the gas price was not executed, the petitioner could nonetheless be given the new price incentive under the 2012 Policy for the additional volumes of gas beyond the committed volumes; that the requirement to execute a supplemental agreement is only a procedural requirement; and that the E&P companies that were given the 2012 Policy incentives had executed supplemental agreements in order to gain incentives under the said Policy . 31. Furthermore, it was submitted that the date on which the petitioner submitted its application for the incentives (i.e. 05.09.2012), the petitioner's commitment was to produce 3.6 MMCFD; that for any additional volumes beyond 3.6 MMCFD, the petitioner was entitled to be given the incentive price under the 2012 Policy; that in reliance on the representations contained in the 2012 Policy (especially paragraph 13.8 of Sectio n VI thereof), the petitioner took steps to drill a second well in the Badar Gas Field in order to increase production of natural gas from the said Field; that in this regard, a Well Commencement Notice in respect of Badar-2 Well was duly approved by the D.G.P .C. on 03.01.2014; that the petitioner drilled Badar-2 Well with an additional investment of nearly US $ 10 Million and this resulted in cumulative production of over 17 MMCFD during the year 2016 from Badar-1 and Badar-2 Wells; and that presently , about 13 MMCFD additional volume over and above the comm itted volumes in the approved development plan is being produced which qualifies for the incentive price under the 2012 Policy . 32. He further submitted that since after 2012 Pakistan was gas-deficient, its policy was to encourage licencees…
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