Ireland's Tullow Oil has acquired a new concession in the middle Indus region, the first to be awarded since the government introduced fresh incentives for oil and gas exploration.

The new concession, covering an area of 162 square kilometres known as Kandhkot East, lies next to Kandhkot and Qadirpur gas fields, both with proven commercial reserves. Any discovery will yield about 100,000 million cubic feet of gas, Tullow says. Gas reserves are likely at a depth of 1,300 metres, in the main producing formation for the adjacent gas fields. Tullow is to drill the first well as soon as possible, it says.

The licence agreement is the first under the government's new oil and gas policy, which gives the private investor a greater share in production. According to the new policy, Tullow is only required to pay an exploration fee to the government. The previous arrangement entailed the state-owned Oil & Gas Development Corporation (OGDC) holding a 5 per cent interest in the concession.

The government will buy back 25 per cent of gas during the production phase. The new agreement fixes buy-back rates of 25 per cent for concessions in known hydrocarbon provinces classified as low-risk, 20 per cent for medium-risk areas, and 15 per cent for offshore blocks and certain areas in Baluchistan classified as high-risk. Previously production sharing with OGDC was subject to negotiations and would normally be around 35- 40 per cent.

Tullow is to spud its first well at its block B in the middle Indus gas province near the Indian border in early May, once it has completed an access road to the location. It is negotiating with possible partners for a farm-out agreement for block A, near Karachi, of which it now holds 78 per cent. The arrangement would include the drilling of two wells on the block before the end of June.