Oil & Gas

CREATING HISTORY
Oman is poised to turn a page on a decidedly ‘rough patch’ in its 40-year oil history. A slump in oil output that began in 2002, thanks to maturing oilfields, is on the verge of being reversed – at least partially – starting from next year. From there on, it should be relatively smooth going, as a combination of new oilfield players, multi-billion-dollar investment schemes, enhanced oil recovery technologies, among others begin to kick in.

Record global oil prices that in recent weeks have been marching towards the $100 per barrel benchmark, have taken much of the spotlight off the oil sector’s recent oil production woes. But in a country that lacks the prodigious hydrocarbon wealth of its neighbours, the industry has indeed done well for itself.

Producing oil and gas in Oman is far more complex and expensive, than in the surrounding oil-rich Arabian Peninsula. The country’s oil and gas comes from 3,750 wells in 120 fields, and this output is channelled through some 16,000 km of pipelines, and processed by scores of processing plants and three gas processing plants. In its continuing effort to sustain production, Oman contracted 36 drilling rings to sink 249 oil wells in 2006, more than any other national oil company in the Middle East.

But with the oil sector contributing the lion’s share of the country’s gross national product (GNP), Oman has little choice but to doggedly press on with new field development. Towards this end, the government unveiled plans at the start of this year to invest around $10 billion over the next five years on boosting output from its maturing oil fields. Roughly a third of this investment is earmarked for enhanced oil recovery (EOR) projects, which are key to boosting oil output from the present 720,000 barrels per day (bpd) to one million bpd by 2012.

Petroleum Development Oman (PDO), the country’s dominant oil company, is banking on these allocations to shore up output over the next five years. It has simultaneously kicked off a stream of ambitious EOR projects at Harweel, Qarn Alam and Marmul that will come on stream in 2009 and beyond.

The industry is also pinning its hopes on a number of international oil companies that have begun to invest in Oman’s oil sector. More than 20 oil firms are currently exploring for oil and gas around the country, in a sign of the country’s continuing investment appeal. It follows an aggressive campaign by the government to open up and offer new acreage for exploration and development.

An accelerated licensing programme launched by the government has led to nearly a dozen oil companies signing exploration & production sharing agreements since 2006–the highest ever to be awarded at any given time in Oman’s history. With the signing away of these concessions, almost all of Oman has finally has come under exploration activities, underlining the government’s success in marketing available acreage to international companies.

In June 2006, the Oman government underlined its intention to attract foreign investment in the hydrocarbon sector by signing away seven blocks on a single day. The line-up of awardees included US-based oil and natural gas exploration giant Occidental Petroleum Corporation (Oxy), which received Block 54, in south-eastern Oman.

Oxy, the world leader in oil and natural gas exploration and production, will hold a 70 per cent interest in the project. The other partners in the project are Mubadala, the investment and development company wholly owned by the government of the Emirate of Abu Dhabi, through Liwa Energy Ltd, its oil and gas subsidiary, and Mitsui through its Mitsui E&P Middle East BV subsidiary.

Occidental currently has production operations in Blocks 9 and 27 in the north-western region of the country, as well as in the Mukhaizna field, one of the largest oil fields in Oman. Oxy plans to drill up to 200 wells this year in its Mukhaizna concession as part of a comprehensive EOR programme involving an estimated investment of $3 billion. The operator aims to boost output from the field from the present 12,000 bpd to 150,000 bpd by 2012.

Oil firms from as far afield as Australia and Eastern Europe have been drawn to the Sultanate’s oil sector. MOL Hungarian Oil and Gas Plc made its debut in the Sultanate with the acquisition of Block 43B. The 15,232 sq km block has possible depths of gas and condensate prone target reservoirs at depths between 2,000 and 4,000 metres. Block 43 is in the proximity of the main pipeline with two gas processing facilities located in the neighbourhood. A pipeline crossing over the Block enables gas transfer to the processing plant and condensate export facilities.

Another consortium dominated by Indian oil firms and investors has bagged the rights to Block 56. Located on the eastern flank of the oil-bearing central salt basin, the Block is believed to have a significant hydrocarbon potential. Seventy-five per cent of the interest in the Block is held by four Indian firms–Videocon Industries (25 per cent), Gas Authority of India Ltd (25 per cent), Bharat Petroleum Corporation Ltd (12.5 per cent) and Hindustan Petroleum Corporation Ltd (12.5 per cent). The rest is held by Australia’s Oilex, which is also the operator.

Block 57, in the Dhofar Region, went to Taqah, a consortium of six firms comprising Muscat Overseas, Tamrus Exploration (Russia), Siburgeo (Russia), Great Basin Exploration Consultants (US), Lorenz Fischer (US) and Decker Project Management (US).

Similarly, Omani company Al Zakwani Enterprises (Oil & Gas Division) and its partners, signed a concession agreement for Block 55 and plan to invest around $400 million in developing the hydrocarbon potential of the block. The firm has teamed up with J R Oil & Gas (India) Pvt Ltd and Evertson International Inc of the US (operator).

Thailand’s PTT Exploration & Production Plc (PTTEP), which received Block 58 in southwest Oman, aims to invest around $38 million as part of a five-year work programme. An initial geological study has indicated crude oil potential in the 2,264-sq. km block, which marks PTTEP’s second project in Oman. Its first project was Block 44, which went into production in March this year.

Indago Oman Ltd, which signed a deal for Block 43A, hopes to spud an exploration well in 2008. Indago believes the well will target the same hydrocarbon bearing formations that have been identified to the South, in Blocks 30, 31 and 47, which also belong to the company.

Swedish exploration and production company Tethys Oil, which has a 40 per cent interest in Block 15 in the north-central area of Oman, recently reported much success in the development of the concession. The onshore Block, covering an area of 1,389 sq. k, contains two discovery wells and estimated oil in-place of more than 50 million barrels, with an expected recovery ratio of between 5 and 20 per cent.

But a real shot in the arm for the industry’s future prospects came in the form of an agreement with oil major BP, which in January clinched a deal with the government targeting two key gas fields that could potentially yield an estimated 30 trillion cubic feet (TCF) of natural gas. The agreement covers an area of some 2,800 sq. km in central Oman, including the Khazzan and Makarem gas fields, which were discovered in 1993 but have remained undeveloped due to the complexity of their ‘tight gas’ reservoirs.

As one of the world’s leading specialists in the production of tight gas, BP will apply innovative technology and proprietary expertise to unlock output hitherto trapped in scattered, low-permeability rock. BP will conduct a comprehensive multi-year appraisal programme to understand the nature of the reservoirs. Production is expected to begin around 2010 during the latter stages of the appraisal study, followed by full field development.

Equally promising is an agreement signed by British-based international energy firm, BG Group to develop the onshore Block 60 concession in the Wusta region. The 1,500 sq. km concession contains the potentially prolific Abu Butabul gas and condensate discovery. Potential gas reserves are estimated at 8 trillion cubic feet (TCF) in Block 60, which is also believed to hold other exploration prospects. BG Group plans to invest a minimum of $150 million over five years in the development of the block.

Successful development by BP and BG of their respective blocks will be good news for Oman as its pins its future economic prosperity on gas-based heavy industry. The country is looking to the giant Dolphin Project, as well as neighbouring Iran, to meet any gas supply shortfalls in the interim.

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