PDO sets ambitious standards
Petroleum Development Oman’s new five-year plan is targeting to radically change the way it manages its business priorities as it prepares to compete with more private-sector companies

With the end of the celebrations of 40 years of crude-oil shipment, Petroleum Development Oman (PDO) has embarked on a new five-year plan (2008-2012) for sustainable development. In the next five years, PDO will be executing eight new field-development projects, each of which is valued at over US$100 million, and a further 50 new field-development projects worth between US$20 million and US$100 million each.

PDO’s managing director John Malcolm said, “In 2007, average production for the year stood at more than 561,000 barrels per day, within the target range of 560,000 to 570,000 barrels per day. Our 2008 production target range is between 540,000 and 560,000 barrels per day. And for a few years beyond 2008, our production will continue to stay at around 550,000 barrels per day...

“There will be a significant increase in condensate production, thanks to the Kauther gas field. In fact, our condensate production will almost double this year. Our gas production will also increase, thanks not only to the Kauther project but also to other gas-field development projects. In energy-equivalent terms, our total hydrocarbon output will reach unprecedented heights over the next five years.” (See graph: Oil, Condensate & Gas Production.)

Despite steady decline in black oil production from 2002 onwards and growing cost of exploration and production, Malcolm promised that “PDO will reach new unprecedented heights on its way to 2012, securing a bright future for the people of Oman”. On his game plan to achieve his ambitious target, he said, “We are radically changing the way we manage our business priorities so that they can be executed with much greater efficiency – even as our day-to-day operations become more and more complex. Our work practices and the frame of mind with which we approach them will continue to change. For one thing, work will be passed on from team to team, through better interfaces. And for another, we will have to compete with more private-sector companies on their own terms.”

Specialised operations
“We will also be specialising our operations according to the recovery process involved in a particular field-development project – whether primary, secondary or enhanced oil recovery (EOR). Similar specialisation may also be required according to the types of wells that need to be drilled, the types of surface facilities that need to be operated, and so on. Such specialisation – which we call ‘portfolio segmentation’ – will make it much easier to standardise procedures. And that too will yield additional efficiency. And, of course, we have to rely even more on the application of advanced technology,” said Malcolm.

He added, “PDO’s strength in integrating its assets, technology and people will also contribute to its future success. Keeping all our complexity under one roof, even as we continue to specialise and standardise to deal with it, gives us an advantage that few companies can match. We will integrate our large portfolio of productive assets, the dedication of our people, some of the world’s most advanced technology and our economies of scale, to meet our stated objectives.”

Challenges ahead
With a focused vision and the resources to convert it into a reality, PDO is all set to achieve its sustainable development objectives but the journey will test the turnaround capability of the company to its maximum. Malcolm realises this as he says, “…the future remains challenging. As we look forward through the next decade and beyond, we can see an increasing number of constraints being imposed on our increasingly complex operations. Overall, Oman’s rapid industrial development is leading to greater calls on the Sultanate’s large but still limited gas supplies. This means that we need to find ways of sustaining oil production while keeping our energy requirements under tight control. To run all our operations, we will need to more than double our power generation capacity over the coming five years.

“Fortunately, the gas that is burned at our power stations yields not only electricity but also heat, which we can use to boil water for our steam-injection projects. Such ‘co-generation’ of electricity and steam enables us to save quite a bit of gas – as much as what Muscat currently consumes for its supplies of electricity and drinking water. We have also been successful in reducing the flaring of gas associated with oil field production. In the Natih field, for example, we have installed sophisticated well controllers that regulate the gas/oil ratio in the well fluids being produced, retaining as much gas as possible in the field. As a result, we can reduce the flaring of the gas associated with oil production and maintain the pressure of the field, resulting not only in less greenhouse-gas emissions but also in a longer productive life for the field. We intend to continue implementing these and other measures to reduce flaring. In fact, between now and 2015, we intend to capture some 100 billion cubic feet of gas that would otherwise have been flared. These gas-conservation measures not only minimise PDO’s demand for gas but also its greenhouse-gas emissions.”

He added, “Although we have managed to moderate our gas usage, we are much more limited as to what we can do to moderate engineering and raw material costs. Our steel prices have increased by more than 50 per cent since 2000, while engineering and project management costs are not far behind. Still, the large-scale of our operations has enabled us to exercise considerable leverage in price negotiations with our key suppliers. Skills are also in short supply throughout the region, and we face an ongoing battle to retain the senior technical staff to take our multiple projects forward. There is little evidence that this situation will improve in the coming years.”

PDO in the next 5 years
For the next five years, some 35,000 people the combined PDO staff and contractor workforce – will be involved in PDO’s operations. That amounts to 1 million manhours of work every three days. The company will be managing 120 fields, with more than 5,000 oil wells by 2012, and 90 per cent of what they produce won’t be oil but water – water that has to be separated from the oil and re-injected into the ground in an environmentally responsible way. PDO will be concurrently executing eight new field-development projects, each of which is valued at over US$100 million, and a further 50 new field-development projects worth between US$20 million and US$100 million each.