Tuesday, June 8, 2010

Breaking News: BG Group (old British Gas) quit Oman - Government's Oman Oil company will take it over

News was circulating last week that British Gas BG Group - who successfully bid for Block 61 60 in the North-East of Oman - had failed to reach agreement with the Ministry of Oil and Gas on a gas price, and so have pulled out of Oman and walked away.


Photo: BG drilling for gas in Block 61, taken from Johnathon D Woods flickr

Block 61 60 was a piece of Oman relinquished by PDO shareholders 4 years ago. In the block there was already a big discovered gas field, estimated to hold around 8TCF of gas in the rock, I'm told. That's potentially a lot of gas.


Map: BG got the long thin red coloured gas field next to Saudi. BP has the red gas field to the north-east of BG's one. Map ripped from Tethis Oil press release.


The Government owned 100% of the gas rights, but there was only 1 (very expensive) well and the results were disappointing - PDO couldn't get it to flow very well. So the Ministry of Oil and Gas decided to get an overseas company in to try and do better, but without the MOG needing to contribute a dime. Sweet.

BG bid and was awarded the 1500km2 area to see what they could do, with a $150 million "work programme" that involved new seismic, studying things and drilling 8 wells.

BG did just as they promised, and while my sources say they confirmed PDO's discovery, they couldn't get the wells to produce very well either. The rates were apparently all between 1 - 8 million cubic feet a day, and also produced a lot of liquid HC called condensate which is worth as much as oil.

The key problem was that their deal meant they had to agree a gas price with the Omani Government before they could go ahead and develop it. This they failed to do, with the Government offering too little and/or BG asking too much. I haven't yet got the exact prices and economics, but my people are crunching the numbers and I'll update you next week. It could be the deal was just too much work for too little reward as far as BG was concerned. They have plenty of other things to invest in elsewhere.

So BG has walked, presumably taking with them their offer to set up their regional ME base in Oman. BG did not respond to my requests for comments.

Instead, I'm told the Government's fledgling Oil and Gas Company, Oman Oil E&P, will be given the job of producing the gas. That means they'll get to keep the wells BG drilled, plus all their reports and stuff, all for free!

I wonder if having Oman Oil take the project over was the plan all along? This way the locals get an almost economic development on a silver platter, with all the risks removed, and a nice little sand pit to play in while they learn the ropes. The Government could also force Petroleum Development Oman (who apparently need lots of gas to produce their oil) to buy the gas at a price that, by definition, makes it economic.

It won't be easy even then I'm informed, as that valuable condensate could make the gas rate from the wells drop even more as the pressure drops and the wells become sort of blocked with fluid.

I also wonder how this bodes for embattled BP, who did a similar gas deal with an old PDO discovery (except for a rumoured 650 million!) in nearby block 60 61, where there is apparently potential for a lot more gas. They have a similar 'lets talk later about the price' deal with the Government.

Hmmm...


This is what British Gas BG Group said in their 2009 BG Annual Report:



...
Oman
During 2008 and 2009, BG Group drilled seven wells to target depth on Block 60, which contains the Abu Butabul gas and condensate discovery. The Group has carried out sufficient appraisal work to delineate the main section of the field and no further appraisal wells are planned to be drilled.

Focus now shifts to finding optimum ways to develop the field. Abu Butabul is a tight gas discovery and the ability to get gas to flow effectively and efficiently will be key to determining commercial viability. The Group is aiming to move to project sanction in 2010 and targeting production start-up from the field by 2012.

12 comments:

  1. Block 61 is the BP (and good luck to them...) block. BG have/had Block 60.

    Block 60 is the bottom half of the old Block 48 which was held by Elf and later Maersk. Block 48 is the one immediately to the west of the "thin red coloured gas field" you mention.
    see http://www.bg-group.com/InvestorRelations/Reports/db2009/global/amea/Pages/oman.aspx

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  2. Great Post and thanks for updating, but so should you know the "BG" you are using here to address the company name does not stand for British Gas, but the BG group. The British Gas is now a subsidiary and is now known as Centrica Energy - two different companies.

    P.S. Its a good thing that the local company was able to get a hold of the block, but its hard to say if they are good enough to produce gas from this tight gas condensate field.

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    Replies
    1. Yes they are, we have drilled so far 12 holes, initially with one rig, then we brought in second one and third one will come begining of July. So far all is looking quite good. Plenty of gas, and even if there is no gas there will be oil just to cover expenses for drilling the hole.

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  3. Hi Dragon,
    Great blog and one I follow with much interest being a lover of Oman for pretty much the same reasons as yourself, or so I like to think.

    My theory is that BG had ulterior motive in that they were hoping to discover gas and pipe it to Qalhat and toll it through that unused capacity to give them access to LNG. They really, really need LNG East of Suez and are about to take final investment decision in Australia on a project. This might also explain their Oman pull out.

    Of course there was never much chance of them being able to move gas to Qalhat given the way in which gas volumes get allocated in Oman, but I am sure they felt that if they got a big enough find they could twist an arm or two.

    Keep up the good work.

    LNG Vulture (picking over the dead and dying projects in LNG)

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  4. Does anyone know why Shell stations are starting to post petrol prices on their signboards? If the cost is the same nationwide, then no one cares about price. Are variable petrol prices coming?

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  5. UD

    BG group got far much more data from PDO than the little extra data they will pass on to Oman Oil. PDO did a ton of work on that block, and BG has based its entire feaseability on PDOs work.

    Its too bad that BG has pulled out, and I have my doubts the local outfit can do a better job, as the reservoir complexities they face are huge, but they will alwasy have PDO to lean on.

    Karim

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  6. BG acquired thousands of km of 3D seismic and appraised the field with 7 wells drilled, fracced and flow tested. Plus its handing over a complete and ready field development plan. Tons more that what PDO did in that block.

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  7. Mustafa Al FadhilJune 12, 2010 at 2:57 PM

    It is BG and not British Gas. Secondly, the block is 60 and not 61.

    Mustafa Al Fadhil

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  8. the block is 60 and not 61...yep the man is correct
    and the focus is the commercial viability of this project
    in a period of five or six year's it can be viable
    under good market conditions
    Recent work ...

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  9. Anonymous
    There is a difference between finding a needle in a colossal haystack, and measuring the length, mass and density of the needle.

    What PDO did is finding that needle in the vast expanses of the Omani desert, what BG did is properly measuring it.

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  10. It is BG that got block 60 data free from PDO (which the govenment owns 60 pct)so it is only fair that Oman Oil Co. (which gov owns 100 pct)get it back. BG knew exactly, from PDO data, that they will need to sell the gas at a price agreeable by gov from the onset. Why now the complaints? Oman has given concessions to many and they know the rules!!

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  11. What was the gas price that BG was getting?

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