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.

How much crude does Oman produce? And by who?

I've had a few requests to explain the story on Oman's crude oil & gas production. How much really? Who produces it? How long have we got before it 'runs out'?

Checking with a few knowledgable sources over the amber nectar this week, I can share the following. I hope I got it right, as it all started to get pretty complicated as the nectar flowed...

Oman at the moment produces around 750,000 bbl/d, (that includes about 80,000 bbl/d condensate liquid derived from gas production):

Who produces?
No.1 is Petroleum Development Oman, aka PDO, producing ~83% of that.
No.2 producer is Occidental, with almost 14%.
No.3 is MB Petroleum, the local lads, with ~3% (mostly in 50/50 partnership with the Chinese National Oil Co).
And lastly, PTEP (I think they are a Thai company) with less than 0.4%

So, where is the extra production HE Dr. Rumhy refers to going to come from?

Well, mainly from Oxy's on-going development of the Mukhaisna heavy oil field, where they are injecting steam to boost production. They are expected to eventually increase to over 100,000 bbl/d from around 30,000 now. As a partner in the Dolphin gas project, they were probably helpful in getting that new gas importation stream from Qatar that started a few days ago, and I can't help but think there was a connection between that gas arriving and Oxy getting the rights to develop Mukhaisna from under the nose of PDO. I've heard Oxy originally promised to get to 150,000 a day, but are now lowering their forecasts and delaying the rate of ramp up too.

PDO has lots of big projects underway too, but these will be needed to offset the decline in their existing production. Instead of growing now and then declining again, PDO has been instructed to hold steady at 550,000 bbl/d for at least the next decade.

The Government, via the Ministry of Oil and Gas, have also been pretty effective at attracting a lot of new exploration companies and taking advantage of the high oil price and oil fever around the world, and they hope these efforts will lead to further production growth in a few years. But from the oil side my experts say don't hold your breath, and anything they find will tend to be small and shitty (still profitable, as oil is worth so much, but not enough to change Oman's production much).

On gas, at the moment PDO produces basically all the country's gas with about 65 million m3 a day, plus a super-tiny bit from PTEP. Just under half of that gas is liquified and exported to Korea from the 2 LNG plants at Sur. (equiv. to another 150,000 bbl/d I think).

As well as PDO and PTEP, there are British Gas, BP, RAK Gas and Tethys working on producing gas. BG is apparently having a few disappointing results from their drill testing, and sent a rig home earlier than planned recently. BP definitely have a big gas field to develop(found for the Government by PDO ages ago), and hopes are much higher that in a few years they will be able to produce a decent amount of gas and some liquids too. BP's gas price will make it tough though, and they've only just started drilling. RAK Gas and Tethys may produce a bit of gas, but nothing significant. Indian company Reliance are supposed to be looking offshore soon, and everyone says its unlikely there is anything big, but no-one really knows what's out there because they say so far there are only a couple of shallow wells ever drilled off the coast. Here's hoping.

Oh. Remember, Oman has 2 refineries that together take around 200,000 bbl/d, so not all that crude gets exported. About 60,000 a day is needed domestically, with the remaining 140,000 exported as refined products.

How Long before it runs out?
As long as oil price stays high (and by high I mean around $60) Oman will be able to produce and export over 500,000 bbl/d plus the LNG for at least the next 15 years. Probably longer. And even 25 years ahead, will still be over 300,000 bbl/d.

Hope you found that useful!

Oh, and I was told that we should expect to hear some big announcements on National Day: it seems 2 more new companies (and 1 that is already here) are being given some pretty good areas by the Government to look for more gas. . Excellent work, Dr. Rumhy.

Minister of Oil and Gas confirms slow-down will delay Duqm

HE Dr. Rumhy, Minister of Oil and Gas confirmed today that, because Oman has been using project finance (semantics for non-Governmental borrowing) to fund many of the development projects, the current global environment will cause delays in projects if financing isn't available, with special reference to the plans for a refinery and petrochemical plant in Duqm.

Dr. Rumhy also commented that the gas deal with the Iranians on Kish development were still in the air.

There are three big problems with the Iranian deal:
- how much per Mscf will Oman have to pay Iran?
- who will fund the development? (a project that will probably require more than $10 billion!)
- who in Oman can afford to pay a high price for that gas? Certainly not the new Sohar & Salalah projects.

Yes, some of the gas could be exported as LNG, but the profitability will be close to zero on that - Oman might end up paying as much for the feedstock gas as they would make in LNG sales after costs, and why invest $10+ billion just so Iran can make money from your LNG plants?

See Reuters

Crisis may slow Oman energy projects -oilmin
ABU DHABI, Nov 3 (Reuters) -
A global financial crisis will affect Oman's oil and gas development projects and may cause delays, Omani Minister of Oil and Gas Mohammad bin Hamad bin Seif al-Rumhy said on Monday.

Qatar, top oil exporter Saudi Arabia, the United Arab Emirates, and three other Gulf states have more than $2 trillion of projects under construction, buoyed by bumper oil revenues that have helped their economies triple in size since 2002.

But a looming global recession now threatens to scupper the plans of countries that have spent fortunes building massive economic, energy and industrial zones, tourist and leisure hubs.

"The recent financial problems will have an impact because most of our projects are on project finance," Rumhy told Reuters at an oil and gas conference. "It is a more challenging environment than six months ago. If we can't borrow, we will have to delay."

Rumhy named the Duqm refinery and petrochemical complex project as one of the developments that could face delays.

"Oman's development plans will continue but certain projects will be revisited," he added.
The government announced plans at the end of 2006 to build the Duqm Refining and Petrochemical Complex, which would see the construction of Oman's third refinery at al-Duqm in the southeast of the country.

The plan, which is faced with rising costs, would include a 300,000-bpd refinery and a petrochemicals facility including a polypropylene plant with a capacity of 1.2 million to 1.5 million tonnes a year. Commercial production had been set for 2012.

Rumhy also said he expected Oman's oil production to rise to 800,000 barrels per day (bpd) in 2009 from 750,000 to 760,000 bpd this year and gas output to remain steady at 60 million cubic metres per day.

He added that Oman was still in talks with Iran to import gas, but no agreements had been reached yet.
The two countries are in negotiations on the sale of 1 billion cubic feet per day of Iranian gas to Oman, news agency ISNA had reported.

Analysts say that Gulf Arab states will keep raising public spending in the face of the world financial crisis, but at a slower pace, even as an oil price slump and credit woes put the brakes on an economic boom. (Reporting by Simon Webb and Stanley Carvalho; Writing by Ramthan Hussain; Editing by Clarence Fernandez)

Oman in need of importing coal and Oman's gas shortage

Oman is continuing its push for coal fired power, according to officials at the Ministry of Oil and Gas. This is because there is not enough gas, and compared to the prices for imports, coal is supposedly a reasonable option (although expensive, requiring a huge upfront capital investment) - see article below quoting one 'Zaid Al Siyabi director general of exploration at the MOG'. [Actually this is Dr. Al Siyabi, and he's director general of oil and gas development at the MOG. I find it also a bit strange that such reports are coming from the Ministry of Oil and Gas, as coal is neither gas nor oil, and electricity I thought was somebody elses problem... Anyhow.]

Hence the expectation of having to get overseas investors to build the plant, and take the risk on coal prices. What will be interesting is what kind of coal plant - ie a big old school beast, or a high tech so-called clean coal plant (lots more expensive to build)? The emissions will just sail across the Indian Ocean anyhow, and Oman is not constrained by Kyoto limits.

One crafty option is for the Government to plan to build a big smelly old type, and then sell the carbon credits to the developed Kyoto countries for the upgrade to the actual clean technology, getting a nice cheque in the process.

This will be an interesting project to track as it progresses as to who gets involved. The other advantage of a coal plant is a lot more of the cost is spent with internal building contractors compared to a small General Electric gas turbine power station.

Note that Oman does not have any significant coal resources. It'll all have to be imported.

Arabia News Reuters

Oman turns to coal for power
Muscat: Mon, 18 Aug 2008

Oman plans to build coal-fired power plants to beat a shortage of gas to fuel future projects for economic diversification, an Oil and Gas Ministry official said on Monday.

The Gulf is the world's biggest oil exporting region, but has been slow to develop massive gas reserves. Rapid economic growth has absorbed fuel supplies and left all the countries in the region except Qatar short of gas.

"It makes a lot of sense to build coal-fired power plants as an alternative to gas since we don't have enough gas to fuel all of our future projects," Zaid Al Siyabi, director general of exploration at the ministry, told Reuters.

"This is the future. Coal is cheaper to import and at the same time we can use our gas for other purposes like the export of LNG," he added.

Faced with spiralling power demand, regional governments are considering alternatives to gas to generate electricity, such as nuclear and coal plants. Oman's neighbour the United Arab Emirates became the first Gulf country to move ahead with plans for a coal plant last month.

Oman exports nearly 10 million tons of liquefied natural gas (LNG) per year from four trains, but has struggled to meet its LNG contract commitments as domestic demand rises. LNG is gas chilled to liquid form for export on specially-designed tankers.

Oman wants foreign investors to build its first 1,000 megawatt coal-fired plants at Duqm, where the sultanate is developing an industrial zone. - Reuters

Of course, Oman has chosen to also use its gas for other purposes than LNG as well, like the subsidised aluminum smelter and the methanol plants. The gas for these projects, my sources tell me, has been sold at much, much lower prices than the equivalent cost of importing coal for power, the price of imported gas, or than is paid for the LNG exports.

And I wonder who is going to pay for the expensive (compared to current power prices)power from the coal fired station?

The Economist has a nice article giving a pretty balanced view on coal. At international prices, coal - even after recent price rises - is the cheapest way to generate electricity per BTU, but the capital costs make it a finely balanced proposition. And its also by far the most polluting way, even with updated designs of standard plant. And worryingly, coal supply is getting pretty tight, not because of resources, but because we're currently digging it up about as fast as we can with current infrastructure.
Apparently even China is now a net importer of coal, despite being the world's largest producer. The big proven reserves of the stuff are in Australia, China, Russia, and the largest in USA (ironically enough). (actually, if you're willing to pay a lot for the plant, the most green friendly coal solution is to first the gassify the coal and then use a hydrogen gas turbine to generate electricity. The advantage of this design is not only is it clean, but you get a relatively pure CO2 source for sequestration, which is very expensive in a standard plant because most of the flue gas is Nitrogen. But I suspect its waaaay to expensive for Oman...).

And for these reasons not everyone thinks coal is a good idea.
Building more coal-fired power plants: big mistake

Environmental expert explains why investors and power companies getting fired up for coal growth will get burned financially
By Tobin Hack

The coal industry may be a ticking time bomb for energy investors, power companies, and taxpayers, says a new report entitled “Don’t Get Burned: The Risks of Investing in New Coal-Fired Generating Facilities.” Prepared for the Interfaith Center on Corporate Responsibility, an international coalition of 275 faith-based institutional investors, by Synapse Energy Economics, Inc, the report warns against Bush’s proposal to grant $8 billion in subsidies to coal, and opposes the roughly 130 new US coal-fired power plants slated for construction over the next two decades. Michael Dworkin, director of University of Vermont Law School’s Institute for Energy and the Environment, wrote a foreword for the report. Dworkin helped present the report to security generals, investors, and members of the media in New York this February at a briefing for the New York Society of Security Analysts. Plenty caught up with him, to discuss coal’s potentially bleak horizons.

What risks does coal-industry growth pose for American taxpayers?

There are two, maybe three kinds of risk here. One is that there will be a lot of money lost. Another is that there will be significant harm to the climate because of carbon emissions. A third is that other environmental harms will result from increased coal combustion. That includes mercury, asthma, tuberculosis, and other problems associated with lung diseases. Most high carbon coals have a lot of mercury within them, so when it’s burned, the mercury is released in the atmosphere. In fact, the major source of mercury in the air is the combustion of coal for fossil-fired plants.

Is carbon regulation the main reason the report calls coal a risky investment from here on out?

Carbon regulation is the biggest and most obvious factor, but not the only one. The rising costs of plant construction and coal transportation are also a major factor: New cost estimates are far higher than the old cost estimates. Coal-fired power plants were expected to cost approximately $1 billion apiece to build, but the big ones are costing closer to $3 billion apiece. Early cost estimates looked at what would happen if each plant was built by itself, but if we build dozens at a time, the competition for engineers and steel and concrete becomes very acute. So there’s major international competition going on.

In terms of fuel price, a lot of these plants are being built because people estimated that the price of coal would be relatively low for years to come, but coal prices today are about twice what they were two years ago. And US coal is now being sold overseas—put on ships and taken to markets that really need it and are willing to bid a higher price than we’ve been used to seeing. That’s a problem especially because when analysts predict that these plants are cost-effective, they’re assuming 30-50 years to pay off the bonds raised to construct them. In other words, the plants only make sense if you think that the fuel will be accessible for the next 40-50 years.
...

Omans largest 2 gas fields dry - according to the MOG?

A really funny story hit the streets today, in both English and Arabic papers: There is no cooking gas in the country. Why? Well, that’s a great question, one the mostly harmless Oman Tribune at least had the balls to ask.

Cooking gas shortage hits local markets

MUSCAT Local markets have been hit by severe gas shortage. The shortage is telling upon the domestic as well as commercial consumers.

Many residents could not get an LPG cylinder when they needed one and had to depend on food from restaurants.

The situation became worse at some restaurants which incurred losses as they could not get LPG cylinder for cooking food.

Wow! That IS a problem. So, why I say, why?

(The actual answer, by the way, is that huge quantities of cooking gas are being smuggled across the border to the UAE, where it's around 8 rials a cylinder, as compared to here where it's just 3 rials (a standard economic effect of subsidy in one country, and demand in another). How one manages to slip 1000s of large steel pressurized cylinders full of highly combustible gas past Oman’s finest customs agents is a question The Tribune couldn’t be bothered to ask, naturally. But read ON!

The authorities said that there was no shortage of cooking gas in the local markets, adding that gas cylinders were available in abundance.

Interestingly, the officials at gas companies admitted to shortage of cooking gas, saying that large quantities of cooking gas were being exported to other countries at higher prices and this had resulted in domestic shortage.

So, there are lots of cylinders, according to the Authorities (empty ones, perhaps?). But wait, one underling from the MOG (not that that was very clear in the report), dared to tell it how it really is. One Mr. Saif Al Salmani, was reported as seeming to think it was, in fact, because Oman's 2 largest gas fields Yibal [mistranslated as Al Jebal] and Saih Rawl [mistranslated as Saih Roul] have run dry. LMAOFOFL. Oh my God!!!! The story continued.

On the other hand, Saif Al Salmani, general manager of petroleum industries, said that cooking gas was available in large quantities and assured the consumers that the shortage was due to Al Jabel Oil Field in Saih Roul turning dry, but the shortage was compensated by the gas produced from the refinery, he added.

Lets face it folks, if those 2 fields have run dry, Oman has got waaaaaay bigger problems than having to use charcoal for a while. That would have been a great scoop for the reporter, if he actually had a few brain cells.

‘Why, really Mr Al Salmani, the 2 largest gas fields in Oman are turning dry! What do the electricity companies who use Yibal gas to power the whole Muscat coast say? When is my air-conditioning going to stop? Oh, and what about the LNG plants that rely on the mighty Saih Rawl? And the export dollars? And the Sohar industries? What will the Majalis ask of the Minister????'

Unfortunately, its not true. The fields are full of gas, in fact, they have (and I’ll use a technical terms here I heard from one of my sources close to the operator) "shit-loads of the stuff". But what do I or they know, compared to an official from the MOG and the great journalistic talent of the Trib (come on down and collect your accolades, reporter of the year …. Mr. Said Al Nabhani)?

I’m still laughing, the report was sooooo funny. I know, its sad that unscrupulous people are flogging all our cooking gas to the UAE to make a buck, but the real stories are so obvious, and yet totally uncommented upon.:
1/ how are gas cylinders getting smuggled out?
2/ why are domestic gas supplies being subsidized?
3/ Are our 2 largest strategic gas fields really running out?
4/ What is the Government proposing to actually do about points 1-3 above?

Oman's press, you gotta love em!

Its now official - Oman importing gas from Qatar

It was finally announced yesterday by HE Dr Mohammed Bin Hamad Al Rumhy, Minister for Oil and Gas, that Oman would start gas imports from the Dolphin project in June, at a rate of 200 million standard cubic feet a day (around 5.6 million m3 per day). Tribune interview

The minister told Oman Tribune on the sidelines of a PDO function on Sunday that gas supplies to the Sultanate from Qatar under the Dolphin project could begin as early as May or June.

Gas through the pipeline will flow at the rate of 200 million standard cubic feet a day.

“We are working on a compressor station in Al Buraimi and as soon as that is finished, gas will flow and we hope it will be around May-June,” he said.

I tipped you off to this in February BTW Muscat Confidential archive.

Oman produces around 60 million m3 per day from its own fields, so this represents about 9% of gas supply volumes. Now, why is Oman importing gas from Qatar?

France's Total and Occidental Petroleum of the United States each hold a 24.5 percent stake in Dolphin, with the remaining 51 percent held by the Abu Dhabi-owned Mubadala Development Co.

(see the full article in the brilliant bastion of incisive journalism that is The Times of Oman Dolphin Gas article

So, as promised, the reason for the import of gas into a country that seemed to have lots of its own.

The key piece of info is to be found in the ownership of the Dophin project, which is now importing into the UAE around 3.5 billion cubic feet (99 million cubic metres) of gas per day from its concessions in the giant Qatar gas field. A couple of years ago, the Oman Government transferred the operations for developing the giant Mukhasina oil field away from Petroleum Development Oman to Occidental and Mubadala. The oil field is apparently a very heavy oil, and getting the most out of it means injecting steam to heat the oil. Now to generate that steam, you need to burn gas. Lots of gas. This is reason why the MOG awarded the field to Oxy – not because PDO couldn't do the job, but because Oxy promised that in return for getting the oil field they would provide the gas from their Dolphin project. I still haven't been able to find out the effective price Oman is paying for that imported gas.

As Oman is already facing more gas demand in future than they have in current reserves, this was a deal that Oman could not resist. It also helped justify the sale of gas to the Sohar and Salalah industries at give away prices (equivalent to just $5 per barrel oil price), which is why its attractive to refine Aluminum in Oman even though Oman doesn’t have any domestic bauxite aluminum ore).

The deal worked well in other ways. The cost of building the pipeline between UAE and Oman was effectively paid by supplying UAE with gas from Oman for a couple of years (around 125 million ft3/d) to help start-up the UAE gas-fired power stations before the Dolphin gas would arrive. Oman knew that the pipe flow could then be reversed later to enable Oman to import gas from Qatar indirectly.

My sources tell me the Occidental Mukhasina project is not exactly going to plan though. They are behind schedule, not producing as much oil as they promised, costs are rising, and even worse, around 27 of their new wells were totally damaged by injecting so much steam that they exceeded the maximum design temperature of the steel parts inside the wells, which then collapsed. My sources said this was done on the instructions of Oxy senior management in an attempt to try and meet their production targets, even though their engineers warned them of the risk.

So, thats the deal. Oman effectively gave a piece of the Mukhaisna oil field to Occidental and the Abu Ghabi Government, in order to have spare gas to sell at a huge discount to the Gas based industries. It would be interesting for the Majlis Al Shura committee to investigate the economics of all this, tying together the gas impriots, the Mukhasina deal, and the gas contracts to Sohar.

I'm sure its a great deal for Oman (for why else would it be done?), but it would sure be nice for the Government to be able to demonstrate that to an independent committee of the peoples representatives, wouldn't it?

Oman short of Gas?

Everyone thinks so, but why then has Oman given away its gas?

It is common knowledge in the Sultanate and the region that Oman is ‘short of gas’. Given that Oman has always had relatively limited gas resources, this isn’t too surprising. Right now, for example, Oman is running its LNG refineries well under capacity, despite good LNG spot markets, because they do not have enough gas.

The actions from the Ministry of Oil and Gas to stimulate gas supply recently [see the article below] are designed to try to get more of the marginal gas out of ground without risking the Government’s money to do so, because these gas fields are neither easy nor cheap to produce. I think it’s a great idea to get External Oil Companies, like BG and BP, to risk their money to produce these gas fields and allow the Government to avoid any risk. However, to do that, they have to allow the companies to make a profit if it works, and it’s likely the price will have to be more than $2/mscf.

But, what has made matters worse for Oman are the deals done over the past few years by the Ministries of Commerce and Economy to create the ‘gas based industries’ in Salalah and Sohar. To get these projects off the ground they have commited to sell gas at incredibly cheap prices, often not even allowing for inflation. To put it into context, a gas price of $0.85/Mscf – the value apparently a lot of the Sohar industries got - is equivalent to an oil price of just $5/barrel.

$5 a barrel. No wonder it makes sense to ship Aluminum Oxide in from India, turn it into Aluminum, and ship it out. And often that price has been fixed. No link to oil price. Not even inflation. Wow. What a deal.

This is gas that the country could have sold elsewhere [as LNG] for much higher returns, or could have used in a few years time to produce electricity or desalinate water. Or used right now to make cement. And it is also going to cost Oman a lot more than $0.85 per Mscf to produce gas from these marginal fields.

OK, the Oman economy needs industry to make jobs for Omanis, and to sell things other than just hydrocarbons. The Sohar developments are stimulating a whole region of the country. So maybe it is worthwhile to spend some of the large amounts of money Oman is making on the LNG by subsidising the Sohar industries with below cost gas. Not that that argument is made explicit to the people.

Still, it would be interesting to know who the shareholders are that are benefiting from this give-away price of gas, wouldn’t it? More on that to come folks…
Next post: A primer on Omani Corruption.

The Undercover Dragon


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Report: WoodMackenzie Middle East Report Upstream Insights – October 2007

Oman considers its gas options.
The Omani Ministry of Oil and Gas is considering how to best promote gas exploration and development in its onshore acreage, and help address its looming gas deficit. It is considering plans to offer at least five more blocks for exploration and appraisal by international operators, following the success of similar awards to BG and BP in 2006. If the plans are implemented, successful bidders will have the right to explore and develop some of Oman’s most gas-prospective acreage, under Exploration and Production Sharing Contracts.

Until recently, PDO was wholly responsible for exploring, producing and supplying gas on behalf of the government. In 2006, major gas fields discovered by PDO – Abu Butabul and Khazzan-Makarem - were awarded to BG and BP. This new licensing initiative is still in the planning stage but it is considered that new partners will re-vitalise gas exploration and development, and support PDO’s efforts to address the country’s gas shortfall. It would also allow PDO to focus on implementing its many conventional and enhanced oil recovery projects, to stem the decline in Oman’s oil production. Although the block areas have yet to be defined, the opportunity to explore and develop gas resources in some of Oman’s more prospective areas would attract the attention of many international companies.

Most of the areas on offer have been extensively studied by PDO, which has been successfully exploiting gas resources in Oman since the late 1970s. PDO’s efforts have intensified since 2001, when it embarked on a five year gas exploration programme. A significant volume of reserves were added, following a strategy which focused on the most promising targets and by implication, current and future prospects are likely to be more subtle and potentially lower reservoir quality.

Given the technical challenges, the fiscal terms and pricing policy on offer will need to offer the prospect of commercial projects. This will only be achieved if producers can sell the gas to the government at a price considerably above historical levels. There is no gas price benchmark in Oman, although prices have been underpinned by gas sales agreements signed with major industrial projects in the early 2000s. Gas was sold on long term contracts for approximately US$0.85/mcf.

Oman urgently requires new sources of gas, but this new initiative is unlikely to deliver significant new production before 2013. Incremental supplies from Qatar and possible imports from Iran are also unlikely before 2012.

This latest initiative may be too little too late, and in the short-term, the Sultanate will remain dependent on PDO, BP and BG to deliver gas to maintain economic growth.
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