Sultanate buoyant despite downturn

Over 1,600 Omanis working in the country’s oil and gas industry have lost their jobs in recent months, according to reports, fuelling trade unions to threaten a strike on Oman’s National Day on November 18.

Although the strike was later called off after the aggrieved parties said they received ‘substantial assurances’ from negotiators, the government has acknowledged that the industry is in trouble, when a ministerial committee, tasked with finding a solution to the mass layoffs, suggested that companies first lay off expatriate workers.

The Central Bank of Oman also recently cautioned that the main challenge faced by the country under the current fiscal turmoil (the country’s budgetary deficit is estimated to widen by up to 15% of its GDP in 2015) is to avoid any slowdown in economic growth and diversification, along with the need to increase employment opportunities.

Despite these hardships, Oman has proved to be resilient. “Oman has shown a great deal of resilience in the past particularly between 2000 and 2007, when production fell by more than 26%,” Ryan McPherson, general manager – Middle East of ProSep, which works with state oil giant Petroleum Development Oman (PDO), said in retrospect. “Earlier this year oil production increased to record levels, exceeding 1mn bpd (barrels per day). This achievement is quite remarkable and is a real example of how production can be maximised by embracing new technologies.”

Moreover, the government has maintained that it has not been deterred by the financial perils caused by the declining oil prices and has revealed that it will press ahead with investments in drilling and exploration in the oil and gas sector by launching new strategic projects.

In an interview to a local Arabic daily, Mohammed bin Hamad Al Rumhy, Oman’s Minister of Oil and Gas, said his ministry was implementing important projects in cooperation with oil majors operating in the Sultanate ‘to add value to projects, which was aimed at boosting employment and training’.

He expressed confidence that the country’s oil reserves were sufficient to continue production for ‘several more decades’, with the present extraction being just 7% of the total reserves.

The Omani government was expected to spend over a billion dollars for oil and gas exploration in 2015, although another estimate says the actual expected spending on government projects to develop and expand gas facilities and utilities by the end of 2015 stood at about $5.61bn.

Al Rumhy also pointed out that the ministry has invested in many development and infrastructure projects.

Oil and gas projects galore

Indeed, the Sultanate has announced/started numerous projects in 2015, with PDO leading the way. The state-owned oil major, apart from its pioneering Miraah thermal enhanced oil recovery (EOR) project in southern Oman with GlassPoint Solar, has also announced four successful EOR field development projects in Marmul, Qarn Alam, Amal West and Harweel.

PDO plans to invest up to $40bn in EOR projects by 2018-19 to increase its production from around 570,000bpd to 600,000bpd.

The state-owned Oman Oil Company Exploration & Production (OOCEP) also plans to invest up to $4bn over the next five years to boost output. “For us, low oil prices are an opportunity. We have ambitions internationally to acquire companies and enter joint ventures,” COO Suleiman al-Zakwani told reporters at a petroleum technology conference in Doha in December.

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“We plan to spend between $2-4bn,” he said, adding that OOCEP was looking at opportunities in the Middle East, South Asia and mainland Europe, and would be raising its own funds for expansion from the first quarter of next year.

Zakwani did not give a precise time frame for the investment drive but said it was part of an effort to reach production of 200,000bpd by 2020. OOCEP’s projected oil production for 2016 was 30,000 to 50,000bpd, he said.

As huge investment is required to drill crude oil in view of the peculiarly difficult nature of reservoirs in the country, the Omani government has been encouraging multinational firms and to undertake exploration find new reservoirs on a production sharing basis, in a move to sustain production levels.

“Public-private partnership has paid well and resulted in developing standard criteria for the in-country-value (ICV) for the oil companies tenders.The Ministry is considering implementing a number of important projects, including coordination with oil companies to implement an e-system for reporting ICVs by oil and gas sector,” Al Ruhmy said in the interview.

An earlier local media report said the Omani government has planned to award Block 7 in central Oman ‘to an international oil company.’

This decision followed authorities awarding Block 54 to Oman Lasso Exploration and Production Karwan in September. Petrogas Kahil, the Omani subsidiary of Petrogas E&P, also announced that it will invest $40mn in exploring onshore block 55 in south-eastern Oman.

Lebanese oil company CCED also recently invested $900mn in seismic survey for Block 3 and 4, and said it aims to increase production from 33,000bpd to 50,000bpd.

Meanwhile, Masirah Oil was awarded Block 50 and the company announced it successfully reached the well target depth of over 3,000 metres in the second exploration well in block. ‘Hydrocarbons were discovered in several formations with good oil sample extracted’, a company statement said.

However, the only setback to Oman in its block awarding programme may have come in April 2015, when “Block 41 was relinquished by Total, as the company could not justify continuing operations after studying the block in depth. The ministry (of Oil & Gas) is reviewing the marketing strategy for open blocks where exploration activities were not successful in the past. This could include executing data-gathering programmes before pushing blocks back on the market,” Sudhakar R Rao, managing director of Dubai-based trading enterprise Gemini Energy, told Oil & Gas Middle East.

Meanwhile, Oman’s National Centre for Statistics and Information in a report said the Sultanate’s spending on oil and gas production increased by 23.2% and (a whopping) 95.2% respectively, in an apparent indication that the nation is now emphasising on boosting gas production, more than oil.

“Cost of production of gas is cheaper when compared to production of oil in the Sultanate of Oman,” Rao said he believes.

As a result, the number of gas projects announced in 2015, outweighed those focussed on oil exploration and drilling.

PDO has awarded an engineering procurement and construction (EPC) contract to the Spanish joint venture of OHL Industrial and engineering group SENER for modernisation of the Saih Nihayda Gas Plant and the Saih Rawl Central Processing Plant. It also awarded Petrofac a $900mn EPC contract to develop the Yibal Khuff gas field.

Earlier in the year, BP Oman entered into an Exploration and Production Sharing Agreement (ESPA) with OOCEP to explore the commercial viability of the deep tight gas reservoirs in the Khazazan project in northern Oman’s Block 61.

The proposed facilities include development of the greenfield tight gas project, a 1,200mn standard cubic feet of gas per day (mmscfd) processing plant, export pipelines, provision of 300 to 400 wells, 600km of flow lines and gathering systems over the life of the project.

OOCEP has also opened a $1.3bn tight gas processing plant at the Abu Tubul field in Oman. Zakwani said OOCEP’s gas production in 2015 would fall short of a target of 70mmscfd, but the company had not slowed down any of its major projects, ‘at least one of which was running at a loss’.

Oman too is pressing ahead with its sour gas production and has two major sour gas processing projects. One is at Yibal Khuff Sudair and is a deep oil and associated sour gas deposit beneath an existing field, with an H2S content of 3%.

Being developed by PDO approximately 350km southwest of Muscat, the 85,000 t/a sulphur recovery plant is due for completion this year, and commissioning of the gas project is expected in 2019. PDO has also awarded Petrofac the EPC contract for Yibal Khuff.

Oman’s other major sour gas project is the Rabab Harweel Integrated Project, one of the world’s largest miscible sour gas injection projects, for which PDO won the ‘Best Oil and Gas Mega Project’ award at ADIPEC 2015.

The project in southern Oman is being developed jointly by PDO and Occidental, and is expected to produce 173mcf per day of gas containing about 4% of H2S, by 2019.

The way forward

Oman has also planned several ambitious oil and gas projects in 2016. Significant among them is the $6bn-worth Duqm Oil Refinery development project, which is being developed by the Duqm Refinery and Petrochemical Industries Company, a 50:50 joint venture of Oman Oil and Abu Dhabi’s International Petroleum Investment Company (IPIC).

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In March 2015, Amec Foster Wheeler was awarded the Front-End Engineering Design (FEED) contract for the project.

The first phase will see the development of a 230,000bpd grassroots merchant export refinery within the Duqm Special Economic Zone (SEZ). Designed as a full conversion refinery, the plant will use delayed coking technology for bottom-of-the-barrel processing. The second phase is being planned as an associated petrochemical complex.

Despite the low oil prices, Oman’s oil exports reached 232.5mn barrels during the first nine months of 2015, with annual increase of 5.7%, according to NSCI data.

Exports comprised 87.1% of the total output, compared with 85% for the same period last year. China still ranked at the top of the Omani crude oil-importing countries with a 79.9% stake during 9M 2015.

The Sultanate has also leveraged its working relationship with Iran to strike a considerably important LNG deal.

The two countries are expected to soon sign a formal agreement to pump natural gas to Oman to liquefy it and then export it to international markets, mainly in Europe and Asia, while a portion of these supplies would also be used to meet the growing demand for gas in the Sultanate.

According to the MoU which Oman and Iran’s energy ministers signed in 2012, the two countries agreed to build a 200km pipeline underwater gas pipeline across the Arabian Gulf, to transfer gas from Iran’s Kish field to Oman.

As part of the first phase of the project, Iran will export 1mn cubic feet of gas to the Sultanate, and plans to eventually raise it to 3bn cubic feet per day.

On the domestic front, and as another sign of the Omani government’s grit to battle the tumultuous economic situation, authorities have insisted that the Sultanate will not remove subsidies on fuel, including petrol and diesel, which are estimated to have cost the exchequer $2.34bn in 2015, compared to $2.18bn in 2014.

As a populist measure, Darwish Bin Ismail Al Beloushi, Minister Responsible for Financial Affairs, while asserting that the government had no plans to repeal its fuel subsidies policy, recently told the Shura Council (parliament) ‘that living standards of citizens were guaranteed’.

“Oman still is, and will continue to be, a key player in the Middle East,” McPherson said. “Operators globally are working a process to maximise their current reserves, and in Oman operators will need to look at reducing OPEX to ensure they are recovering reserves in an efficient and cost effective manner.”

Companies have started taking heed of the need to cut down on expenses and adopt technology for operations. Separate to spending on acquisitions, Zakwani said OOCEP has planned to cut capital expenditure in 2016 by 10% and operating expenses by 20%, against a backdrop of lower crude prices.

Contractors and service providers seem to have a bullish outlook of Oman’s oil and gas sector. UK-based software services firm PetroTechnics says ‘Proscient’, its latest flagship product for the upstream, midstream and downstream segments, has garnered strong interest from clients in Oman.

“We will be continuing to work with our major customer in Oman who will be continuing to deploy Proscient across their assets in 2016. They will also be looking to potentially bring on new capabilities within Proscient to visualise and manage operational risk and expand their use of mobility in their operations. We are also working on a number of other opportunities to help other customers make better operational decisions with Proscient’s new way to visualise and manage risk and activity,” Stuart Douglas, Regional Manager – Middle East, PetroTechnics, said.

Gemini Energy, which has been trading in Oman for 15 years with majors such as PDO, Oman Oil and Occidental, is also diversifying into selling IT products. Gemini has recently signed a 5-year deal with the Oman Oil Refineries and Petroleum Industries Company (ORPIC) to sell energy sector-related software products by its client, the US software major EMc2.

“Our overall operations in Oman remain strong and we see a very promising future for the country’s energy sector,” Rao of Gemini Energy said. “The Sultanate of Oman is the second largest country in the Middle East (in terms of geographical area) and its importance in the oil and gas sector cannot be undermined today or in near future.”