The nature of Oman’s oil reserves means the country’s energy programme is heavily reliant on enhanced recovery techniques
All of the oil producing countries in the GCC have invested billions of dollars in new technology in recent years, with much of it being funnelled into projects to enhance exploration techniques and maximise reserves. For the most part, easily accessible oil and gas has been explorated, meaning national oil companies are having to take on more challenging projects to meet their output targets.
Enhanced oil recovery (EOR) is particularly important for Oman, which has depleted much of its ‘easier’ oil. A 2014 report published by U.S. Energy Information Administration said Oman’s average annual crude oil production peaked in 2000 at 970,000 barrels per day (bbl/d), but dropped to just 710,000 bbl/d in 2007.
Oman successfully arrested that decline, and annual crude oil production rose in each of the next five years, hitting 919,000 bbl/d in 2012. Improved enhanced oil recovery (EOR) techniques helped drive this turnaround, although the country also experienced some additional production gains as a result of recent discoveries.
After declining for several years in the early 2000s, the report said that EOR techniques have been a key driver of Oman’s rebounding oil production since 2007. At the centre of Oman’s EOR activities is Block 6, operated by Petroleum Development Oman (PDO), a joint venture majority-owned by the government of Oman that accounts for 70% of the country’s oil production. Within Block 6, there are a number of projects currently using a range of EOR techniques.
PDO expects 16% of its oil production to come from EOR projects by 2016, up from just 3% in 2012, but with the oil price on the wane, is that a realistic target any longer given the high costs of EOR projects?
“I think the effects of the falling price are starting to filter through into existing and upcoming projects.
“What you’ve had is a threshold at which point EOR projects are viable, and typically, you’re talking about where the price was in November (around the $70-$75 mark),” commented Azfar Shaukat, director, oil & gas, Mott MacDonald.
“That was when there was some divergence between the economic viability of EOR and the price of oil and what’s been happening since then is the number of new projects is being scaled back and existing projects are being shut in. You’re going to find very few projects being sanctioned over the next 12 months.”
Robin Mills, head of consulting at Manaar, concurs. “EOR projects are high cost projects, although whether or not they are shelved or cancelled depends very much on which stage they are at,” he said.
“A lot of what happens depends on what the oil price does; if it sticks around the $45 mark, then a lot of these types of projects become hard to justify. I think projects could fall to the wayside if prices stayed where they are in the medium-term, unless companies find areas where they can make big cost savings. They probably can do that if they speak to suppliers, but I imagine they’d be suspended in the immediate term-term. I would say that some of the more advanced EOR projects are vulnerable when the price of crude is where it is currently.”
With gas injection EOR for onshore projects is a viable method at around $70-$80 per barrel (chemical EOR is viable at a slightly higher level), PDO will come under pressure to cut costs and prioritise projects – a prospect some may find unattractive but ultimately unavoidable.
“PDO is majority owned by the state, with Shell having a share. The government is going to want PDO to maximise production at the oil price that exists. Shell might try to push back on that and there may well be projects they would rather not do in the current circumstances, but ultimately it is a minority shareholder and Oman is a very important part of it portfolio, so it has to listen to the government’s wishes to a certain extent,” says Mills.
“There is actually a pressure to keep production as high as possible; they are not a member of OPEC, so what they can try to do is produce as much oil as possible. The projects might not seems as economically attractive as they once were, but there is pressure from the government to maximise earnings and cuts costs.”
“Investment in new technology will also continue, and will actually find themselves sunder less scrutiny than projects, believes Shaukat. I think that over the course of the next 12-18 months, there will continue to be investment in new technology, because they want to keep those programmes and reduce the cost of production.
“I believe that the price is going to stat between $40 and $55 this year, and I think that at that level, we will see some EOR projects cancelled in the summer, but it’s not going to have the same effect in research and development, and technology.”
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Project focus
Project: Oman Khazzan Gas Project – Central Processing Facility
Client: BP Exploration/Government of Oman
EPC contractor: Petrofac International/Contractors International Company
Value: $12bn
Status: Execution
Project: Oman Khazzan Gas Project – Central Processing Facility
Client: BP Exploration/Government of Oman
EPC contractor: Petrofac International/Contractors International Company
Value: $12bn
Status: Execution
Project: Rabab-Harweel Field Development
Client: PDO
Consultant: Petrofac International/WorleyParsons Engineering LLC
EPC contractor: Al Hassan Engineering
Value: $11bn
Status: Execution
EOR techniques
There are a number of different types of enhanced oil recovery to maximise reserves
Gas injection
Miscible gas injection involves injecting a gas into the reservoir into which crude oil can dissolve, making it easier to move through the rock and out of production wells.
Thermal
Thermal extraction works on the basis of heating the heavy, thick oil to make it lighter and less viscous, making it easier to move and extract.
Chemical
Chemical EOR uses polymers as a thickening agent in water, making it more viscous, and injecting the resulting liquid into the reservoir to push out heavy crude oil.
Solar
Originally launched as a pilot project between PDO and GlassPoint Solar, the system delivers steam to EOR operations without producing damaging emissions. It deploys mirrors rather than solar tubes to concentrate the sun’s rays on water tubes.
Source: U.S. Energy Information Administration
