Almost 50 years after the sultanate began shipping oil out of the port at Mina Al Fahal, the country’s economy remains closely tied to the fortunes of hydrocarbons. In 2015 oil and gas together accounted for 33.9% of GDP, 78.7% of government revenues and 59.4% of merchandise exports, according to the Central Bank of Oman.
Positive developments in production have been unable to fully counteract the fall in prices since 2014. The average price of a barrel of Omani crude dropped by 45% from $103 in 2014 to $56 in 2015. In the first nine months of 2016 the average price in international markets fell 36% to $38.30 per barrel, down from $59.80 a barrel during the same period in 2014, according to data from the National Centre for Statistics and Information (NCSI). A 3.2% increase in year-on-year (y-o-y) crude oil production in the first half of 2016 did little to offset the decline in government oil revenues, which slumped by 47.7% y-o-y to OR1.49bn ($3.9bn) over the January-July 2016 period.
The drop in prices has placed pressure on Oman’s overall fiscal balance, resulting in a budget deficit of OR4.5bn ($11.7bn) in 2015, and creating a ripple effect along the entire oil and gas value chain. The oilfield service and equipment industry has been hit particularly hard by the shift in operator focus from volume to value, and cost-cutting initiatives have had a major impact on the bottom line of many market players, forcing companies to significantly reduce their cost base, including their workforce.
A sustained period of low oil prices will likely bring continued cutbacks in public expenditure as the government works towards fiscal consolidation and initiatives to broaden state revenues are expected pick up pace in response. Indeed, Oman’s ninth five-year plan, ratified in early 2016, aims to reduce the contribution of oil to GDP to 26% by 2020. However, with rising production levels, a growing value-added petrochemicals sector reliant on liquefied petroleum gas (LPG) and natural gas liquids, alongside the presence of additional potential resources, all indications point to the continued dominance of hydrocarbons in the Omani economy for the short term.
The Ministry of Oil and Gas (MOG) coordinates the government’s role in the hydrocarbons sector pursuant to the framework outlined in the Oil and Gas Law (Royal Decree 8/2011). The government directly and indirectly has stakes in several major oil-producing firms in the country, including 60% ownership of Petroleum Development Oman (PDO), which holds most of Oman’s oil reserves and is responsible for around 70% of its crude oil production. Gas fields and processing plants are operated by PDO exclusively on behalf of the government. Oman Oil Company (OOC) is responsible for energy investments both inside and outside Oman, and is fully owned by the government. Oman Oil Refineries and Petroleum Industries Company (ORPIC), which is jointly owned by the government and OOC, controls the refining sector and owns both of Oman’s operating refineries.
Government investment in developing the oil and gas sector hit $11.4bn in 2015, with $8.2bn earmarked for oil and $3.2bn committed to gas fields. The government reduced its budgeted expenditure in the oil sector by $1.3bn over the year, aided by gains in efficiency. According to the MOG, Oman had 5.37bn barrels of oil and condensate reserves in January 2016, the seventh-largest total in the Middle East and the 22nd biggest globally. PDO’s reserves were an estimated 3.49bn barrels, 65% of the total.
In view of the capital-intensive extraction techniques associated with the particular nature of reservoirs in Oman, the government encourages international oil companies (IOCs) to use exploration and production-sharing agreements (EPSAs) to more equitably distribute risk. It enlists foreign companies in new exploration and production (E&P) projects, offering generous terms for developing fields that require sophisticated technology and expertise. Given the technical difficulties involved in oil production, the contract terms for IOCs have become more favourable in Oman than in other countries in the region, according to the US Energy Information Administration, with some allowing significant equity stakes in projects. The MOG is responsible for establishing these agreements with oil and gas companies, as well as developing and implementing policies to ensure optimum utilisation.
Asked whether the recent slump in oil prices is affecting investment by multinational firms in Oman, Salim bin Nasser Al Aufi, undersecretary at the MOG, told the Times of Oman, “We have to be smart in negotiation. We need to recognise that companies will be using lower oil production forecasts when they bid and to be smart enough to accept it today. Also, we have to introduce mechanisms in such a way that we gain from the deal when oil prices go up.”
Companies, in turn, are adapting to the new low-price environment by creating strategies to remain profitable and competitive. Galvanised by the fall in oil revenues, Oman’s top energy producers have launched numerous far-reaching cost-cutting and waste-elimination plans. At PDO, for example, almost 300 efficiency or productivity improvement ideas are estimated by the company to be worth $450m in savings between 2015 and 2020. Through the implementation of smart contracts – whereby the prices of materials are renegotiated every six months – PDO’s well engineering and logistics Directorate is eyeing savings of $53m in 2016 alone.
It is not just operators that are working to rein in expenditure. Across the spectrum of oil services, everyone is looking at efficiencies. “Our customers are taking a hard look at the complete supply chain and business delivery model, but we are as well,” Nevine Mehrez, director of business development at oilfield services provider Halliburton Worldwide, told OBG. “We are consistently striving to do more with less and have been seeing success.”
Ali Al Yahyaai, country manager for US-based drilling technology firm Drilformance, told OBG, “During challenging times, oil and gas firms have no choice but to become as efficient as possible to remain competitive. Keeping costs low and diversifying services is essential to staying in business.”
The efficiency drive in oil and gas coincides with a government scheme aimed at broadening the sector’s contribution to the national economy. Originating with the In-Country Value (ICV) Blueprint Strategy, the scheme was unveiled in late 2013 as a way to benefit business development, contribute to human capability development and stimulate productivity in the local economy.
The ICV strategy aims to position Omani services companies in the national market to give them preference for projects. This includes localising the development of drilling rigs, reshoring engineering and engineering management services, and the sourcing of construction materials and equipment.
At the implementation level, ICV is based on three pillars: Omanisation, domestic production, and sourcing services from small and medium-sized enterprises (SMEs). While perceived as important tools for levelling the playing field for SMEs in the oil and gas sector, the implementation of ICV and Omanisation policies is not without its challenges in the current environment. “The ICV policies have been successful in shifting work towards Omani companies,” Al Yahyaai told OBG. “But these types of policies require constant adjustment to make sure they continue to have their intended effect on the country’s development.”
For companies that do not operate in-house training programmes, it can be difficult to find Omanis with the technical skills required for certain roles. Where there are too few Omanis to reach Omanisation targets, some companies have little option but to move elements of their operations to the UAE in order to continue to do business in Oman.
The government aims to keep production near its current level for at least the next five years by continuing to apply enhanced oil recovery (EOR) techniques and associated cost management activities. “Planned projects are moving forward despite the decline in global oil prices,” Saleh Ali Al Anboori, director-general of planning and studies at the MOG, told OBG. “There have been no significant changes to rig fleets, and we are maintaining a plateau of production.”
Prevailing logic within the MOG is that as prices have gone down, volume and efficiency must go up. These efforts bore fruit in 2015 in an increase of 4% in crude oil production over 2014, which works out to 981,100 barrels per day (bpd) produced from 217 oilfields. Volumes continued to rise through the first quarter of 2016, with production reaching 998,500 bpd and crossing the 1m bpd mark in January, according to the MOG. Reflected in this increase are y-o-y production gains for Oman’s top operators, including PDO, with an increase of 18,400 bpd over 2014; Oxy Oman, the local arm of Occidental Petroleum, with a 5000-bpd gain; CC Energy, with a rise of 7000-bpd; and Daleel, up 2700bpd.
According to figures from the MOG, 16 companies were operating a total of 27 oil and gas E&P concession blocks across Oman in 2015, which is up significantly from the year 2000, when four companies were involved and PDO accounted for around 95% of production. Despite the increased market share claimed by IOCs, including Occidental Petroleum, Shell, Total, Partex, BP, CNPC, KoGas and Repsol, PDO has retained its position as the leading E&P firm by a wide margin, with a concession area that covers around one-third of the sultanate and oil production of around 588,900 bpd in 2015.
PDO has responded to the current low-price environment by focusing on new technologies to maximise recovery from conventional oil and gas fields. It has also sought competitive new sources of funding to reduce reliance on the government and allow for the redeployment of resources to other areas of the economy. Acting on behalf of the sultanate, as part of a plan to invest more than $20bn over the next five years to sustain long-term hydrocarbons output, PDO succeeded in raising $4bn from a syndicate of international financial institutions in June 2016.
It reportedly intends to use the financing to support ongoing activities, including the construction of major new oil and gas facilities. Examples include the Radab Khaweel Integrated Project, which is PDO’s largest capital project and aims to enable the development of 240m barrels of oil and 100m barrels of condensate when production starts in 2019. The project is currently at the stage of detailed engineering and construction contract outsourcing.
Oil exploration companies in the sultanate drilled 39 exploration wells in 2015, producing promising initial findings. According to the MOG, PDO was most active in exploration over this period, drilling 22 wells and reporting significant discoveries in Sadad North, where the company booked around 45m barrels of commercial contingent resources. Exploration activities by the company have added 109m barrels of stock tank oil initially in place. Oxy Oman also drilled six exploration wells in 2015, and CC Energy drilled four.
With lower output per well and less-accessible reservoirs than its GCC peers, Oman relies heavily on extraction technologies to unlock additional value from mature or declining fields, a niche in which it is a leader in the region. EOR techniques, including steam injection and miscible injection, remain the key driver of the country’s oil production growth and the principal reason why the sultanate’s annual total oil production has risen every year since 2007.
PDO, in particular, has invested heavily in EOR to reverse declining output. Block 6, operated by PDO, is the centre of current EOR operations, with all four EOR techniques in use at the fields in the block: Marmul (polymer), Harweel (miscible), Qarn Alam (steam) and Amal West (solar). Pilot initiatives are also under way at the Fahud, Lekhwair, Nimr, Al Noor, Amin and Ghubar fields.
Recent work at the Nimr-C field makes a compelling case for the utility of a strategy focused on increased recovery. PDO’s pioneering water flood project at Nimr-C achieved a six-fold increase in oil production over four years, boosting output from 2800 bpd in 2010 to 17,600 bpd in 2014.
Turning To Alternatives
Solar EOR at Amal West in southern Oman is the first solar EOR project in the Middle East, completed by GlassPoint Solar in 2012 and commissioned in early 2013. It involves the production of emissions-free steam that feeds directly into the thermal EOR operations currently in existence, reducing the need to use natural gas in the recovery process.
“Oman continues to see the benefits of being relatively open to new EOR technologies, and this will pay off for years to come,” Rod MacGregor, CEO and president of GlassPoint Solar, told OBG. “Despite low oil prices, most of PDO’s wells are still profitable, and EOR techniques continue to boost efficiency and even lower costs at some of the older wells.”
GlassPoint Solar is well positioned to have benefitted from the Oman-US Free Trade Agreement (FTA), which entered into force in 2009. “The ease of doing business in Oman for US companies is significantly enhanced by the Oman-US FTA, which removed the need for local agents or 30% Omani ownership,” said MacGregor. “Legislation is currently being pursued that will reduce foreign ownership requirements across the board, and we expect this to do much to attract additional investment in the country.”
Several recent developments in onshore exploration and development are expected to affect future oil production growth in Oman. The most significant opportunity for new investment followed the announcement by the MOG to tender a cluster of four concession blocks in an October 2016 bid round, each awarded on a production-sharing basis. Despite the lower price of oil and generally challenging sector conditions, the marketing of the blocks was reported to have been well received, and officials at the MOG confirm that they have attracted considerable interest.
Recent EPSAs have also been signed with Oman Lasso Exploration and Production Karwan in Block 54, and with Hydrocarbon Finder in Block 7, both located in Al Wusta Governorate. The latter agreement, signed in January 2016, marks the transition of Hydrocarbon Finder, an independent Omani energy firm, from service provider to upstream exploration and development operator.
According to Al Anboori, the block currently produces around 900 bpd of crude from three oilfields – an output that proposals suggest could be ramped up to around 5000 bpd over the next five years. The concession had previously been operated by Petrogas. Other sector developments include the brokering of an agreement in which Thai oil and gas explorer PTTEP will sell its wholly owned subsidiary PTTEP Oman, along with control of the 1162-sq km Block 44 onshore oilfield to ARA Petroleum, established in 2014 by the Zubair Corporation to enter the E&P arena. The project has been under commercial production by PTTEP since 2007, with average output of around 19m cu feet per day of natural gas and approximately 904 bpd of condensate reported in the second quarter of 2016.
Offshore activity in Oman is expected to pick up over the medium term, particularly near Duqm. The MOG is in the process of implementing a marketing strategy for open offshore blocks to the north, where exploration has been unsuccessful historically. All offshore blocks were awarded at one point before certain companies relinquished their claims. Among this group was French oil company Total, which withdrew from its exploration concession in offshore Block 41 in April 2015 citing disappointing results.
Masirah Oil Limited (MOL) has had better luck in the offshore Block 50 concession along the eastern seaboard, where the Manarah-1 well drilled in the first quarter of 2016 confirmed the presence of a “working petroleum system”. MOL has a 76.95% ownership and operational interest in the concession under an EPSA signed with the government, and subsequently extended to March 2020.
MOL made its first oil discovery offshore Oman in the GA South well in 2014. The development marked the first offshore discovery east of Oman in roughly 30 years of exploration activity. The company is now finalising plans to drill another exploration well in Block 50 in early 2017, and is actively pursuing a farm-out campaign with the aim of attracting partners to the concession.
According to a central bank report citing MOG statistics, the sultanate’s crude oil exports in 2015 totalled 308.1m barrels. PDO products made up the highest percentage of total exports by a wide margin at 78.8%. China retained its dominant position as the top destination, buying 77% of Omani crude exports, or 237.6m barrels, in 2015. China’s share of Omani crude exports has been growing exponentially in recent years, from 45% in 2011 to 50% in 2012, 59% in 2013 and 72% in 2014. Ranked a distant second in 2015 was Taiwan, which took 27.8m barrels of Omani crude, or 9% of the total.
According to central bank figures, imports by Taiwan have been trending up of late, from 9.6m barrels in 2011 to a peak of 33.9m barrels in 2014. The increased volume exported to Taiwan has dislodged other long-time importers as key markets for the commodity, notably South Korea, Japan and India, which combined to account for 20.1m barrels, or 6.5%, of total crude exports in 2015, according to the MOG. Reuters trade flows data also indicates that imports of Omani medium sour crude blend began entering the US in April 2016 after a period of nearly three years when pricing spreads between Middle Eastern crude and other global benchmarks did not make such imports economically viable. The pivot to Omani crude by US west coast refiners, including Valero Energy, Shell and BP, reflects an increasingly competitive price against other grades that typically feed US west coast refineries.
Refineries & Distribution
Oman is not a major exporter of refined petroleum products, but there are plans to expand its refining and storage capabilities. The country currently has two operating refineries at Mina Al Fahal, Muscat and Sohar, both of which are owned by ORPIC, the sole licensed refiner and petroleum product importer-exporter in Oman. Total production of petroleum products of the two ORPIC refineries reached 86m barrels in 2015, up 4.9% on 2014, according to the MOG. Mina Al Fahal contributed 39.5m barrels and Sohar 46.5m.
Steps are under way to upgrade the Sohar facility as part of the $2.1bn Sohar Refinery Improvement Project (SRIP), one of three ORPIC-led strategic growth projects undertaken since the company’s four plants were integrated into one refinery and petrochemicals company in June 2011. Sohar’s capacity is expected to increase from 116,000 bpd to 197,000 by the end of 2016, further maximising the ICV of Omani crude and helping to meet rising local and global demand for oil and refined products.
Plans In The Pipeline
Other projects under way as part of ORPIC’s diversification and $9bn expansion plan include the Muscat-Sohar Product Pipeline (MSPP) and the Liwa Plastics Industries Complex (LPIC). The $320m MSPP will connect ORPIC’s refinery at Mina Al Fahal to the Sohar refinery via a 290-km multi-product, two-way pipeline that will pass through a distribution and storage terminal at Al Jifnain in Muscat Governorate.
The project includes a direct pipeline connection from Al Jifnain to the new Muscat International Airport. The MSPP is currently in the execution phase, and is expected to reduce costs in downstream primary logistics. First commissioning is scheduled for the second quarter of 2017 (see analysis).
Lastly, the LPIC is expected to increase the diversity of ORPIC’s production and double its profits when it comes on-line in the Sohar industrial area in 2020, according to the MOG. The project is in the engineering, procurement and construction phase, and is expected to generate significant employment opportunities while supporting the development of a downstream plastics industry in Oman. Combined, ORPIC expects its three strategic growth projects (SRIP, LPIC and MSPP) to triple the company’s asset value to around $12bn and increase profitability.
While ORPIC currently operates both of Oman’s refineries, plans are under way at Duqm to build the Sultanate’s third refinery in a joint venture between OOC and UAE-based International Petroleum Investment Company. Branded Duqm Refinery and Petrochemical Industries Company, the $6bn refinery will be located in Duqm’s special economic zone to provide 230,000 bpd of diesel, jet fuel, naphtha and LPG when it reaches full capacity in 2019.
The Sohar and Duqm projects are expected to more than double Oman’s refinery capacity, increasing production by 312,000 bpd, and the large infrastructure projects, including new refineries and pipeline connections, will markedly strengthen Oman’s standing in the downstream sector.
The state dominates both the upstream and downstream segments of Oman’s gas sector through its control of PDO, OOC and Oman Gas Company, the latter a joint venture between the MOG and OOC that directs the country’s gas transmission and distribution systems. Oman Liquefied Natural Gas (OLNG) – which is owned by a consortium including the government, Shell and Total – operates all liquefied natural gas (LNG) activities in Oman through its three liquefaction trains in Qalhat, near Sur. Under current Omani law all gas production must be sold to the government and supplied directly by the MOG to various consumers.
Government investment in the development of gas fields in Oman topped $3.2bn in 2015, according to MOG data. Total capital expenditure in the gas sector rose by $600m over 2014, primarily due to BP’s ongoing investment in the Khazzan field. PDO is the largest operator in the market, accounting for the majority of Oman’s natural gas supply.
According to the Oil & Gas Journal, total proven natural gas reserves in the country reached 688bn cu metres in January 2016, roughly 69% of which was controlled by PDO and 26% by BP. The sultanate is expected to unlock another 990bn cu metres of natural gas over the next 25 years, representing a long-term sustainable competitive feedstock for its growing petrochemicals industry.
To service growing demand from the utilities sector and industry, while also meeting the country’s export contract commitments, significant efforts are under way to develop new supplies and maintain or increase capacity from existing fields.
Preliminary figures from the NCSI indicate that domestic production and import of natural gas during the first four months of 2016 increased by 10% y-o-y. Production for 2015 rose to 39bn cu metres, reflecting a rise of 5.9% in average daily production over 2014, according to the MOG. A total of 16 exploratory wells were drilled across the country: five by PDO, six by Oxy Oman, and five by OOC Exploration and Production (OOCEP).
The potential for growth in Oman’s natural gas sector is substantial, and supported by promising developments across several new projects. In the far north of the country, OOCEP, a subsidiary of OOC, is scheduled to bring Musandam Gas Plant (MGP) on-line in 2016. When complete, MGP will process oil and sour gas from the existing Bukha field’s offshore platforms into sales-quality gas, oil, LPG and sulphur. An integrated pipeline has been supplying sweet gas from Ras Al Khaimah’s gas plant in the UAE to MGP since June 2015.
In the downstream segment, Oxy Oman, the largest independent gas producer in the sultanate, initiated production from two new gas fields in Block 62 in 2016. The Fushaigah and Maradi Huraymah fields combined contributed 7000 barrels of oil equivalent per day in the second quarter of 2016, with production expected to ramp up through 2017. A gas plant at Maradi Huraymah was brought on-line on time and on budget in the first half of 2016 to process Oxy Oman’s production from the two fields.
Oxy Oman operates Block 62 under an EPSA, holding a 48% interest. Mubadala Development Company of Abu Dhabi and OOC hold 32% and 20%, respectively. According to Robert Swain, Oxy Oman’s senior vice-president and general manager, the project represents the “culmination of a collaborative effort to accelerate additional gas production to meet the near-term needs of Oman.”
The firm also operates multiple light oil and gas fields in northern Blocks 9 and 27, as well as Block 53 in south-central Oman, where it is the operator of one of the world’s largest heavy oil steam-flood projects at Mukhaizna.
Looking To Grow
The greatest growth potential for Oman’s natural gas production, however, is in the Khazzan-Makarem field in BP Oman’s Block 61. The Khazzan field represents one of the largest unconventional tight gas accumulations in the Middle East, and has the potential to support long-term domestic supplies of gas in Oman for decades. BP is the operator of Block 61 with a 60% interest, while government-owned OOC holds the other 40% through OOCEP. BP acquired the concession in 2007, and after conducting appraisals of the site signed an EPSA in December 2013. The estimated $16bn-17bn project is expected to have a transformative effect on the energy sector when it comes on-stream. Production targets of 1.5bn cu feet per day of gas by 2020 amount to roughly 40% of Oman’s current gas production. The company announced in mid-2016 that it has passed the 80% mark towards phase one project completion, and expects to hit first gas towards the end of 2017. Pending final agreements, phase two is scheduled for completion by 2020. Roughly 125 wells will be drilled in this phase. The amendment to the Block 61 EPSA to extend the licence over 1000 sq km south-west of the original 2700-sq-km concession was signed with the government in November 2016.
“Certainly in the medium term Oman will have an increasing appetite for gas, both domestically and to maintain LNG exports. And that’s one of the drivers behind the extension we signed in February 2016 to enlarge Block 61 and potentially increase production by 50% in 2020,” Carl Peters, Khazzan planning and commercial director at BP, told OBG. “Our original commitment is around 1bn cu feet a day, and we are hopeful we can get another half a billion out of the extension area.”
Additional gas supplies from Khazzan will be vital to Oman’s economic diversification strategy, with significant downstream investments planned in the sector and domestic demand for gas expected to rise in the short term, particularly given the expected spike in output.
Consumption & Demand
Gas underpins industrial development in Oman. The majority of the sultanate’s gas production goes towards major industrial projects and operators in the electricity and water desalination sector. Gas is also used in oilfields either as fuel or for re-injection in EOR, which has a direct impact on the availability of oil for export. Other major consumers of gas include small-scale industries and LNG plants.
The projects of OLNG and sister company Qalhat LNG ranked highest in terms of gas consumption in 2015, accounting for 12.1bn cu metres, or 30% of the 39.8bn cu metres consumed over the year, according to the MOG’s 2015 annual review. As new power plants come on-line that require gas feedstock, the Oman Power and Water Procurement Company estimates that sector consumption will rise from the 6.7bn cu metres annually in 2015 to 10bn cu metres by 2020, an increase of almost 50%. Across the country as a whole, research firm Business Monitor International anticipates an annual average growth rate of 7.3% in natural gas consumption driven by Oman’s rapid industrial development and increased use of gas for power generation.
With rising domestic energy demand putting sustained pressure on its already tight natural gas resources, Oman is also looking at long-term strategies that enhance energy efficiency and add alternative power generation sources. One promising development in this regard is the landmark Miraah solar project under construction at PDO’s Amal oilfield in southern Oman. In a partnership with PDO established under the US-Oman FTA in 2012, US-based technology company GlassPoint Solar is developing a concentrating solar power initiative to generate steam for use in EOR.
The success of the 7-MW Amal solar trial over the past three years has encouraged PDO to invest an estimated $600m in scaling up. When completed, the Miraah facility will generate 1021 MW of energy to produce steam for thermal EOR. According to the MOG, the project is designed to save 5.6trn British thermal units of natural gas annually that can be repurposed to provide residential electricity to 209,000 people in Oman, for example. The company is targeting initial steam in 2017.
Oman sources roughly 2% of the gas required to meet rising domestic consumption from abroad, a total of 806m cu metres in 2015, according to the NCSI. Imports arrive from the Dolphin Pipeline, connecting Oman to Qatar via the UAE. The sultanate is also a member of the Gas Exporting Countries Forum, and exports gas as LNG through its two liquefaction facilities near Sur. In 2015 Oman exported 7.9m tonnes of LNG, primarily to South Korea and Japan. Having already forced the country to reschedule around 5% of LNG shipments in 2016, rising domestic demand for power generation is expected to limit the volume available for export in the short term. To this end, OLNG has announced plans to divert all of its currently exported volumes of natural gas away from foreign markets and toward domestic consumers by 2024.
LNG exports from Oman could rise, however, if talks with Iran over exporting gas through Omani LNG facilities come to fruition. Industry news site LNG World News reported in January 2016 that one-third of Iranian natural gas exports to Oman – projected at 28m cu metres per day – is planned to be converted to LNG (see analysis). Alireza Kameli, managing director of the National Iranian Gas Export Company, told the news site, “Iran has undertaken to pump 28m cu metres of gas per day to Oman, and it is likely that about 25-30% will be allocated to LNG.”
Talal Hamid Al Awfi, CEO of Oman Trading International, told OBG, “The political situation across the region has unfortunately undermined any coordinated effort to cut supply and push up prices. Politics do not change overnight, and the market has had to adjust to these new realities.”
Although 2015 was challenging for Oman’s hydrocarbons sector, the government is expected to keep crude oil production near its current level of 1m bpd to at least 2020, and sector activity is thus likely to remain fairly constant despite the downturn. The sultanate’s underexploited offshore hectarage and attractive business environment continue to offer opportunities for international oil and gas companies.
Indeed, the potential for growth in the gas sector is substantial, and supported by promising developments across several new projects. BP’s Khazzan Field could support long-term domestic supplies of gas for decades and is expected to have a transformative effect on Oman’s energy sector when it comes on-stream. The increased production should be enough to meet an anticipated annual average growth rate of 7.3% in gas consumption, driven by the country’s rapid industrial development and increased use of gas for power generation.
With current operating costs for most oil and gas firms in Oman in the range of $10-15 per barrel ($27 including capital spending for future production), investments at $40 per barrel remain practical, if not highly profitable, and leave little margin for new investment. Investment is therefore expected to shift towards maximising output from more cost-effective reservoirs using innovative technologies. At the same time, oil sector companies are adapting to the new low-price reality by launching cost-cutting and waste-elimination strategies. Downstream, major planned investments in new refinery facilities, gas processing and petrochemicals plants will keep more of hydrocarbons revenues within Oman.
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