The Gulf is often synonymous with “easy” oil, massive reservoirs that sit invitingly on Jurassic or Cretaceous shelf limestones. Oman’s hydrocarbons wealth, however, has proven a more challenging proposition. Dispersed in complex clusters, the difficulties associated with exploiting the sultanate’s oil and gas reserves have made the nation a global leader in advanced hydrocarbons recovery techniques. Nevertheless, Oman is the leading regional non-Organisation of Petroleum Exporting Countries oil exporter, and has over the past half-decade implemented a successful initiative to reverse a trend of declining oil production. It has also made significant progress in increasing production levels of natural gas, which now meets the majority of the nation’s energy needs, acts as a valuable feedstock for industrial activity and represents a lucrative commodity for export in liquid form. Oman’s oil and gas sector, despite being one of the most challenging in the region, is also one of the most dynamic and, thanks to continued public and private sector investment, looks set to remain so for the foreseeable future.

Sector Governance

The successful development of Oman’s natural resources is largely the result of sound government policy. While final approval of all major policy and investment decisions rests with Sultan Qaboos bin Said Al Said, who also holds the role of prime minister, oversight of the oil and gas sector is carried out by the Ministry of Oil and Gas (MOG). The vast majority of exploration and production activity in the sultanate has been executed according to the precepts of Royal Decree No. 42/74, better known as the Petroleum Law. This legislation represented until recently the fundamental regulatory framework within which the industry operated, establishing the approvals necessary for engaging in the exploration, extraction, exploitation, storage and distribution of hydrocarbons or mineral resources. The law covered the deployment of all physical infrastructure associated with the industry, such as pipelines, storage tanks, ports, jetties, offshore platforms, sea and marine loading facilities, pumps and pumping stations. The law also required licencees to conduct their operations in a way that minimises atmospheric and marine pollution and established a basis for compensation in the case of violations leading to consequential loss or damage.

New Regulations

In 2011 Royal Decree No. 8/11 resulted in the new oil and gas law, under which the sector is presently governed. It retains much of the substance of its predecessor, and adds more regulatory oversight in a number of areas, such as the provision of adequate security and safety plans for concession activities, notification of archaeological finds and the provision of training programmes. Under the new law, international oil companies (IOCs) are also required to manage their human resources in such a way as to gradually replace expatriates with Omani nationals, part of an Omansiation strategy that has been extended across all economic sectors.

Beyond the dedicated industry legislation, oil and gas companies operating in Oman must adhere to an array of legislation with a direct bearing on their activities. These include numerous environmental laws ( covering atmospheric pollution, noise pollution, natural heritage and conservation) and a raft of health and safety regulation (the bulk of which originate within the Oman Labour Law of 2004).

Sector Ownership

The implementation of the policy established by the MOG is largely carried out on the ground through Petroleum Development Oman (PDO), an integrated company in which the sultanate retains the majority (60%) stake. The firm’s origins lie in the earliest days of Oman’s oil and gas industry, which began with the granting of a 75-year concession to the Iraq Petroleum Company (IPC) in the late 1930s. Exploration and production operations were undertaken on behalf of the IPC by Petroleum Development (Oman and Dhofar), an operating company with four high-profile shareholders: the Royal Dutch Shell Group, Anglo-Persian Company (BP’s forerunner), Compagnie Française des Pétroles (from which today’s TotalFinaElf is partly derived) and the Near East Development Company (a descendent of which is now a subsidiary of ExxonMobil). A smaller stake of 2% was held by Partex, a Portugal-based oil firm. In 1974 the government of Oman acquired a 60% stake in PDO, which resulted in a foreign interest structure that has remained unchanged to this day: Shell (34%), Compagnie Française des Pétroles (4%) and Partex (2%). The modern PDO is by far the largest operator in sector, with control of around 90% of crude oil reserves and accounting for about 75% of total oil production. It also makes up nearly all of the sultanate’s natural gas supplies, although increased private sector investment in this sector is slowly altering the public/private balance.

Key Investors 

While PDO is primarily focused on upstream activity, the government of Oman retains control over a significant proportion of the remainder of the industry through the state-owned Oman Oil Company (OOC). Incorporated in 1996, the company’s principal objective is to pursue investment opportunities in the energy sector, both inside and outside of Oman. Within the sultanate it has partnered with other government-related entities and international players to seek value throughout the sector, from exploration to production, refining, marketing and shipping. Of particular note among its scores of investments are: its ownership of the 25,000-sq-km Block 41, where it intends to develop exploration operations; its 20% ownership of the Oman Gas Company (OGC), the major gas transportation company in Oman that is 80% owned by the MOG; and its 25% share of the Oman Oil Refineries and Petroleum Industries Company (ORPIC), the firm which runs the sultanate’s two refineries, of which the Ministry of Finance owns the remaining 75%.

Despite the relatively modest size of its oil reserves, Oman remains an attractive investment proposition for IOCs, particularly those with capability in enhanced oil recovery (EOR). Shell’s 34% stake in PDO, an interest in Oman LNG as well as a share in the Mukhaizna concession, which is also shared by Occidental Petroleum and the OOC, makes it the most significant foreign investor in the sector. Beyond the PDO/Shell deal, Occidental Petroleum has the largest presence of any international company and is the second-largest oil producer operating in the sultanate. According to the MOG, more than 20 local and international hydrocarbons firms are engaged in production and exploration activities in the Oman, with Total, BP, CNPC, KoGas, PTTEP, Tethys and Repsol, among other prominent global players. Oman’s oil and gas sector is best described, then, as one in which the government maintains control of planning and execution through large, state-owned entities, whilst encouraging innovation and competition through a series of productive partnerships – state/state, public/private and wholly private.

The Concessions

Oman’s oil and gas industry is largely an onshore business, although a small number of offshore concessions have been granted in the past. The country’s oil and gas fields are composed of disparate clusters, mainly found in the north and central onshore areas. PDO’s concession, Block 6, is – at 90,874 sq km – by far the largest in the country and covers much of central and southern Oman. The nation’s second-largest oil producer, Occidental, holds two areas just north of the PDO concession, Blocks 9 and 27 (4083 and 1254 sq km, respectively), as well as Block 53 (694 sq km) to the east.

The tiny Block 53 is a relatively recent addition to Occidental’s portfolio, but is the site of one of the most significant projects in Oman. The Mukhaizna field that lies beneath Block 53 is expected to produce a target of 150,000 barrels per day (bpd) by the end of 2013, according to public statements made by Mohammed bin Hamed Al Rumhy, the minister of oil and gas.

Other significant concessions include BP’s Blocks 60 and 61, Maersk’s Block 48, Petrogas’ Block 7, and CC Energy Development’s Blocks 3 and 4 (which started producing oil at a rate of 14,000 bpd in 2011). In total, some 22 international oil firms are currently exploring or producing oil in 25 concession blocks in Oman. One of the most recent concessions to become active is the previously open Block 36, in the south-west Dhofar region, where market newcomer Allied Petroleum plans to deploy cutting-edge Canadian technology as it evaluates its hydrocarbons potential.

Bidding Round

In November 2012 the government commenced what has been interpreted as a major push to attract new investment in the sector by inviting local and international companies to bid for exploration licences in a total of seven blocks. The bidding round is one of the largest to be staged for several years, and includes both onshore (43A, 48, 56 and 57) and offshore (18, 41 and59) blocks. The emphasis on offshore development is an interesting departure from a previous focus on onshore activity. Previous offshore investment has met with limited success – Block 18 has already been relinquished by India’s Reliance after producing dry wells. The MOG points out, however, that Block 18 is under-explored and presents frontier opportunities, and prospective licencees will have access to more than 10,000 km of 2D and 2048 sq km of 3D seismic data. Block 59, meanwhile, is largely new territory. Covering an area of 40,488 sq km it is the largest of the three offshore concessions on offer, and features water depths from 0 to 3600 metres. Around 8000 km of 2D data have already been acquired from the block, which is understood to have several prospects and leads. The results of both the bidding process and subsequent exploration efforts will be one of the more closely followed developments going forward.

Natural Gas

While the pursuit of oil remains at the forefront of the MOG’s agenda, recent decades have seen the growing importance of natural gas in the nation’s energy mix. The IOCs operating in Oman have always had the right to utilise the associated gas from their oilfields for well management purposes, with any surplus to be serviced by PDO. The discovery of huge reserves of non-associated natural gas in the late 1980s, however, resulted in a new resource with which the sultanate has been able to diversify away from its dependence on oil. Natural gas was quickly adopted as the nation’s primary source of power, fuelling a network of electricity and desalination plants and, in the form of liquefied petroleum gas (LPG), serving the country’s homes, public buildings and industrial developments.

Currently, a 2500-km, government gas network operated by the state-owned OGC delivers gas feedstock to 39 major gas consumers such as power and desalination plants, petrochemicals and fertiliser industries, oil refineries, industrial estates, and steel and cement plants. Gas demand in Oman has risen rapidly since the turn of the century, showing a 135% increase between 2000 and 2009, according to the Energy Information Administration, and much of the OGC’s attention has been focused on installing the pipelines, compressor stations and gas supply stations to meet it. In 2011 it was able to deliver around 14bn cu metres of gas to its customers, up 12% on the previous year, hitting a daily average of 38.2m cu metres. In June 2011 it also established a new record for the highest-ever daily delivery quantity with 46.2m cu metres, surpassing the record set in 2012 of 42.6m cu metres.

The power and desalination segment accounted for the majority of OGC’s delivery in 2011, claiming 53% of the total, followed by industrial and commercial consumers, which took 31%. The remaining 16% of gas transported by OGC’s domestic network for the year was consumed by the oil operations segment, where natural gas is an important component of EOR.


However, around 55% of Oman’s natural gas does not enter the domestic system at all. The scale of the non-associated gas finds in the late 1980s and 1990s provided the rationale for the creation of an export business that has seen Oman become a significant provider of liquefied natural gas (LNG) to the global market. Oman LNG was established by royal decree as the nation’s first LNG plant in 1994, with operations starting in the year 2000. A second facility, Qalhat LNG, is partly owned by Oman LNG, and the three trains that run between them represent the totality of the sultanate’s LNG export infrastructure. With a capacity of 14.32 cu metres per year, the plants source their gas from the Saih Rawl and Saih Nihayda gas fields in central Oman, before processing it and exporting it to predominantly Asian markets. The success of the LNG exportation programme and the valuable contribution it has made to the nation’s balance sheet, has led to something of a gas conundrum: the long-term export contracts signed by Oman must be weighed against a rapidly rising demand in the domestic market which is now, in the view of some, underserved. The importation of 5.66 cu metres of natural gas per day via the $3.5bn Dolphin gas project has provided some relief to the system, but until a number of long-term projects have reached fruition (such as a drive to exploit tight gas reserves in central Oman), this careful balancing of domestic demand and export commitments must be maintained (see analysis).

LPG & Condensates

In the meantime, the OGC is exploring ways to add value to its existing gas volumes, and has already reached an advanced stage with its plans to extract LPG and its commercially viable derivatives from its gas network. The OGC already produces around 200 tonnes per day of LPG from the system of natural gas pipes that criss-cross the sultanate. The product is widely used as an industrial heating and cooking fuel, but it is also a versatile raw material for the chemicals industry where, through processing, it can be converted to derivatives such as ethylene, propylene, butylene and butadiene. These in turn are central to the production of synthetic fibres, plastics and rubber.

The OGC has identified the southern section of its grid as holding the most potential for LPG extraction facilities, and in May 2012 announced the appointment of Spanish oil and gas engineering firm TECNA to undertake the conceptual engineering work and design facilities for the extraction of LPG and condensates from the Salalah segment of its gas network. The project also extends to the evaluation of natural gas liquids, C2+ and other condensates, as well as the provision of front-end engineering design (FEED) for the proposed extraction facilities. Downstream customers of the Salalah system include some of Oman’s larger industrial and power generation players, such as the Raysut Industrial Estate, Raysut Cement, the Dhofar Power Company, Octal, Salalah Methanol, and the new Salalah Sembcorp Power and Water Company. The OGC, however, has stated that the LPG extraction project will not affect gas supplies or sales agreements to its customers in the region.


While increased value continues to be sought within the nation’s oil and gas infrastructure, the overriding concern of the MOG has been to maintain and then expand the sultanate’s production of crude oil. The complex subsurface geological structures for which the Omani sector is renowned have made this a challenging task and are largely responsible for the decline in production from a peak of 970,000 bpd in 2000 to a low of 713,000 bpd in 2007. The MOG’s most significant achievement in recent years has been its reversal of this declining trend through investment in new wells, in partnership with foreign firms where suitable, and the employment of cutting-edge technology to increase efficiency and recovery rates across the sector. By 2011 it had achieved four years of steady growth, producing a daily average of 889,000 bpd of total petroleum liquids, 886,000 bpd of which was crude oil. MOG data show that as of September 2012 production levels had continued to rise, with crude and condensates production standing at 918,183 bpd.

Gas production, meanwhile, has shown still more rapid growth, more than doubling over the past decade as Oman has invested in the exploitation of its more recently discovered gas fields. In 2011 the sultanate produced over 28.31bn cu metres of natural gas, an average of about 77.87m cu metres per day. Gas production is forecast to continue on this growth trajectory in coming years as the MOG initiates bidding rounds for exploration and production tenders. Work is already at an advanced stage at BP’s Khazzan-Makarem tight gas project, which holds gas reserves estimated at 28.31bn cu metres and is therefore of central importance to the MOG’s efforts to alleviate demand pressure on the nation’s gas supply (see analysis). “The Khazzan Project, if it goes ahead, will involve constructing a central gas processing facility, installing a gathering system, and drilling around 300 wells over the next 15 years,” Daniel Blanchard, the general manager of BP, told OBG. “With full field development, BP would look to achieve a production rate of around 1bn cu feet of gas per day sometime after startup – which would increase Oman’s total domestic supply by around a third.” PDO is also in the early stages of a project aimed at extracting gas from the Hasirah and Hawqa oil fields. WorleyParsons has won the tender to provide the FEED study for the greenfield project in 2015, and estimates of the potential production rate of the proposed development run to 1.18m cu metres per day.


Despite Oman’s status as a mature oil producer, exploration still plays a part in the MOG’s goal of maintaining production levels in the coming years. Since 1991, the sultanate has met with considerable success in increasing its proven reserves, which rose from 4.3bn barrels in that year to 5.5bn barrels as of the end of 2011, according to the BP “Statistical Review of World Energy” of June 2012. In comparison, the UAE’s total of proved reserves declined from 98.1bn barrels to 97.8bn barrels over the same period. Increasing the level of its proved reserves remains a strategic priority, and the recent discovery at Amal South-East, located near the Amal East onshore field in the southern region of Oman and estimated to hold some 300m barrels, is an example of the MOG’s success in this regard. Other recent PDO finds include three new fields at Aqeeq, Sayyah and Al Ghubar East. The private sector, too, continues to play an important part in exploration activity. In September 2012 Swedish firm Tethys discovered conventional oil approximately 6 km east of the Saiwan oil field, within the Block 4 3D seismic area – in which it retains a 30% stake alongside Mitsui E&P Middle East (20%) and the block operator CC Energy Development (50%). The MOG’s bidding round for seven concessions in late 2012, meanwhile, has provided yet more opportunity for exploration.

Gas Discovery

On the gas side, the PDO’s most recent discovery of large reserves is the Khulud West gas field, announced in 2010. As with the BP concession in Block 61, the Khulud West reservoir is a challenging production prospect, and typical of the likely future finds in the sultanate. Exploitation of such finds will rely predominantly on the technique of hydraulic fracturing (or fracking), the process by which fluid is injected into rock formations to create fissures that will allow greater quantities of oil and gas to flow into the wellbore. “Oman is probably the biggest location for fracking outside the US,” Chokri Ben Amor, general manager, project technology and management firm Schlumberger Oman, told OBG. “This is because of the clusters, the tight nature of the oil and gas. Fracking has increased rapidly over the past two years here, as it makes wells cost-effective, and there will be a lot more of it in the future,” As of the end of 2011, Oman’s natural gas reserves stood at 948.6bn cu metres. Moza Saleh Al Adawy, the COO of upstream oil production company Daleel Petroleum, told OBG, “The MOG should focus on exploring the potentially abundant offshore and deep onshore for tight gases.”


While the recent conventional find in Block 4 demonstrates the continued potential for conventional field developments, oil production in the sultanate is increasingly associated with EOR. Often sitting deep underground in small pockets, among labyrinthine geological structures, Oman’s oil has always been a challenging proposition for petroleum engineers, which has encouraged oil companies operating in the sultanate to become early adopters of EOR techniques – frequently before they have been used elsewhere on a commercial scale. In fact, Mohammed Ahmed Al Jahwari, the managing director of Midwest Oilfield Services, told OBG, “Oman can become an exporter of expertise in the oil and gas industry. The sultanate’s historically difficult reserves and extraction methods is a desirable training field for this sort of capability.”

In 2002 PDO conducted a review of its mature oil fields, on the basis of which it has deployed a range of EOR methods on a field-by-field basis. Miscible gas injection, by which gas is pumped into a reservoir where it dissolves into the oil to boost flow rates, has been successfully deployed in the Harweel field cluster to produce an additional 40,000 bpd. Steam injection has lead to similar gains. Occidental used it to bring production at the Mukhaizna field up to 124,000 bpd at the end of 2011, around 16 times higher than the rate when it took over the concession in 2005, while steam injection at Amal East and West is expected to yield 23,000 bpd by 2018. The thermal EOR in Qarn Alam, meanwhile, uses an unusual process by which steam drains oil to lower producer wells, and is projected to result in a production level of 40,000 bpd by 2015. “The sultanate is a fantastic laboratory for testing and achieving best results from steam, polymer and CO2 extraction techniques,” Vinod Shah, the managing director of Mott MacDonald, told OBG. “Companies operating out of Oman will be able to export expertise globally.”

Oman has also successfully used polymer injection, most notably with a heavy oil reservoir at the Marmul field. A potential addition to the nation’s EOR activity is microbial recovery – a biological-based technique that is being developed by the MOG with the cooperation of PDO and Sultan Qaboos University. “We have looked at the possibilities of microbial recovery already and carried out some screening as to which fields would be suitable for it. It’s still at the test stage for now,” Sheikh Zaid bin Khamis Al Siyabi, director-general of exploration and production at the MOG, told OBG.

Drilling Deep

And alongside advanced recovery techniques, oil companies in Oman have deployed an array of advanced drilling methods. These include drilling to great depths (a regional record of 7145 metres was set at the Fahud Salt Basin, resulting in a challenging borehole temperature of 195 C), ballast drilling through tight gas reservoirs, and horizontal, multilateral and jet drilling. Crucially, despite the change in the average properties of the sultanate’s oil as heavier crudes have been pursued, a high-quality product has been maintained. “Sulphur is in the 1% range, and our average [American petroleum gravity] API runs close to 30 degrees,” Sheikh Al Siyabi told OBG.

Refineries & Marketing

Oman exports more than 90% of its crude oil production to foreign markets, mostly in East Asia. Much of the remainder is diverted towards its two refineries, located at Mina Al Fahal, near Muscat and Sohar, an industrial town 200 km north of the capital. Both are operated by ORPIC, majority-owned by the Ministry of Finance with a 25% stake retained by the OOC. With a capacity of 116,000 bpd, the Sohar refinery is the largest facility and is in the process of undergoing an upgrade that will see its capacity raised to a possible 176,000 bpd by 2016. However, if current plans are realised, it will soon be eclipsed by a 230,000-bpd facility at Duqm, on Oman’s southern coastline. Due for completion in 2017, the development of this new facility is being overseen by the Duqm Refinery and Petrochemicals Industries Company, a joint venture between OOC and the International Petroleum Investment Company, owned by the government of Abu Dhabi. The Sohar expansion and Duqm development will more than double refining capacity, and enable it to export refined products.

The output of the Sohar and Mina Al Fahal facilities is directed to the three marketing companies that distribute refined products in the country: Shell Oman Marketing, Al Maha Petroleum Products Marketing Company and Oman Oil Marketing Company.


While hydrocarbons will play a central role in Oman’s economy for the foreseeable future, the sultanate has made an effort to diversify its energy base in recent years. The Authority for Electricity Regulation conducted a study in 2008 in order to scale the potential of the nation’s renewable energy options. Since then, both public and private renewable initiatives have been established. Usama Barwani, the director of MB Petroleum Services, told OBG, “The world is short on energy while demand is racing ahead. There must be a focus on alternative energies and their incorporation into the energy mix.”

In early 2012 Swiss firm Terra Nex announced a collaboration with Middle East Best Select Group by which it would invest $2bn to develop solar power resources in Oman. Although at an early stage, the proposed plan encompasses power generation and solar panel and aluminium frame manufacturing. Also in 2012 the Oman Power and Water Procurement Company revealed that it was conducting a feasibility study for a 200-MW photovoltaic, concentrated solar power project that, although small in capacity, would be used for the development and manufacture of other solar technologies. There are also indications that solar power might play a larger part in the exploitation of traditional energy resources in the future. In 2011 PDO contracted US-based GlassPoint to build a 7-MW solar EOR system for its thermal oil recovery programmes. Oman is the first country in the Middle East to stage a trial of this technique, and success would open the door for a greater utilisation of solar power in oil production.


Oman’s oil and gas industry appears set to continue presenting opportunities to the private sector. In August 2012 the MOG announced the details of a 10-year plan according to which it will spend some $60bn-70bn between 2013 and 2022 on oil exploration and production, and around $40bn on its efforts to exploit gas resources. Given that the sultanate has spent from $8bn-10bn a year on its oil and gas sectors since it began its effort to increase production after 2007, this represents a continuance of a policy of large-scale investment in the industry.

The private sector will play a large part in this exploration and production drive, and the recent tendering of seven new concessions is expected to be followed by more bidding rounds in 2013. The MOG’s attempt to exploit its offshore hydrocarbons resources via the private sector represents one of the more interesting developments of 2012, although it will be some time before its success can be judged. The prospect of the sultanate establishing itself as an exporter of refined products is another point of interest for the industry: besides adding to government coffers, the realisation of current refinery expansion plans will add further value in terms of job creation, human resources development and diversification of the downstream sector.