Offering no major baskets of reservoirs or readily accessible resources waiting for discovery, Oman is generally a challenging geography for oil exploration. With the majority of the country’s onshore sweet oil having been identified and exploited, most of the remaining open concession blocks in the country tend to be better suited to operators with experienced subsurface teams that have access to the technology needed to unlock potential in unconventional deposits.
Oil exploration companies drilled a total of 53 exploration wells in 2016: 29 of them are owned by Petroleum Development Oman (PDO); Occidental Oman has six; government-owned Oman Oil Company Exploration and Production (OOCEP) has four; and the remaining 14 exploration wells are divided among other operators.
Concessions in Oman are awarded by the Ministry of Oil and Gas (MOG) following well-publicised bid rounds. Relative to its Gulf neighbours, Oman is more open to investment from smaller explorers as well as international oil companies. The MOG is also flexible on fiscal terms and contract models to help incoming exploration investors meet operation requirements. “The MOG has demonstrated it is supportive of independent exploration and production companies that are interested in investing in blocks that have been relinquished by larger companies,” Mohammed Al Jahwari, managing director of Hydrocarbon Finder, a local independent energy firm, told OBG.
By utilising the exploration and production-sharing agreement (EPSA) model, the state has room to increase cost recovery limits or allow for higher rewards at early stages of a project to incentivise operators. Incentives are designed to encourage operators to invest in the exploration of higher-risk concession blocks, particularly where previous owners have failed to establish commercial viability and have relinquished concession back to the government. This process downgrades the value of a concession and increases the level of effort required for operators to return to a block.
Recently, Oman has appeared to favour local investment on the upstream front, as shown by ARA Petroleum’s acquisition of Block 44 from the Thai national oil company PTTEP in 2016, in addition to OOCEP’s successful bid for two blocks in the 2016 licensing round. Hydrocarbon Finder has also had success, securing Block 7 in the Governorate of Wusta in April 2016. Looking ahead, OOCEP has announced plans to explore Block 52 with Italian oil and gas multinational Eni and to collaborate with Shell for the exploration of Block 42.
Despite a string of recent upstream developments, exploration and production companies considering investment in Oman have grown cautious as a result of the persisting oil price downturn, and many operators are shying away from new exploration activity and unconventional resource extraction. Reflecting the downbeat context, interest in the 2016 bid round for Blocks 30, 31, 49 and 52 was more limited and cautious, with some bidders seeking improved fiscal terms, particularly with regard to burden sharing.
Eni, in collaboration with OOCEP, has since been granted exploration rights in Block 52, a 90,000-sqkm concession located in the Indian Ocean offshore south-western Oman. In November 2017 Eni signed an EPSA with OOCEP relating to Block 52, which provides that, upon completion of a separate transaction with Qatar Petroleum, Eni will hold 55% of the concession, with Qatar Petroleum and OOCEP holding the remaining 30% and 15%, respectively.
The most recent licensing round was launched for four new onshore oil and gas blocks in September 2017, and was closed in December. It included 12,000-sq-km Block 43B, which has been relinquished by Hungarian oil and gas company MOL; the adjoining 8520-sq-km Block 47, recently relinquished by Norwegian firm DNO; the 10,100-sq-km Block 51, where 19 wells have been drilled by former owners; and the 1230-sq-km Block 65, a concession that was previously owned by OOCEP.