Ever since Oman’s oil production exceeded 1m barrels per day (bpd) in 2016, the sultanate has strived to maintain a comparable daily output. Despite the drop in production resulting from the onset of the Covid-19 pandemic in March 2020, which crippled global crude demand, Oman’s production of crude and condensates – a light type of crude oil derived from gas production – rebounded from its pandemic lows. The industry received an additional boost from international prices being significantly higher than what Oman budgeted in recent fiscal years, selling its crude oil at a price of $95.40 per barrel in 2022 versus the benchmark of $50 per barrel outlined by the government in the 2023 budget.
Output
In 2022 Oman’s total oil production was 388.4m barrels, or an average of nearly 1.1m bpd, compared to around 971,000 bpd in 2021. Crude output was up by 12.8% in 2022 to 309.5m barrels, a notable increase from 249.8m barrels in 2021. Condensates output, meanwhile, fell by 1.4% to 78.9m barrels in 2022 from 80m barrels in 2021.
With its crude oil reserves estimated at 5.2bn barrels, Oman is the largest oil exporter in the Gulf that is not in the Organisation of the Petroleum Exporting Countries (OPEC), although it is a member of OPEC+. Oman was the world’s 19th largest oil producer in 2021, according to BP’s “Statistical World Review of Energy 2022”. Since commercial production began in 1967, oil and gas exports have been Oman’s leading source of foreign exchange and a key catalyst for GDP growth, with oil rents contributing at least 30% of the sultanate’s GDP every year from 1970 through 2014, the sole exception being 1998. Indeed, this figure reached as high as 81% of GDP in 1979. This percentage has fallen as the economy diversified and it has not exceeded 30% since 2014.
The removal of the output cuts that OPEC+ initiated during the pandemic means that the sultanate is well positioned to further boost oil production, and it is expected to increase such production by over 10% to roughly 1.2m bpd in 2023.
In combination with its rising output, Oman’s oil exports grew by 10.6% in 2022 to 319.5m barrels. The expansion was largely driven by a 7.6% increase in exports to China (to 260.8m barrels), a 7.8% increase in exports to India (to 31.2m barrels) and a 179% rise in exports to Japan (to 11.7m barrels). In 2022 China consolidated its position as the sultanate’s largest oil destination, accounting for roughly 82% of Oman’s crude exports.
Higher export receipts were aided by the average price for oil, as Oman sold its crude at $95.40 per barrel in 2022, significantly higher than the average price of $64.30 per barrel recorded in 2021. In 2022 the highest monthly average price for Oman’s oil was nearly $113 per barrel in August, more than twice the $50 per barrel benchmark used by the government for its 2022 budget.
Elevated oil prices, fiscal consolidation and ongoing structural reforms accelerated Oman’s post-pandemic recovery and enhanced its oil production prospects. The sultanate has a significant amount of proven, untapped reserves, and has targeted investment in the development of new oilfields and production infrastructure. Simultaneously, Oman has sought foreign investment in the upstream segment, adding to its production capabilities and local technical capacities. Using higher oil and gas receipts to accelerate reforms and reach its diversification targets has become a key priority for the country. This is especially the case as the authorities work to alleviate the sultanate’s traditional overreliance on hydrocarbons revenue, high public spending and vulnerability to commodity price shocks.
Technological Innovation
Technological innovation has been critical in the development of Oman’s oilfields, optimising its relatively modest reserves and mitigating geological challenges. With tight reservoirs and low permeability at depths of up to 5000 metres, extracting oil in Oman is not only challenging but costly. To address this, Oman has utilised enhanced oil recovery (EOR) techniques to bring up heavy oil, with the Qarn Alam oilfield becoming the world’s first full-field steam injection EOR project and the largest of its kind when it came on-stream in 2011. Prior to the use of EOR techniques, only 4% of Qarn Alam’s oil had been recovered using conventional methods in its 40 years of operation. The steam injection technology, which entered full production in 2012, was expected to unlock up to 35% of the oilfield once operating, increasing production from 1200 bpd to an estimated 35,000 bpd for the following 30 years.
However, injections to extract heavy oil tend to increase costs, reducing Oman’s export opportunities and leading to it receive imports from neighbours. To rectify this, Oman has invested in more upstream gas projects, the expansion of existing gas processing and exporting facilities, and the enhancement of technological capabilities in tandem with international players. For example, in 2017 Oman started producing unconventional hydrocarbons with BP at the Khazzan tight gas field, one of the largest such developments in the Middle East.
The improvement in the sultanate’s production and output is the result of the application of advanced techniques and the introduction of attractive contracts to foreign oil companies, many of which have become longstanding partners. With the arrival of new international players in the upstream segment in recent years, the sultanate has become an incubator for the utilisation of advanced technologies. Increased foreign participation not only contributes to higher oil revenue through taxation and the joint ownership of more productive fields, but it also encourages the type of efficient practices that result in greater and more efficient production.
New Discoveries
In tandem with advanced technologies, Oman’s hydrocarbons output is set to benefit from new discoveries that are expected to raise Oman’s average production by 50,000 to 100,000 bpd by 2025, according to comments made in June 2022 to local media by Mohammed Al Rumhi, the then minister of energy and minerals. One project to enhance Oman’s production figures is the Bisat oilfield in the Block 60 concession, one of the most important upstream projects in recent years for OQ, the sultanate’s global integrated energy company. Discovered in 2017, the Bisat oilfield includes around 165 oil wells and three crude oil processing plants, the first of which began operations in August 2019 and the second in September 2021. OQ increased production at the Bisat oilfield from 5000 bpd in 2019 to 55,000 bpd by the third quarter of 2022. In November 2022 OQ announced the commissioning of its third crude oil processing plant at Bisat, which is expected to help increase the field’s production capacity to 60,000 bpd in early 2023.
Meanwhile, the sultanate has continued to broaden its strategic relationships with oil majors. In September 2022 Oman signed an exploration and production sharing agreement with UK-based Shell and French firm TotalEnergies for Block 11, a natural gas reserve in western Oman. OQ has a 10% stake in the project, while Total holds 22.5% and Shell the remaining 67.5% as the field’s operator. The project saw the seismic drilling of 1400 sq km in late 2022, and exploration drilling is expected to start in 2023. The partnership supports the sultanate’s goal to ensure energy security by bolstering its gas supply and attracting more foreign investment to strengthen the local value chain.
Given Oman’s traditional dependence on oil revenue, increased production is likely to lead to greater government revenue for public spending and diversification efforts, especially since its long-term overreliance on oil could make the sultanate vulnerable to price fluctuations, weighing on GDP growth and public finances. This balancing act involves developing non-oil sectors like tourism, ICT, manufacturing and logistics, which in turn requires sustained efforts and long-term investment.
In-Country Value
Increased oil production also has additional benefits in terms of in-country value (ICV). For example, ICV in the Bisat oilfield reached OR157m ($408m) as of January 2023, with the total amount spent on local small and medium-sized enterprises, and contractors amounting to OR34m ($88.4m). Locally manufactured products accounted for OR60m ($155.9m) of total procurement. The Bisat oilfield has also created direct and indirect opportunities for the local population, resulting in a high overall Omanisation rate of 85%.
Ultimately, expanding oil production not only contributes to fiscal surpluses – which can help reduce Oman’s public debt and support spending on diversification projects – but also helps build an advanced onshore hydrocarbons value chain.
