Notes on Oman

Executive summary

• After years of declining production, crude output has increased y-o-y since 2008 due to:
• Oman's EOR project at the Mukhaizna field; and
• Stabilisation of production at PDO's Block 6 (Oman's main producing area)
• PDO has also implemented a number of EOR initiatives to maintain its own production of c.550mbopd over the next 5 to 8 years
• The success of these EOR projects will largely dictate the level to which Oman can maintain liquids production over the medium term
• Increasing focus on gas production in response to projected shortfalls
• Encourage the appraisal and development of tight gas reserves
• Large part of these volumes will depend on success of BP-operated Khazzan Makarem project
• Oman viewed as a stable operating environments
• Has collaborative government offering PSCs with relatively favourable terms relative to regional peers

Key companies

• Petroleum Development Oman ("PDO") is dominant player: Government of Oman 60%, Shell 34%, Total 4%, Partex 2%
• PDO produces over 75% of Oman's hydrocarbons from over 100 fields
• BP's reserves come solely from its Khazzan-Makarem project
• Occidental, Mubadala and Oman Oil Company reserves largely from the redevelopment of Mukhaizna

Licensing

• Majority of licensing activity is onshore, accounting for 95% of active licences
• 5 active offshore licences
• New licensing opportunities for IOCs constrained by fact that PDO has operated a vast concessino area covering much of the country
• much of the acreage outside of PDO's concession area has been licensed, relinquished and re-licensed several times
• Licensing activity has increased significantly over the last 10 years
• re-licensing of PDO relinquished acreage
• response to falling oil production and rising gas demand

Reserves

• Main oil fields now mature
• remaining reserves depend on how successful PDO and Occidental's EOR is
• Remaining gas reserves estimated at 30-35tcf
• vast majority held in PDO areas; 85% of Oman's remaining gas reserves are contained in 10 fields operated by PDO, most of which are in Qarn Alam area of Block 6
• Gas reserves will increase significantly if BP's Khazzan-Makarem field and Oman Oil Comapny's Abu Butabul field are successful appraised

Production

• Between 2000 and 2008, Oman experienced production decline - PDO ageing fields
• In response, PDO shifted focus on EOR from existing fields
• Since 1999, PDO has increased sales gas significantly as the giant Qarn Alam fields were brought onstream to supply Oman's new LNG plants
• Demand for gas expected to grow to support growing industrial and domestic gas markets

Infrastructure

• Highly developed network, almost exclusively owned and operated by PDO; c.2,200km of pipeline
• Oman's main terminal is located near Muscat - all crude is either exported or processed at the refinery for domestic use
• Gas pipeline network owned by Oman Gas Company ("OGC"): Government of Oman 80%, Oman Oil Company 20%
• Network of c.2,500km
• Gas supplies Qalhat LNG terminal or domestic use

Key issues

• Largest non-OPEC producer in the Middle East
• Crude production has increased since 2008, following previous declines
• Relatively attractive fiscal regime has drawn international investors
• Leading proponent for EOR developments in the Middle East
• Challenging geology has resulted in relatively high cost developments
• PDO carries out 3 types of EOR in its contract area: Polymer, Steam and gas injection
• Other operators developing small scale, cost effective EOR techniques designed for small to medium sized fields
• Reduced availability of gas has led to innovative use of solar panels to produce steam required to mobilise heavier crudes in the south of Oman
• Gas supply remains an issue
• Khazzan-Makarem needs to realise a higher gas price to proceed