Eni signs EPSA for Block 52 offshore Oman

The Government of the Sultanate of Oman, Oman Oil Company Exploration and Production ("OOCEP"), a subsidiary of state company Oman Oil Company ("OOC"), and Eni today entered into an Exploration and Production Sharing Agreement ("EPSA") for Block 52, located offshore Oman.

Block 52 is an underexplored area with hydrocarbons potential located offshore in the southern region of Oman. Block 52 has an area of approx. 90,000 Km2, with water depths ranging from 10 to over 3,000 meters. Pursuant to the EPSA, Eni is the Operator of the block, through its subsidiary Eni Oman B.V., with an 85% stake, whilst its partner OOCEP holds the remaining 15% stake.

During the same event, held in Muscat, Eni and Qatar Petroleum signed an agreement for the assignment of 30% interest in Block 52 to Qatar Petroleum. Following the conclusion of such agreement and subject to the consent of the competent authorities of the Sultanate of Oman, the Contractor under the EPSA will consist of affiliates of Eni with a 55% stake, Qatar Petroleum with 30% and OOCEP with 15%.

'The signing of the Block 52 EPSA represents an important milestone in Eni’s strategy to reinforce its presence in the Middle East region. We wish to establish with the Sultanate of Oman, which is a historical Oil & Gas producer in the region, a long-lasting relationship in the best tradition of Eni. It is also remarkable that, the same day, we are welcoming Qatar Petroleum as a partner in Block 52, to join our efforts with such a strong partner that is currently leading the LNG business worldwide', commented Eni CEO, Claudio Descalzi.

Block 52 was awarded to Eni and OOCEP following an international bid round process launched in October 2016.

Source: Eni

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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

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