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Sun 20 Jun 2010 01:45 PM

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Oman Oil Co in talks over gas block as BG exits

State-run firm is looking to take on an exploration block ceded by UK firm BG Group.

State-run Oman Oil Company (OOC) is in talks with Oman's Ministry of Oil and Gas to take on an exploration block ceded by Britain's BG Group, a senior Omani oil official said on Sunday.

Like most of its Gulf neighbours, Oman is short of the gas it needs to meet rapidly rising demand for industry and power. Across the region, governments have embarked on exploiting unconventional gas reserves, such as Oman's tight gas.

The gas is in complex formations that is more expensive to produce than more conventional reserves.

"Oman Oil Company is in discussion with the ministry of oil and gas to take over the BG concession in Oman," Nasser al-Jashmi, undersecretary for oil and gas, told Reuters.

BG pulled out of its deal to develop Oman's oil and gas Block 60 earlier this month to focus on global opportunities elsewhere.

OOC is the government's energy investment arm, and holds both domestic and international oil and gas assets.

It was unclear whether the government would retender the block, which BG signed up to develop in 2006, or whether it would award the acreage directly to OOC. The block covers an area of 1,500 square kilometres at Abu Butabul.

BG had planned to start gas output from the block in 2012 and has already made substantial drilling investment there.

Gas prices were also a factor in BG's decision to exit the block, one industry executive involved in the negotiations told Reuters on condition of anonymity.

The government has refused to revise a gas price agreed in 2006, he said. Without a higher gas price, it would have been hard for BG to make returns on the investment needed to produce the tight gas, he added.

British major BP was expected to start output from Oman tight gas fields in August, Jashmi said last month.

BP has said early output could be between 200 million and 300 million cubic feet per day (cfd).

BP's plans were unlikely to be affected by BG's exit, another Omani oil official said.

"BP has different technologies, different experience," he said. "I think it is happier too with the reserves it has in place in Oman."

Oman has signed production sharing agreements with a number of foreign companies to boost both oil and gas production.

BG was concentrating on discoveries in Brazil, a coal bed methane project in Australia and recent acquisitions in shale gas in the United States, a BG spokeswoman said last week.

"We have decided to end our activity in Oman because we need to prioritise other opportunities across the global portfolio for development," she said. "So we are working with the (Omani) government now to finalise our exit from Block 60." (Reuters)

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