Oman celebrated 40 years of oil exports this year, but faces the challenge of a six-year decline in output and has launched a gas development programme.
Oman has exported 7.5 billion barrels of crude over the last 40 years but, today, according to Nasser bin Khamis Al Jashmi, undersecretary at the Ministry of Oil and Gas, the sultanate faces many challenges.
"Now we are moving from primary production, to secondary production, through tertiary measures like enhanced oil recovery (EOR)," he said.
Oman’s long-term oil production target is 1 million bpd by 2012, but this will require the realisation of several major projects many involving international companies.
According to 60% state-owned oil company Petroleum Development Oman (PDO) - which accounts for 80% of the sultanate's oil supplies and is 34% owned by Royal Dutch Shell - annual average oil production in 2006 was 589000 barrels per day (bpd) within a target of 580000 - 600000 bpd. Oman faces an ongoing struggle to stem a fall in production, which peaked in 2001 at 950000 bpd. The challenge is reflected in the most recent production figures, published in August by the Ministry of National Economy, showing crude production down 5.3% in the first five months of the year at 713000 bpd from 753200 bpd in the same period last year.
Oil reserves are estimated at around 5.5 billion barrels, the majority of which can be found in the north and central areas of the sultanate where the large fields - including Al-Huwaisah, Fahud and Yibal - are in decline. Based on current output levels, these reserves would be exhausted in less than 20 years. In November 2006, the government said it would spend US $4 billion over the next few years to increase production, mainly through EOR. This is part of an overall US $10 billion announced in April 2006 to be spent on upstream oil and gas projects through 2011.
PDO says oil output is expected to reach 800000 bpd before the end of the decade. Its first major EOR project at Harweel will raise production to 100000 bpd by 2010. In late 2005 it awarded the UK's Petrofac a US $1 billion contract to build a new oil and gas processing station with a gas enrichment/sweetening plant and associated facilities to support up to 60000 bpd of oil production. A second major EOR project is under way at the Qarn Alam field. Last year PDO completed 313 new wells, lower than its target of 385, which the company attributed to ‘unfavourable market conditions' and ‘high staff turnover and delays in new contract implementation', as well as ‘increasing technical complexities'.
In June, PDO won shareholder approval for the full development of the Mabrouk field, discovered in 1979 and currently producing 8000 bpd. Some 80 new wells are to be drilled and a production station and gathering system built by 2009, after which output is expected to rise to 15000 - 20000 bpd of oil and one to two million m3 per day of gas.
The company estimates that more than half its oil production by 2010 will come from wells not yet drilled, or production facilities not yet built. PDO currently operates 3750 wells over 120 fields. As well as EOR and increased oil recovery programmes, it has launched a Well and Reservoir Management (W&RM) scheme, which has had a positive impact on the No-Further-Activity (NFA) decline rate (an average of annual production compared year-on-year).
The 2006 NFA decline was within target, at 87.4% and although slightly lower than the previous year, PDO said it was nonetheless part of a trend of continuing improvement since 2000.
The application of W&RM technologies has been key to reducing the NFA decline. One example is streamline modelling, which has been applied to improve water-flood pattern management. Water-flooding is critical to the company, as half of its oil production is obtained with the aid of this technique.
In 2006, average water production was 4.3 million bpd and the separation, transport and disposal of this huge volume represents one of the increasingly complex challenges faced by PDO. To address this, it is considering building a pipeline to carry water from the south to re-inject in fields in the north, but this is likely to prove expensive. In 2006, streamline modelling suggested that shutting in two oil-producing wells in the Thuleilat field would enable water injection wells to better support other producing wells. This had led to an increase in production of more than 1200 bpd from the field. The overall result was a reduction in the NFA decline at the Thuleilat field from a historical average of 12% to 4% in 2006.
Oman's long-term oil production target is 1 million bpd by 2012, but this will require the realisation of several major projects many involving international companies. It is currently half way through a six-year deal with the UK's Spectrum Energy and Information Technology, which is reprocessing earlier seismic studies. PDO believes some of the best prospects for new output are a group of fields including Ghafeer, Harweel and Sarmad in the south of the country, which could contain reserves of up to 250 million barrels giving production of around 100000 bpd.
Hopes are also high for the Mukhaizna field which was awarded to Occidental Petroleum in 2005 and currently produces 10000 bpd. Occidental (45%) and partners - Oman Oil Company, (20%), Shell Oman Trading Company (17%), Liwa Energy (15%), Total E&P Oman (2%) and Partex (Oman) (1%) - are investing over US $2 billion to implement a large-scale steam flood to increase production to approximately 150000 bpd and recover around 1 billion barrels of oil.
The challenges facing Oman’s oil sector are apparent and the government’s desire to see output reach 1.2 million bpd represents a tall order for PDO.
Independent Indago Petroleum is exploring in several areas. In July it issued a drilling update for the onshore Al Jariya-1 well, located on the Jebel Hafit prospect in Block 31, adjacent to the border with Abu Dhabi and said that although the well had proved to be technically very difficult, its geological aspects remain consistent with the pre-drill prognosis.
In January it concluded testing operations on the offshore West Bukha-2A well reporting sustained production rates of 25 million cubic feet per day (cf/d) and 8364 bpd of oil. It has also concluded the first stage of operations on the Hawamel-1A exploration well in Block 47. Meanwhile, Indonesia's MedcoEnergi is developing 18 small fields in the south of the country near Nimr-Karim which currently produce 18000 bpd.
Downstream, Oman has two refineries but is now planning a third. It wants to increase product capacity to meet local demand and boost exports but also act as feed stock for the sultanate's growing petrochemical sector. In May, oil minister Mohammad bin Hamad al Rumhy gave details of new US $7 billion refinery and petrochemicals complex, which would be operated as a joint venture between the government and international investors. To be located at Al Duqm in the south, it would have a capacity of up to 300000 bpd and include an export terminal and petrochemical production.
Bids for the front-end engineering and design contract were received in February and an announcement on the winning bid is imminent. Construction should begin at the end of 2008 with first production due in 2012. The existing two refineries are: Sohar with a capacity of 116400 bpd owned 80% by the government and 20% by Oman Oil Company; and Mina al-Fahal, with a capacity of 106000 bpd.
A major part of the government investment programme will be linked to gas projects, in order to increase production to meet growing domestic industrial demand and also for export. Exploration work carried out over the last few years has seen proven reserves double to around 1000 billion m3 mainly in PDO-owned areas.
PDO's combined gas and condensate production in 2006 was equivalent - in terms of energy content - to 430000 bpd of oil. The average gas supply from the company to the Government Gas System (GGS) was 15.6 million m3 per day, 3.1 million m3 per day more than in 2005.
Gas supplies to key consumers outside the GGS showed a substantial increase in 2006. The average volume of gas used by these consumers was 46.5 million m3 per day, up 11.7 million m3 per day on 2005. Of this total, 37.2 million m3 per day were supplied to the two gas-liquefaction companies (Oman LNG and Qalhat LNG), 3.7 million m3 per day to the OMIFCO fertilizer plant and 5.6 million m3 per day to smaller consumers in and around the Sur area. Operational problems at the Saih Nihayda Gas Plant and lower than predicted condensate/gas ratio at Saih Rawl, led to a slight shortfall in condensate output which averaged 51671 bpd against a target of 55181 bpd.
Gas production is expected to increase by at least 10 billion m3 by the start of the next decade. PDO is currently working on several projects. In 2006 it awarded an EPC contract for a major compression project at the Saih Rawl field.
A major part of the government investment programme will be linked to gas projects, in order to increase production to meet growing domestic industrial demand and also for export.
International companies are also active in the sector, such as China Petroleum and Chemical Corporation and Anadarko, which is developing three fields in Haffar Block 30. Oman is also participating in the Dolphin Energy Project and from early next year, to which it will supply 2 billion m3 annually from 2008.
In January, BP signed a production-sharing agreement on two fields - Khazzan and Makarem - and associated accumulations that could yield some 566-850 billion m3 of gas. The fields were discovered in 1993, but undeveloped due to the reservoir complexity. First production could start in 2010. Also, BG Group has an exploration and production sharing agreement for onshore gas block Abu Altobool, where reserves are estimated at 800 billion m3. BG plans to spend US $150 million on development.
Oman has invested heavily in LNG, with projects coordinated by the state-owned Oman LNG Company. In May, Oman Oil Company signed a memorandum of understanding with the National Iranian Oil Corporation under which Iran may export up to 1 billion m3 per day of LNG to Oman. The two companies also plan to jointly develop several fields including Hengam and West Bukha, with gas to be delivered to the Qalhat LNG plant. The fields are said to contain around 56 billion m3 of gas.
The challenges facing Oman's oil sector are apparent and the government's desire to see output reach 1.2 million bpd represents a tall order for PDO. Unlike many of its neighbours, Oman does not benefit from low production. But the current high crude price means the sultanate can afford the investment while involving international players for their expertise, particularly in EOR, is proving to be a wise strategy.