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Envisioning the future of Oman’s oil and gas industry

Interview - January 24, 2012
Oman’s Minister of Oil and Gas, Mohammed bin Hamad Al Rumhy comments on the country’s prospering industry and shares the challenges of a post oil future.

Oil as Prime Revenue Maker in Oman:

In the period from January to August 2011, Oman produced on average 881,900 barrels per day (bpd) compared to 858,200 bpd in the same period of 2010. Likewise, exports of crude oil in the same period were 180 million barrels, higher than the 178 million exported in 2010. The government of Oman has therefore proven that it is possible to reverse the trend of declining oil resources, and has managed to up its production to levels unseen since the year 2000. Furthermore, with over 20 enhanced oil recovery techniques projects planned, Oman has one of the most advanced upstream programmes in the world.

Please comment upon the latest developments in Oman’s oil & gas sector to date.

Since the renaissance of His Majesty, more attention was given to exploit the country’s natural resources wisely to support the rapid development and growth in different sectors in the country. The oil and gas industry in Oman have evolved rapidly despite subsurface challenges, oil price fluctuation and geopolitical changes in world. Oman becomes, more than ever, an attractive and secure place for investment especially the oil and gas industry. At present, there are around 20 oil and gas companies operating in Oman.

In 2011, the Sultanate’s production of oil and gas averaged at 885,000 b/d and 3 BCF/d, respectively. Petroleum Development Oman is the major producer of oil and gas in Oman, producing in excess of 650,000 b/d of oil and condensate, and around 2.5 BCF/d of gas.  Occidental Oman has increased its share of production to reach around 200,000 b/d of oil and condensate, and around 150 MMSCF/d of gas. Daleel Petroleum has been making a steady increase in its oil production averaging around 31,000 b/d.

2011 saw the commissioning of the world-class EOR projects, Qarn Alam and Harweel. We have also expanded the development of our Oxy-operated Mukhaizna field, and production in the field rose to around 122,000 b/d during the month of December.

On the exploration and appraisal part, lots of activities were conducted, such as acquiring seismic equipment and drilling wells that resulted in new discoveries. On the oil side, we are expecting to add 150 million barrels to expand our scope of possible reserves. Such figures will increase to include bookable reserves, under the PRMS guidelines, in the next years. 

PDO, BP, Oxy, Oman Oil, Petronas & Harvest conducted lots of gas-related activities during 2011 in some of the most unconventional settings. We are breaking new grounds in Oman! The Ministry is very encouraged with the results achieved so far, however a lot more needs to be done before we declare them commercial discoveries.

On the concession front, we have floated around 12 open exploration blocks, of which 7 have either been or were close to being awarded; the remaining still await technical and commercial bids. 

All the above-cited activities are affirmations of Oman’s growing capacities of sustaining oil and gas production for the nation, in particular, and in meeting the global energy demand, in general. 

As Omani Minister of Oil & Gas, what are your priorities for 2012-2015?

The oil and gas sectors are not only the major sources of income in the country, but also they have contributed to the local content by creating employment opportunities, be it operators or service providers, to the extent that Omanization levels have reached more than 80%.  Therefore, besides fuelling the economy of the country, at the Ministry we focus on maximizing the utilization of local content as well as creating new value-added chains from which both companies and citizen of Oman can benefit.

In this context, we will be working very closely with other Government authorities as well as local entrepreneurs to maximize the in-country value for Oman. On the operatorship side, Oman Oil Co. and MB Holding subsidiaries have set examples of their capabilities to operate in Oman, where a diverse operations environment exists.  On the service provisions side, we have local entrepreneurs setting up service companies in construction and maintenance of oil & gas facilities and infrastructure, provision of drilling & work over rigs, provision of well logging services, among others. This opportunity to contribute back to Oman is open to all citizens. 

Moreover, the Government has established a total of five local community companies with two aims in mind: One is the localization of services close to oil & gas operations, creating service hubs for operators to call upon when necessary at competitive costs, and second is nurturing the citizens who live in the areas of operations and improve their standard of living. Although our manufacturing capabilities aren’t quite there yet, we have here in Oman factories that manufacture equipments, tools and pipelines that are used in the oil and gas sectors.

In our view, these are significant achievements. However, we believe that more needs to be done to maximize the in-country value. More focus is required in creating jobs for our sons and daughters through increasing the service and manufacturing side of businesses geared to the requirements of oil companies.

Please comment on the contribution of the oil industry to the development and modernization of the country.

The oil and gas sector is the vital nerve centre of the national economy and contributes significantly to the national income. The contribution of this sector comprised 77% of the total revenue in 2009, and is projected to reach 81% this year. The Sultanate places great importance on this sector and we are determined to make inroads in production to achieve at least one million barrels a day in the near future.

What strategies will be applied to further develop reserves and increase production of crude oil?

Well, although our oil and gas reserves are modest compared to our neighbours’, the remaining oil and gas volumes and the new potential in the country are sufficient to sustain our production for many more years to come.

To achieve this, we are continuing the journey we started in the year 2000, though since then our business plan has changed. Our operators based in countries have increased many folds, the diversity and make-up this community is a testimony of the new journey.

We have brought new projects into production through the application of new technologies and we have embarked in a number of Enhanced Oil Recovery (EOR) techniques, some of which are world-first and which were are proud off.  All these projects have yielded positively to the goal of increasing production.  Similarly, on the gas side, we are moving steadily in appraising our tight gas and unconventional fields, which will hopefully contribute significantly in the near future.

We have seen a steady increase in production year-on-year and are aiming to produce around 915,000 b/d of oil and gas respectively in 2012, which is a significant compared to previous years. 

What are you thoughts on the recent oil & gas discoveries and Oman’s role in the global energy market?

Oman is of significant importance to exploration activities, as it plays a big role in our medium to long term strategy.   In 2011, our exploration/appraisal activities increased significantly compared to previous years. Such activities will remain high in our agenda. However, when you speak of Oman’s role in global energy market, we are small player in this sense.

What are the main goals of the newly created ‘Oman Oil Refineries and Petroleum Industries’?

Orpic, "Oman Oil Refineries and Petroleum Industries" is a new Government-owned company formed to manage Oman Refineries and Petrochemicals Company LLC, Oman Polypropylene LLC and Aromatics Oman LLC. The newly formed company has an integrated management structure with a view to achieve the highest economic value for Mina Al Fahal Refinery, Sohar Refinery, Aromatics Factory and Propylene Factory in Sohar.

The Government's objective for the new entity is to streamline the integration process execution and facilitate decision-making across the three companies internally and externally, improve the level of performance, as well as, boosting the commercial benefits of the plants. Integration of the three companies is envisaged to allow the refining and petrochemical industry in Oman to be more competitive and achieve world-class results in the international markets. It is also important to adopt an integrated approach in managing these plants, unify their direction, follow strategic and financial planning and utilize assets and resources in order to achieve higher revenues for the overall group.

Natural Gas and the Challenge of a Post-Oil Future:

Oman has experienced unprecedented growth in gas demand over the past five years. The approval of various gas-based industrial projects and a jump in electricity demand have resulted in the amount of spare gas being reduced to a minimum. As a consequence, the government is struggling to keep up with demand.

What is the importance of developing the gas industry in Oman and please give us an overview of current projects?

Since the discovery of gas in north Oman, the demand for it has soared, whether it is for ever-increasing power requirement or a host of industries and most importantly for the development of EOR projects.

The diversification of industries in Oman, whether on the LNG side, the petrochemical side and steel clusters shows the importance attached to gas.  Gas-based industries have contributed significantly to Omani employment Gases also contribute around 15% of the overall country revenue.

The future will see more and more gas-based industries based in Oman, in Duqm, with the possible expansion of existing industrial hubs; however, this will depend on the success of all our efforts in gas exploration and imports.

What is the significance of the Gas Sales Agreement with Qatar and what would be some ways to secure additional volumes?

In November 2008, the Sultanate started to import an average of 5.6 million standard cubic meters per day of Qatari's gas through Dolphin Energy. These quantities will be incorporated in the gas network to be used to "enhance oil recovery" of major projects that rely on this technology. Moreover, we are negotiating with other countries like Iran, to add another volume, and so far, the progress is ongoing.

What is the strategy to increase competitiveness, attract investment and achieve world-class standards?

Oman has a very interesting and hydrocarbon prolific but challenging reservoir. There is a wealth of information from all of the firms that have been here before that can be used to come up with new ideas. Companies are encouraged by this wealth of data to take the challenge and explore for hydrocarbon in this area.

The Ministry can facilitate to make the operation run as smooth as possible. There are roles and measures that are allowing companies to operate without jeopardizing best practice industry standards. Therefore, the strategy is to invite companies with technical capabilities and experience that can add value by providing new technology.

What progress has been made on cutting down on the flaring of natural gas?

Flaring of natural gas in the oil and gas operations is inevitable, however it has to be restricted to a level that is less harmful to people and environment. In the past, there were continuous governmental efforts to reduce the quantity of flared gas in oil and gas fields through recycling it and using it as part of the overall operational aspect.  With the help of the Ministry, our operators, such as PDO, Oxy and Daleel, have embarked on a number of gas flare reduction projects.

We have managed to reduce the flared volume to 3.5 million m3/d in 2010 and less than 2.5 million m3/d, which is significant.  Some of these projects have been considered as part of CDM initiatives. 

Oman-US Cooperation

The historical ties between Oman and the US are now stronger than ever. As one of the most progressive countries in the region, Oman is a key contributor to peace and stability in the Arab world, as well as a vital partner of the US in their fight against international terror. Furthermore, the recently ratified US-Oman Free Trade Agreement (FTA) stresses ongoing capacity building activities, and trade and investment liberalization.

What is your assessment of the role of US companies in Oman’s petroleum industry?

Due to some similarities between the US and Oman, when it comes to EOR and unconventional resources which we are embarking on, the United States offers lots of the know-how and technologies that we require. We have companies that have links one way or another to the States, who conduct operations and provide services and American technologies are in upstream or gas-based industries.

What are the benefits of the FTA and segments of Oman’s oil & gas industry where you anticipate the best potential for foreign investment in the near future?

The integration of the economy into the global market was the main purpose for the Omani government since the beginning of the renaissance. The foreign FTA actually supports Oman’s efforts and makes it even more open and attractive to investors. Currently Oman has many international companies operating in the oil and gas sector. The FTA encourages more foreign investors to come to Oman, which is what we anticipate will happen. However, many international companies have concessions, for example: BP, Oxy, Petronas, Harvest, Shell, Total and Partex.