L JULY 23

As the nation’s economic mainstay, the oil and gas industry continues to stay the course in sustaining hydrocarbon output – so pivotal to government revenues – despite weak international oil prices that are weighing down oildependent economies. ‘Staying the course’ is, in fact, the new mantra that guides Oman’s oil and gas producers through the current downturn wrought by the oil price collapse in mid 2014. It espouses a strategy, spearheaded by dominant energy producer Petroleum Development Oman (PDO) and since embraced by fellow oil and gas companies as well, to reduce expenditure optimize hydrocarbon output, improve business and operational efficiency, eliminate waste, priority Omanisation and training, and promote localization efforts, among other objectives. The strategy has delivered amazing results thus far! Despite sizable cuts in capital and operating expenditure, oil production has not only been sustained at pre-crisis levels but ramped up as well. Thousands of Omani oilfield jobs imperiled by the slump have been salvaged thanks to the effective implementation of a far-reaching ‘redeployment strategy’ by the industry.

Long-term projects that are not imperative to the short-term goal of sustaining output have been deferred, thereby allowing a reprioritization of funding resources to ventures that aid cash flow.

Crude oil production averaged 998,500 barrels per day (bpd) during the first quarter of 2016, versus an average output of 965,100 bpd for the same period last year. The average price of Oman Crude declined 43.9 per cent to $34.76 per barrel in Q1 2016, versus $61.99 per barrel in 2015. Production of crude oil and condensates totalled 90.86 million barrels during the first quarter of this year, up 4.6 per cent from that of Q1 2015. Of this total output, Oman exported 83.94 million barrels in Q1 2016, against 78.39 million barrels during the corresponding quarter of 2015.

Natural gas production climbed 8.3 per cent to 10.206 billion cubic metres (BCM) in Q1 2016, compared to 9.426 BCM for the same period of last year. Of this total, non-associated gas output rose 8.1 per cent at 8.459 BCM, while associated gas production jumped 9 per cent to 1.748 BCM.

Despite the gloom pervading the industry in the wake of the oil price slump, Petroleum Development Oman (PDO), the Sultanate’s preeminent oil and gas company, has shown itself capable of bucking the downturn. In the annual briefing by key industry players hosted by the Ministry of Oil and Gas, PDO announced that it had set a new combined oil, gas and condensate production record of 1.29 million barrels of oil equivalent per Managing Director Raoul Restucci said the majority government-owned company was confident of reaching a new sustainable long-term oil production plateau of 600,000 barrels per day (bpd), well ahead of its original 2019 target, to support revenue At the same time, it is pledging to intensify its costcontrol programme to combat the effects of the low oil price environment with an efficiency drive across its operations and has reduced planned expenditure this year by $1.6 billion.

The average PDO daily oil production for 2015 was 588,937 bpd, the highest since 2005 and almost 14,000 bpd above the planned target. Gas production was 83 million m3 /day, one million cubic metres above the planned target as the Company stepped up its effort to meet growing national gas demand.

PDO also added significant reserves and contingent resources, in excess of annual production, in 2015. There was a substantial oil discovery at Sadad North in southern

Oman amounting to 44.5 million barrels of commercial contingent reserves (CCRs), contributing to a total of 109 million barrels of CCRs from new discoveries. Additionally, there was a 2 per cent rise in Stock Oil Initially In Place (STOIIP) to 67.8 billion barrels and a 4 per cent increase in Gas Initially In Place (GIIP) to 78.2 trillion cubic feet (tcf ).

On the gas supply front, the Mabrouk Southwest discovery yielded 0.38 tcf of commercial contingent reserves. The field was discovered as a satellite to the Mabrouk field in the Barik and Miqrat reservoirs in the northern part of PDO’s Block 6 concession area. By the year’s end, the Tayseer gas field discovery in southern Oman further added in place volumes of 0.93 (tcf ) of gas and 117 million barrels of condensate.

PDO is currently operating a variety of commercial-scale enhanced oil recovery (EOR) projects that include chemical EOR, miscible gas injection and thermal applications. It will also continue the maturation of more promising and novel EOR technologies through laboratory and field testing.

However, because of the resource-intensive nature and higher cost of tertiary recovery mechanisms, much emphasis has been placed on accelerating conventional oil and gas op- portunities instead of additional short-term expansion of EOR projects. This optimisation is very much enabled by the several development choices we have in our portfolio and means that EOR is now expected to account for approximately 25 per cent of PDO oil production by 2025, as opposed to last year’s projections of 33 per cent by 2023.

Last month, PDO announced the successfully raising of $4 billion from a group of international financial institutions – financing that will be used to support the company’s activities which include the construction of major new oil and gas facilities providing long-term economic benefits for the Sultanate. PDO plans to invest more than $20 billion over the next five years to sustain the Company’s long-term hydrocarbon output. Examples include the Rabab Harweel Integrated Project which is the Company’s largest capital project and will enable the development of 240 million barrels of oil and 100 million barrels of condensate along with the export of one trillion cubic feet

Meanwhile, energy super-major BP continues to make excellent development in the development of its multi-billion dollar Khazzan tight gas project in Block 61. The Khazzan reservoirs in Block 61 represent one of the Middle East’s largest unconventional tight gas accumulations, with the potential to be a major new source of gas supply for Oman over many decades. Production from Khazzan will make a significant contribution to ensuring continuing stable and long-term domestic supplies of gas for Oman. The Phase 1 project, sanctioned in December 2013, remains on schedule to deliver first gas in late 2017.

However, earlier this year BP, along with Oman Oil Company Exploration &Production (Oman Oil E&P), a wholly owned subsidiary of Oman Oil Company, signed a heads of agreement with the Omani government committing to amend the Oman Block 61 exploration and production sharing agreement (EPSA). The Heads of Agreement extend the licence area of the block and enabling a further development of the major Khazzan tight gas field. BP is the operator of Block 61 with a 60 per cent interest and Oman Oil E&P holds the other 40 per cent.

Under the amended EPSA, the extension will add a further over 1000 km 2 to the south and west of the original 2,700 km 2 Block 61. The extension will allow a second phase of development, accessing additional resources in the area that have been identified by drilling activity within the original block. Development of this additional resource is subject to final approval of the Government of Oman and of BP; both expected in 2017. Subject to completion of the agreements and final sanction, the new Khazzan Phase 2 project will come on stream from 2020. The two phases are expected to produce 1.5 bcf/d through development of 10.5 trillion cubic feet of recoverable gas resources. This will involve construction of a three-train central processing facility with associated gathering and export systems and drilling around 325 wells over a 15 year period. Improved reservoir performance, drilling efficiencies and other improvements have reduced the well count by around 100 wells from the original Phase 1 plan.