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Oman production plugs on

Strong output, but keeping it there is the challenge

THANKS to the judicious application of enhanced oil recovery (EOR) techniques in recent years, Oman has reversed the long-term decline of its crude oil output. Its state-controlled company, Petroleum Development Oman (PDO), last year pumped at 0.59m barrels a day, its highest level in a decade. Overall national production averaged 1m b/d last year, well ahead of levels seen ten years earlier.

Now the job is to keep output steady for a while longer yet. PDO plans to keep its production at 0.6m b/d up to 2029, though this means digging deep into its cash reserves to sustain EOR activities. In a weak oil market, operating costs of $10-15 a barrel no longer look so cheap, especially compared with the rest of the region.

And spending more cash won’t be easy. The IMF reckons the sultanate’s oil and gas revenues dropped from $35.4bn in 2014 to just $21.5bn last year. Natural gas output has also dipped, with larger volumes of domestic production diverted to power generation. Liquefied natural gas production in 2015 was 7.91m tonnes a year, its lowest in five years.

The sultanate’s oil and gas revenues dropped from $35.4bn in 2014 to just $21.5bn last year

The gas decline should also be reversed soon, as BP’s Khazzan tight gas development, in block 61, gets ready to come on stream next year. This aims to deliver plateau production of 28.3m cubic metres of gas a day – equivalent to an increase of about a third of Oman’s total daily gas supply. This megaproject, sanctioned in 2014, will see 300 wells drilled over a 15-year period. It is by far the biggest project underway in the country.

For oil, PDO’s main focus is block 6, where the battle is to slow its decline too. In 2014, the company, in which Shell is also a major shareholder, discovered new reserves at the block’s Dhulaima and Birba fields, adding 0.613bn barrels to overall production capacity.

But activity is bustling elsewhere too. The country’s rig count in April stood at 68, according to Baker Hughes, making Oman one of the producers in the Middle East to have added rigs over the past year. Some international oil companies continue to press on. Circle oil is developing the offshore block 52, with 7bn barrels of oil in place. Occidental Petroleum hopes to produce 120,000 b/d from Mukhaizna field. But Oman remains a relatively pricey operating environment. Norway’s DNO pulled out of onshore blocks 30 and 31 in 2015, citing cost-cutting measures, though it has kept its interests in blocks 8 and 36.

This article is part of an in-depth series on upstream in the Gulf. First article: Saudi Arabia's revolutionary vanguard.

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