Oman - carry on pumping
It is part of the Opec deal to cut production — but Muscat's long-term goal is to do anything but
For Oman's oil sector, 2016—despite the hurt caused by low global oil prices—was something of a red-letter year. Petroleum Development Oman (PDO), the country's dominant producer, came close to reaching its 0.6m-barrel-a-day target two years ahead of schedule; and Oman's total output topped 1m b/d.
It might be understandable therefore to find PDO's technical director Amran al-Marhubi feeling a little despondent at the prospect of his company now having to bear the lion's share of the 45,000-b/d cutback agreed by Oman as part of the recent Opec/non-Opec deal to boost prices.
But not a bit of it. Sitting in his modestly furnished office on the second floor of the old wing of PDO's Muscat headquarters, a view of Mina al-Fahal bay through the palm fronds, Marhubi said in an interview in January the company would have no problem complying with the new arrangement: "Technically, it's not a challenge because it's all about looking at your portfolio and selecting in what order to curtail production, and of course it's much harder to produce than it is to shut in."
(In mid-February, the International Energy Agency said that Oman had come good on its pledge to cut, although no official data have yet been released.)
The challenge, Marhubi went on to say, was to make sure that a production cut did not divert the company away from its long-term goals, for "there is a momentum in terms of development, in terms of the number of rigs that you have, in terms of projects that you've put on stream. And these are not so easy to slow down or stop."
PDO, established in the late 1930s, is owned by the Omani government (60%), Shell (34%), Total (4%) and Partex (2%). It operates around 130 fields, most in the giant Block 6, which covers 100,000 square km of land in the centre of the country.
Despite the dramatic drop in oil revenue since the fall in crude prices, Oman is pressing ahead with upstream development, a fact that is reflected in the 2016 production results. Marhubi says PDO's strategy is to keep looking for new resources and new ways of exploiting them, even at times of financial difficulty.
"I think we've got to look at the years ahead," he said. "Stopping looking [for new energy resources] and stopping developing is in the interests of nobody. At the moment, we have no intention of curtailing our development plans. We still have growth ambitions." In the short term those ambitions "have to be put on the back burner, if you like. But the worst thing that we can do for the country is to stop developing, allow our potential to fall."
Much of the country's progress in increasing output results from PDO's success in developing enhanced oil recovery (EOR) techniques to exploit the country's sizeable reserves of heavy crude oil. The main projects, all in Block 6, are al-Amal (using cyclic-steam injection), Marmul (polymer-thickening agent) and Qarn Alam (thermally assisted gas-oil gravity drainage). EOR accounts for up to 14% of PDO's production, and the company had hoped to gradually increase this share to 33% by 2023. But his has been scaled back to 25% by 2020 because of the high costs involved. The focus now is on primary and secondary oilfields.
PDO's technical director said that "in the past couple of years we have made a number of discoveries in actually quite mature areas that we should bring to the front of the queue. They are generally primary and secondary, involving the recovery of light oil, quite gas rich. We can get that production on stream quickly, because it's primary and it's a very simple process."
'The last thing you want to do having warmed up a reservoir is to let it cool down'—PDO's technical director, Amran al-Marhubi
One of the discoveries that PDO is focusing on is Sadad North in central Oman, and the Asfoor field in the Hawqa area. But, Marhubi continued, "probably the most interesting discovery has been in the Lekhwair field in the north, which we've had since the 1970s, but we've discovered a productive zone above the target zone, the Shuwaiba, with light oil, free flows. It's very interesting and we're very excited."
But the company's shift in focus does not imply taking its eye off EOR: "The thing about EOR projects is that they are 30-40 year projects. The last thing you want to do having warmed up a reservoir is to let it cool down. So we have no intention of slowing those things down, no." But was the target of 25% of PDO's production coming from EOR by 2020 still realistic? "Between 20 and 25%, yes. Because we still have one major project, the Rabab Harweel Integrated Project (RHIP), which is going to come on stream in 2019." In mid-2016, PDO signed a loan facility deal for $4bn, in large part to finance RHIP.
Marhubi estimates that RHIP will produce 4m cubic metres a day of extra gas and around 20,000 b/d of condensate. "As for the extra oil," he added, "it's not so much a step up in production, rather this is the next field in which we want to do gas injection. It's about keeping the original facilities for longer. So there won't be a huge step-up in black oil production, but it will extend the life of those facilities."
Extra light crude oil over the coming year can be expected from Occidental Petroleum's Safah and Wadi Latham fields in the north, while the Mukhaizna field in Block 53 (Oxy is operator with 45%, Oman Oil Company 20%, Shell 17%, Liwa Energy 15%, Total 2%, Partex 1%) continues to produce around 122,000 b/d, using steam flooding. The development of tighter carbonate layers at Mukhaizna will probably await the return of high global oil prices. But the development of Duqm port, 120 km to the east of Mukhaizna, where an oil refinery is planned, could encourage further interest in southern Oman as a whole.
From all oil companies with an upstream presence in Oman (including DNO, Daleel Petroleum, CC Energy Development and Petrogas) and those contemplating investment, the Omani government is looking for both commitment and innovation, as the sultanate seeks to develop increasingly difficult oil reserves to keep production at somewhere close to a 1m b/d plateau for as long as possible.
This article is part of a report series on Oman. Next article: After Qaboos