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Oman leans towards bilateral awards

The sultanate’s drawn-out bid round is ending in a whimper as breakout gas contracting discussions take priority

Oman’s future licensing rounds are likely to be replaced with direct negotiations unless more enticing acreage is to be carved out of its former block 6 area, after a single award in its most recent bid round.

In early July 2020, Sweden’s Tethys Oil was confirmed as the sole winning bidder in its 2019 licensing round. The firm—which is an Omani success story, already holds stakes in blocks three and four (30pc), 49 (100pc) and 56 (20pc) and has previously sought to expand this footprint further—has been awarded block 58, which covers 4,557km2, spanning the western flank of the South Oman Salt Basin and the Western Deformation Front.

Launched last February, the bid round covered five previously explored blocks in the southwest of the country, numbered 58, 73, 74, 75 and 76, as well as block 70 in central Oman. The last of these is home to the undeveloped Mafraq heavy oilfield. Each of the licences was formerly part of state-backed Petroleum Development Oman’s (PDO’s)  900,000km² block 6 concession, which has a total production capacity of around 650,000bl/d.

Oman has become an EOR pioneer and has been the region’s testing ground for technologies including solar EOR

Despite suggestions by Oman’s oil and gas ministry in June that block 70 had been won by another Swedish firm, Maha Energy, Petroleum Economist understands no award has yet been made. Indeed, Maha issued a press release in July to address “recent speculation … regarding potential acquisitions”, stating that it was evaluating opportunities across different jurisdictions and at various stages in the negotiation process.

The company would appear to be a good fit to develop Mafraq, given its focus on implementing enhanced oil recovery (EOR) in underperforming existing and maturing oilfields. Maha is currently developing a combination of mature light and heavy oilfields in Brazil and the US.

Ad hoc attention

While the mainly oil exploration plays of the bid round failed to enthuse, Muscat has attracted much more attention in its nearfield and brownfield gas resources, signing numerous large ad hoc deals with bigger players. These include a February award of the newly created block 12 to Total, an exploration and production sharing agreement struck with Italy’s Eni and BP in mid-2019 for block 77 and the signing of a memorandum of understanding with Shell and Total for the Greater Barik area. Chinese state oil firm CNPC is also understood to be in advanced discussions with BP to acquire a 10pc stake in the Khazzan gas field.

These projects are decidedly less frontier than the blocks offered in the bid round, boasting access to existing infrastructure or the option to tie-back to producing assets, thereby de-risking the proposition and improving return on investment.

EOR challenges

At 5.4bn bl, Oman’s oil reserves are relatively meagre compared with neighbouring Saudi Arabia and the UAE, but still sufficient for 21st place on the global chart. Vast swathes of acreage also remain ‘frontier’, having seen little or no exploration.

However, E&P firms in the sultanate face a greater geological challenge than those in other Gulf states thanks to complex geology, which has made EOR techniques key to achieve oil and condensate production capacity of 970,000bl/d. Oman has become an EOR pioneer and has been the region’s testing ground for technologies including solar EOR.

These methods have been so successful that PDO has a stated aim of EOR accounting for around a quarter of its output by 2025. But, amid lower oil prices, the higher cost of tertiary recovery methods is likely to prove prohibitive.

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