The Largest Security-Cleared Career Network for Defense and Intelligence Jobs - JOIN NOW


Oman - Oil

Like most of its neighbors, Oman is dependent upon its oil sector for the majority of its export revenues and budgetary requirements. Oman possesses the largest oil reserves of any non-OPEC country in the Middle East and significant reserves of natural gas, of which it is a leading exporter regionally. Exports of natural gas have diversified the economy away from oil, but Oman will remain highly dependent on its hydrocarbon sectors for the foreseeable future. Oman is pursuing economic diversification, however its industrialization program is itself reliant upon increased volumes of petroleum and natural gas as feedstock. This leaves Oman's efforts to expand its economy largely dependent on the sectors from which it is attempting to diversify.

Since the first commercial field was discovered atJibal, west of Adam, in 1962, the petroleum industry has dominated the economy. In 1991 the industry contributed about 43 percent of GDP and 82 percent of government revenues. The government's heavy reliance on crude oil export earnings to maintain its income distribution system and political stability made continued development of this sector a priority. By early 1977, the newly organized Ministry of Petroleum, Fisheries, and Agriculture prematurely assumed that production had probably peaked at more than 350,000 barrels per day (bpd) and would decline. Exploration activity in the south was insignificant, deterred by political instability in the region, and production at the main fields of Petroleum Development Oman (PDO) in the north, includingJibal, was in decline. The suppression of the Dhofar rebellion in the mid-1970s helped reverse an output decline. Foreign exploration companies, satisfied with the restoration of political stability, began to sign area exploration and production agreements with the government. Enhanced oil recovery (EOR) techniques at existing fields, combined with new fields coming onstream, raised average output to 708,000 bpd in 1991.

The principal problem the government faced in the early 1990s was a diminishing reserve base. Proven reserves were estimated at 4.6 billion barrels in 1992, small in comparison with other gulf states. At the mid-1992 rate of production of 725,000 bpd, Oman's crude reserves are sufficient to permit seventeen years of output, compared with nearly 350 years for Saudi Arabia.

According to Oil & Gas Journal, as of 2010 Oman had total proven reserves of 5.5 billion barrels of oil. Oman's reserves are found mainly in the north and central onshore areas, comprised of disparate clusters of smaller fields. This geological composition makes production costs some of the highest in the region. The transition into secondary and tertiary extraction techniques will only increase these costs even further. Oman has thus far implemented a successful program to reverse the decline in production experienced for most of the past decade, deploying some of the most sophisticated methods of oil extraction.

Oman's Ministry of Oil and Gas coordinates the state's role in the country's hydrocarbon sectors. Final approval on policy and investment, however, rests with the sultan of Oman, Qaboos bin Said, who also holds the office of prime minister. The implementation of oil policy is done through an integrated company in which the Sultanate of Oman owns majority stakes. Petroleum Development Oman (PDO) holds for more than 90 percent of Oman's oil reserves and is responsible for 80 percent of its production. Aside from the government's 60 percent share, Shell (34 percent), Total (4 percent), and Portugal's Partex (2 percent) all own stakes in PDO.

Given the technical difficulties involved in production, the contract terms for international oil companies (IOCs) have become more favorable than elsewhere in the region, some allowing significant equity stakes in certain projects. Occidental Petroleum has the largest presence of any foreign firm and is the second largest oil-producer in Oman. Other major players with interests in Oman include: Shell, Total, Partex, BP, CNPC, KoGas, and Repsol. In 2010, BG quit Oman because of inadequate findings in exploration at its concession areas.

Oman produced 863,000 barrels per day (bbl/d) of total petroleum liquids in 2010, 860,000 bbl/d of which was crude oil. Average oil production in Oman has increased by over 20 percent for the past three years, from a low of 714,000 bbl/d in 2007. PDO owns a concession which previously encompassed most of the country, Block-6, which has since been broken up and parceled out in successive bidding rounds. Much of the production growth has come from the success of international firms in developing former portions of Block-6. Tethys Oil of Sweden in particular has received encouraging results, hitting oil at various wells in two of its onshore blocks in 2010, which could indicate a higher potential for sustained production levels.

Oman has proven reserves of natural gas amounting to 30 trillion cubic feet (Tcf) as of January 1, 2011, according to Oil & Gas Journal. Due to increased domestic consumption, gas reinjection use, and export obligations, Oman requires increasing volumes of natural gas. The Ministry of Oil has announced plans to reassess natural gas reserves, seeking to increase reserves by a trillion cubic feet per year for the next 20 years, through programs akin to the EOR techniques being implemented in the oil sector.

Given domestic consumption and the long-term liquefied natural gas (LNG) export contracts, the country has too little feedstock for electricity generation at seasonal peak times. This shortfall has resulted in service interruptions that have slowed industrialization and economic diversification programs, as well as economic growth generally. A regional power grid is being constructed between all Gulf Cooperation Council (GCC) members, of which Oman is one. This will create the possibility to import electricity, especially from neighboring UAE and its planned nuclear plants, and lessen the strain on domestic natural gas supplies used as feedstock. This prospect will only emerge in the medium-term however, largely after 2017 when UAE's nuclear plants begin to come on-line.

Join the mailing list

Page last modified: 11-07-2011 15:33:27 ZULU