MAKING MORE OUT OF LESS

Petroleum Development Oman (PDO) has budgeted an investment of $11bn in the next 10 years towards 16 new significant projects to develop over a billion barrels of oil.

The increased stress on In-Country Value (ICV) generation and job creation has not deterred Petroleum Development Oman (PDO) from its primary responsibility of exploration and production of oil & gas. In fact, 2012 was a record breaking year for the company that accounts for around 70 per cent of oil production and almost all of the natural gas supply in the Sultanate. The oil & gas major posted its highest ever hydrocarbon production including oil, gas and condensate last year. PDO produced 1.24 million barrels of oil equivalent per day (boepd) in 2012 against the previous high of 1.21 million boepd way back in 2001. It has been a big achievement for the company that has been consecutively registering an year-on-year growth for the last five years. The overall production figure included 566,305 barrels per day (bpd) of oil, non-associated and associated gas production of 582,500 boepd and condensates at 92,500 bpd.
Recognising the need to arrest the declining conventional supplies, PDO has aggressively worked towards deployment of enhanced oil recovery (EOR) techniques to extract the hydrocarbons trapped as deep as 6 kms. As a result, two major EOR projects – Qarn Alam and Harweel – came on stream last year leading to the record production level. From 3 per cent currently, the EOR is expected to jump to 16 per cent of PDO’s evolving portfolio by 2016 as more EOR projects come on stream.

Apart from excelling on the production front, PDO made some smart gains on the exploration front as well. “In 2012, there were five new oil discoveries amounting to approximately 300 million barrels of stock tank oil initially in place (STOIIP) from Shuaiba and Gharif reservoirs. Mabrouk Deep became one of the most significant gas finds in PDO history with estimates of in-place volumes amounting to 2.9 tcf (trillion cubic feet) of gas and 115 million barrels of condensate,” stated Raoul Restucci, managing director of PDO. The exploration directorate of PDO plans to drill around 100 wells and spend $800 million in the next five years in its quest for new reservoirs. Overall, PDO has budgeted an investment of $11bn in the next 10 years towards 16 new significant projects to develop over a billion barrels of oil.

PDO’ good performance positively impacted the country’s overall production levels. According to the Ministry of Oil & Gas, Oman’s average daily production of oil and condensates touched 918,500 barrels per day (bpd), an increase of four per cent, in 2012. Around 260,000 bpd of oil and condensate was contributed by other operators including Oxy (210,000 bpd), Daleel Petroleum (40,000 bpd), Consolidated Contractors (CC) Energy Development, DNO, etc. The gas production reached 98.2 million cubic meters, a gain of 3.3 per cent.

The Sultanate’s target for 2013 is to enhance the production of crude oil to 940,000 (bpd). Oman’s reserves of oil and condensates are estimated at around 4,630 million barrels, in addition to 18 trillion cubic feet (tcf) of gas. Currently, 18 operators are working in the oil & gas exploration, appraisal and production in the Sultanate. Oman is expected to invite bids for six more blocks in April this year. Oman is looking forward to the Final Investment Decision (FID) on block 61 (Khazzan and Makarem) from BP for meeting the huge requirement for gas to power the next phase of industrial growth in the country.

Meeting Social Commitment

“This is the start of a long and challenging journey. Nevertheless, we are certain of the huge benefits that lie ahead of us,” stated Dr Mohammed bin Hamad Al Rumhi, Minister of Oil and Gas while addressing the media recently. He was referring to the ICV strategy and related initiatives that are taken up by the large companies within the oil & gas sector after the social unrest in the previous year and before. Taking the lead, PDO rolled out a slew of social investment initiatives in 2012. “An estimated 4,100 jobs were created for skilled Omanis in 2012, meaning that PDO and our contractors have now created more than 8,000 (jobs) in total since His Majesty’s National Objective Programme was launched in 2011 to boost employment,” informed Restucci. It will be interesting to see whether PDO and its contractors are going to maintain this job creation momentum in 2013. PDO has already set the ball rolling by setting-up a stiff target of doubling the number of skilled Omanis employed by its contractors from 15 per cent to 30 per cent towards the end of third quarter this year. Doubling the count in such a short span is going to be an uphill task for the contractors.

PDO claims to have awarded contracts worth $2.3bn to locally registered companies including six contracts valued at $380mn to four Super Local Community Contractors (SLCC) – businesses, owned by thousands of individual investors living in PDO’s concession areas, registered as closed Omani shareholding companies on the Muscat Securities Market (MSM). In addition, PDO spent $148.5 million on Local Community Contractors (LCCs) in 2012. This year, PDO is expected to award around 200 contracts. Omani companies are expected to increasingly benefit from them as PDO has committed to spend $100mn a year on Omani goods and services upto 2020.

PDO has embarked on two new initiatives to boost its ICV spend and support local entrepreneurs. The company is in the final stage of the launch of ‘Made in Oman Index’. “It is a tool to evaluate ICV both commercially and technically in all tenders. It will be the pan-industry terms and conditions,” informed Restucci. Secondly, PDO is working on commencing the ‘Joint Qualification System’ to help Omani vendors obtain exposure in the Middle East region and subsequently in the international market.

Though PDO has a lion’s share of ICV spend, other oil & gas companies have also upped their ante in this direction. Oxy has reported $106mn worth of contracts to LCCs till date. Orpic, in 2012, spent $87.5mn on sourcing its requirement from local suppliers. If we look at Oman LNG, 98 per cent’s of the company’s expenditure on services goes to Omani companies as per an official statement. Most of the large players have created the position of an ICV manager in their respective organization to guide and monitor their ICV efforts.

The Sultanate’s target for 2013 is to enhance the production of crude oil to 940,000 (bpd)


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