I write about Oman as we at CMS expand our Middle East work into this region.
Since the first oil concession licence was granted to Darcy Exploration Company in 1925, the Sultanate of Oman has come a long way to becoming: (a) one of the world’s most successful oil and gas producing countries; and (b) the largest oil and gas producing non-Opec member in the Middle East.
Initial reports on oil reserves conducted almost 100 years ago initially proved to be inconclusive. In addition, the first oil exploration well turned out to be dry; however this did not deter the Omani people.
Since its very first discovery, oil and gas production in the Sultanate has steadily risen, year-on-year, reaching 340million barrels in 2013.
This figure represents a 2.3% increase in production compared to 2012 and is set to rise still further in 2014.
In 2013, the Ministry of Oil and Gas for Oman tendered out five new blocks, two of which have been awarded to international firms for exploration to start this year.
These blocks are located in southern Oman, where the majority of oil and gas production within the country takes place.
This trend is set to continue, with the Ministry of Oil and Gas recently announcing at the “International Unconventional Gas Conference and Exhibition” that Oman will “continuously offer open blocks to the market”.
This announcement was made following the completion of negotiations for several other oil blocks, including two production sharing agreements which the government of Oman signed in December last year: one with Total to develop an offshore block off the northern coast with an estimated investment of $133million; and a second agreement with Petrogas Kahil to develop an onshore block in the Al Wusta (central) region with an estimated investment of $45million.
Oman remains focused on inward investment, with a large proportion of the revenue generated from the oil and gas sector being reinvested into the Omani people and infrastructure.
In a recent speech made by His Excellency, Nasser bin Khamis al Jashmi (the under-secretary of the Ministry of Oil and Gas) during a seminar held by Oman’s In-Country Value (ICV) Committee, it was estimated that Oman’s oil and gas sector would provide approximately $64billion in additional “ICV” over the period 2013 to 2020.
Further details of how this money will be divided out came in an additional statement made at the same seminar by H.E. Irshad al Lawati (CEO of the Oman Society of Petroleum Services), where it was intimated that approximately 80% of the inward investment would go to local suppliers and the remaining 20% being directed towards the employment of Omanis.
This statement of intent aligns well with OPAL’s altruistic raison d’être, as an entity that was created to promote “industry standards” and a “level playing field”.
As a direct result of Oman’s relatively favourable exploration and production opportunities (including more preferential contractual terms compared to its regional counterparts), many of the major international players have a presence in the country, including Shell, Partex, KoGas, Occidental and BP.
Last year, the Omani government and BP signed a gas sales agreement and an amended production sharing agreement (PSA) for the development of the Khazzan field which will involve some 300 wells.
Once completed, it is expected that this field will produce about 28.3million cu.m of gas per day.
This amount of gas would meet one third of Oman’s daily domestic gas requirements. The total investment in this tight gas project is estimated to be around $6billion.
Currently there are 22 international oil and gas exploration and production companies operating within the Sultanate.
Each works under a PSA and collectively contributes to some 30% of the country’s total crude oil production.
Turning to renewables, at first glance it may not seem particularly surprising that the Sultanate of Oman is becoming a focus of international attention in the renewable energy sector.
After all, Oman receives a rough average of 3,500 hours of sunshine per year and, like most arid countries, has a high demand for water and power.
However, the rate at which renewable energy projects within the region are gaining traction warrants some further consideration.
From a scientific perspective, Oman appears to have the precise geographical positioning to capture optimal solar radiation.
From a commercial and legal perspective, Oman has a framework that encourages international investment and fosters innovation.
Additionally, the country has the ability to locate solar generation plants close to ultimate end users, making the Sultanate an attractive proposition by virtue of its ability to reduce transmission infrastructure capex.
In 2013, Al Mazyunah desalination was the first step in a series of planned renewable energy projects.
Since that first step, it has been reported that RAECO is planning four solar plant projects and two windfarms as part of a five-year renewable energy plan running from 2013 to 2017.
It is expected that the solar power plants will be constructed in different regions of the Sultanate, including the Al Wusta (central) region and Musandam, the geographically separate peninsula that juts out into the Straits of Hormuz.
The windfarms will most likely be constructed in the Dhofar region, however, RAECO is yet to confirm the precise details of these projects.
Oman’s power and water needs are increasing at a significant rate, and demand will have to be met with substantially increased generation capacity over the next seven years.
Therefore, we are likely to see increasing energy activity in this corner of the Middle East.
Penelope Warne is senior partner & head of energy at international law firm CMS Cameron McKenna
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