Global Investment House – Oman Economic and Strategic Outlook - Oil Sector-The significant breadwinner of Oman’s economy, the oil sector contributed about 62% of government revenues in 2007 compared to 65% in the previous year. Despite a decline in the total annual oil production to the tune of 3.7%; from 269.2mn barrels in 2006 to 259.3mn barrels in 2007, the modest increase of the revenue pie was as a result of increase in the average price of Omani crude oil per barrel from US$61.7 in 2006 to US$65.2 in 2007.
Omani Oil Production and Exports
Mn Bls 2002 2003 2004 2005 2006 2007
Annual Total Production 328.0 299.0 285.0 283.0 269.2 259.3
% change -6.0% -8.8% -4.7% -0.7% -4.9% -3.7%
Annual Exports 306.2 278.5 263.6 262.1 233.2 222.0
% change -7.8% -9.0% -5.4% -0.6% -11.0% -4.8%
Source: Ministry of National Economy
Oman's oil fields are generally smaller, more widely scattered, less productive, and more costly per barrel than in other Persian Gulf countries. The average well in Oman produces only around 400 b/d, about one-tenth the volume per well of those in neighboring countries. To compensate, Oman uses a variety of enhanced oil recovery (EOR) techniques. While these methods raise production levels, they increase the cost.
Petroleum Development Oman Co. (PDO), the country’s second largest employer after the government, holds over 90% of the country’s reserves and accounts for about 95% of crude-oil production and nearly all of its natural gas supply. PDO owned 106 out of a total 124 oil producing wells. PDO, together with other oil producing companies (e.g. Occidental Oman, Daleel Petroleum, Novus Oman and Petrogas) combined produced 259mn barrels of oil in 2007, compared to 269.2mn barrels of oil in 2006, 283.0mn barrels in 2005, 285.0mn barrels in 2004, 299mn barrels in 2003 and 328mn barrels in 2002. To reverse this decline in oil production, PDO has planned for major investments in technology and infrastructure investments such as enhanced oil recovery technologies in the coming years. Owing to these increased investments in oil development activities, Oman’s oil and reserves stood at 5.6bn barrels at the end of 2006, an increase of 68.3mn barrels over the previous year.
The daily oil production at the end of Jan-07 averaged at 716.4 thousand barrel per day, which is a 7 % y-o-y decline from 770.5 thousand barrel per day. Of this, 550 thousand barrel per day is expected to come from majority state-owned PDO. Total crude oil exports totaled 222mn bbl/day in 2007, a decline of 4.8% from the previous year. The majority of Omani oil exports were directed to the east. China, Japan, Korea and Thailand captured about 72.2% of total oil exports in 2007.
Direction of Omani Oil Exports
Mn Barrels 2001 2002 2003 2004 2005 2006 2007
Japan 90.1 80.9 60.8 40.8 43.1 22.7 29.0
China 53.6 54.6 77.2 106.4 84.3 92 99.3
Korea 58.9 46.7 43 41.9 41.1 34.2 15.6
Taiwan 5.7 19.2 4.9 12.1 16 11.2 8.1
Thailand 48.8 52.2 51.9 43.4 44 43.2 39.3
Malaysia 13.4 10.9 13.7 0 6.9 12 6.3
Singapore 21.1 16.5 9.7 3.1 7.5 5.3 2.1
USA 5.8 6.1 8.2 4.8 0 0 0.0
Others 29.5 18.8 17.2 11.1 19.2 12.5 22.4
Total 331.6 306.1 278.4 263.7 262.1 233.1 222.0
Source: Ministry of National Economy
To help offset declining output, Oman’s Minister of Oil and Gas announced in Apr-06 that the country plans to invest US$10bn in upstream oil and natural gas projects during 2006-2011 to boost oil output to 900,000 bpd and natural gas production to 70-80mn cubic meters per day. A lion’s share of this effort will focus on enhanced oil recovery initiatives to improve recovery rates at several of the country’s oil fields. Oman also plans to increase exploration and production activities, although the natural gas sector will receive much of these investments. The oil and gas investments are expected to constitute about 23% of the total investment of the country in 2008, up 12% over last year.
Sohar Refinery built at a cost exceeding US$750mn, commenced operating at its full capacity of up to 116,000 barrels per day. The entire refinery's output would be currently exported. The Sultanate has invited international firms to develop five more onshore and offshore oil blocks in the country on production sharing basis in Apr-08.
© 2008 Al Bawaba (www.albawaba.com)
