As conventional oil and gas reserves have declined across the world, more and more operators are turning their attentions towards unconventional reserves.
As new technologies come into play, producers are looking towards countries that have an abundance of unconventional resources that were previously thought impossible to tap. There is no better example of this than the Sultanate of Oman where CMS’s newest office is situated.
Strategically located at the end of the Arabian Peninsula, and outside of the Strait of Hormuz, Oman is the largest oil and gas producer in the Middle East that is not a member of the Organisation of the Petroleum Exporting Countries (OPEC).
The US Energy Information Administration reported in 2013 that Oman had proven reserves of 5.5billion barrels of oil and 30trillion cu.ft of natural gas. In addition, it has been estimated that there are undiscovered resources of up to 370million barrels of oil, 315billion cu.ft of gas and over 40million barrels of natural gas liquids in the Southern Oman Salt Basin alone.
Currently, some of the largest unconventional oil and gas projects in the world are being undertaken in this small country.
In 2007, BP signed a major exploration and production sharing agreement in respect of Block 61 and the Khazzan and Makarem natural gas fields. The Khazzan field is a “tight gas” reservoir where BP has been using hydraulic fracturing technology to extract the natural gas from the rocks since 2008. The government of Oman sanctioned the full development of the field at the end of 2013.
The project is expected to involve the drilling of over 300 wells over 15 years, at a total cost of around $16billion. Once completed, it is estimated it will achieve production of around one billion cubic feet of gas per day (some 28.3 million cu.m). In addition, it is expected to produce 25,000 bpd of gas condensate.
Commenting on the Khazzan project (at the IUGCE), Omiani oil & gas minister, Dr Mohammed Al Rumhy, stated that it is “the largest new upstream project in Oman and a pioneering development in the region in unlocking technically challenging tight gas through technology”. The Khazzan project will be critical in ensuring that Oman remains a net producer and exporter of natural gas.
Other major tight gas projects include a development on block 60, operated by Oman Oil Company Exploration & Production, and the Khulud tight gas pilot project in the northern portion of block 6, operated by Petroleum Development Oman. PDO is the joint venture between the Government of Oman, Shell, Total and Partex and is the country’s foremost E&P company.
In addition to tight gas, PDO has also been a leader in Oman in enhanced oil recovery projects, the first of which, Marmul, began in 2010. More recently, PDO has begun to break new ground in heavy (or difficult) oil exploration, using three distinct EOR techniques: miscible gas injection, thermal recovery and chemical.
The Omani government has publicly stated its intention to spend around $50billion on new projects in the next few years. Many of these projects will be announced in the country’s new five-year plan that is scheduled for publication in 2015. These projects will place heavy demands on existing energy resources.
Ultimately, it will encourage the Sultanate to do what it does best: looking for international partners and utilising cutting-edge technologies to maximise unconventional oil and gas reserves. That sounds like an opportunity for many of us here in Aberdeen.
The governmental regulator for the Oman oil and gas industry is the Ministry of Oil and Gas. Among other things, the Ministry represents the Omani Government as a contractual party to, and in, any exploration and production contract with an oil and gas developer-operator.
The Ministry also acts as the State supervising body for all activities in the Oman oil and gas sector. From time to time it publishes a current list of investment opportunities in the Sultanate, inviting declarations of interest from industry players within and outside of Oman.
The key regulating statute in Oman for exploration, development and operational activities in the oil and gas sector is Royal Decree No. 8 of 2011. This Royal Decree provides that any survey, exploration, discovery, development or exploitation of oil and/or gas reserves in Oman must be carried out pursuant to a “concession agreement”.
The Ministry is invariably the Government party to any such concession agreement. Typically, the concession agreement will take the form of an exploration & production sharing agreement (EPSA) between the Government and the concession holder.
The EPSA in Oman is generally standard form, albeit that the parties will typically negotiate some of its key commercial and technical provisions.
Among other things, the EPSA will contain detailed provisions describing the manner in which the Ministry will supervise and control the implementation of the agreement, and the rules by which the concession holder may retrieve its capital and profits.
Other key items of legislation applicable to exploration, and development activities in the oil and gas sector in Oman, will include a range of laws and Ministerial Decisions on environmental protection and pollution control, on the safety and security of oil and/or gas installations in Oman, and on Omani labour matters and in-country value.
A detailed familiarity with each of the key pieces of legislation is essential to ensuring the successful delivery of any oil and/or gas project within the Sultanate, whether unconventional or otherwise.
Penelope Warne is senior partner & head of energy at international law firm CMS Cameron McKenna