OMAN - Exploration Background.

The search for oil in Oman began in 1925, soon after D'Arcy Exploration Co. won a two-year licence. Then the country was a British protectorate. The company made geological surveys but failed to find oil. In 1937, after oil discoveries in Bahrain and bigger ones in Saudi Arabia's Eastern Province, the BP-led Iraq Petroleum Co. (IPC) came to Oman and established Petroleum Development (Oman & Dhofar) Ltd. PDOD was awarded concessions and options in areas around Muscat and the town of Dhofar, the latter then under a separate administration.

The outbreak of World War II interrupted PDOD's work. PDOD was owned by BP, Shell, Total, Exxon, Mobil, with 5% held by Callouste Gulbenkian (the famous broker called "Mr. 5%" whose company was later named Partex and registered in Portugal).

PDOD resumed exploration in the late 1940s. It had to relinquish Dhofar and by then it had changed its name to PDO. The political situation worsened in the mid-1950s, and rebels in Dhofar threatened to undermine PDO's operations because of British support for the then sultan, Sa'id bin Taymour. In 1956 PDO managed to spud its first exploration well at Fahud. This turned out to be a dry hole.

In 1954, Cities Service and Richfield Oil of the US came to Oman and found the Marmul field in the south in 1956. But the two relinquished the field to PDO as the oil was very heavy and the area was affected by political turmoil. PDO failed to find oil elsewhere and Marmul was shut in. This led to the departure from PDO of BP, Compagnie Francaise des Petroles (now Total), Exxon and Mobil. That was in 1960. Shell stayed behind with 85% in PDO, along with 5% for Partex and 10% for the government. In 1962, Shell found Yibal, with a major oil reserve. Later it found Natih (1963) and Fahud and al-Ghubar (1964).

Those finds attracted Total back to PDO and had sufficient reserves to warrant development. PDO built an export terminal at Mina al-Fahal, just north of Muscat. Oil exports began in 1967 as Total rejoined PDO. Exploration intensified and led to discovery of Lekhwair and al-Huwaisah in 1968; Qarn Alam, Habur, Ghaba North and Saih Nihaydah in 1972; Amal and Saih Rawl in 1973; Anzauz and Barik in 1974; Shibkah in 1976; Rahab in 1977; and Birba and Qaharir in 1978. By late 1973, oil prices had quadrupled and encouraged PDO to increase exploration as well as speed up development of these fields.

Following the trend in the OPEC world (though Oman never joined OPEC or OAPEC), Muscat took 25% in PDO in early 1974 and raised this to 60% in mid-1974. Shell's holding fell to 34%, Total's 10% fell to 4% and that of Partex dropped to 2%. After an oil glut in 1977, Muscat was compelled to improve E&P incentives, with emphasis on Dhofar. It signed a five-year agreement which PDO. PDO found Mahjour, Runib, Qata, Rima and Jalmud in 1979 - when crude oil prices rose sharply, warranting fast-track development. It found Nimr and Thulailat in 1980, Zauliyah and Thayfut in 1981 and many others in the later years.

By then several other firms had relinquished their blocks and left Oman. Elf Aquitaine in 1973 acquired an offshore block off the Musandam Peninsula, where it found gas/condensate fields at Bukha and Henjam in 1976. But it relinquished them later. In partnership with Sumitomo and Wintershall, Elf had acquired an onshore block in the Sahmah area and in 1978 found the Sahmah oilfield which it developed. Elf sold its interests to the local company Petrogas, as its output fell, and left Oman in 1999 (Elf was absorbed by Total). Safah was found in 1983 by Quintana/Gulf Oil and was developed by Occidental Petroleum. The oil producing Wadi Aswad fields in onshore Block 5 were found in 1984 and developed by Japex Oman of Japan (Japex & JNOC). But the Japanese partnership decided not to renew its 20-year concession in late 2001 and sold its Oman assets to Petrogas, which is a subsidiary of the local MB Petroleum (see Part 2).

Exploration in non-PDO areas was limited and mostly involved little-known firms. These included Compact Oil (of Bermuda-based Transworld Oil, owned by John Deuss) which had a 50,000 sq km tract along the northern coast. Arakis of Canada and Aegis of the US got the Jebel Aswad block, under a contract signed in mid-1989.

Blocks offered since then have been part of areas relinquished by PDO. To boost exploration, Muscat in late 1994 pressed PDO to abandon areas where it was not operating. In early 1995, PDO relinquished about 95,662 sq km onshore and offshore (see detailed background in Vol. 62, Gas Market Trends No. 5).

There have been major developments in the petroleum sector since the last survey of Oman was published in February 2004. The government was not happy with Shell's PDO performance as its expensive EOR systems had failed to stop a steady decline in oil production since 2000. A crucial step was taken in December 2004 as PDO's concession in Block 6, covering most of Oman, was extended until 2044. Originally signed in 1937, the agreement had been due to expire in 2012.

Particularly unhappy with Shell's plans for the Mukhaizna field of heavy oil, the state finally transferred this from PDO to a partnership of Occidential (Oxy) of the US and Liwa Energy of Abu Dhabi in an EPSA signed in June 2005. That was a major setback for Shell.

Under its December 2004 agreement with the government, PDO in June 2005 had to relinquish 10% of its 114,000 sq km concession area in Block 6. The Petroleum Concessions & Exploration Services division of the Ministry of Oil & Gas (MOG) took the ceded area and then divide it into a number of blocks. In mid-2006, the MOG signed seven EPSAs in a competitive bidding round - the first in Oman's history:

Oxy took Block 54, adjacent to its Block 53's Mukhaizna field, and its partners in this are Liwa (15%) and Mitsui (15%). Dubai-based Indago took Block 43A and Block 43B went to MOL of Hungary. Block 56 went to Oilex of Australia (25% & operator) in JV with an Indian group of Gail (25%), Hindustan Petroleum (12.5%) and Bharat Petroleum (12.5%), and Videocon Industries (25%). State-owned PTTEP of Thailand which has Block 44 got Block 58. A group of Evertson of the US and Omani firms al-Zakwani Enterprises and National Steel got Block 55. A consortium, Taqa Exploration, headed by Omani firm Muscat Overseas took Block 57.

In November 2007 Reliance Industries Ltd (RIL), the biggest private group in India, got an EPSA for the 20,000 sq km deep-water Block 41, next to its offshore Block 18. Rak Petroleum of Ras al-Khaimah (RaK) got an EPSA for the onshore Block 30 in central Oman. In the first quarter of 2008 the MOG will award three offshore and two onshore blocks.

Oilex on Jan. 2, 2008, said the Sarha-1 exploration well was spudded on Dec. 31. This is the first of wells to be drilled in a continuous sequence by Oilex in the Block 56. It said drilling was to take 18 days and a total depth was to be reached at 1,650m. A big volume of existing seismic data had been reprocessed and during 2007 new data were acquired. On the basis of reprocessed data and existing 3D seismic surveys in the western part of the block, a number of exploration well locations were developed for drilling during 2008. Sarha-1 is on the eastern flank of the South Oman Salt Basin adjacent to several producing PDO fields. Sarha is similar to PDO's nearby fields. The pipeline network from those fields is only about 30 km to the west from Sarha-1. The well was to evaluate the Permo-Carboniferous Fm which is a major producer across Oman. The well was to be deepened to intersect the oil-bearing Cambrian Huqf Fm found in adjacent wells. Sarha-1 will be followed by Ghadaq-1 in the western province of conventional plays and Alyanbou-1, in the frontier area on the northern salt wall trend. Four wells are planned for the third quarter of 2008 on locations which will depend to a large extent on the results from the initial three-well programme and a further four wells are anticipated to be drilled in late 2008 and the first quarter of 2009.

Tethys Oil AB of Sweden in late 2007 got 50% in onshore Blocks 3 and 4 from ASA of Norway, through its subsidiary Altinex. These cover more than 30,000 sq km.

Tethys operates onshore Block 15, where in late 2007 it began a comprehensive programme of flow tests and collection of gas and oil samples in the Jebel Aswad well. A higher condensate gas ratio (up to 25% higher) was measured during tests. The data confirmed the production results obtained in June 2007, when the well tested 11.03 MCF/d of gas and 793 b/d of 57[degrees] API condensate. Tethys has 40% in Block 15, with Danish firm Odin Energi having the rest. Tethys was formed in 2001 and listed in Stockholm in 2004.

The Jebel Aswad-1 well flowed oil in 1994 but it was deemed non-commercial and never developed. The re-entry in June penetrated the Shuaiba and Natih Fms.

Naftogaz Middle East, a JV of Ukraine's state-owned Naftogaz and Abu Dhabi-based al-Jazeerah Enterprise for Development & Trading, in June 2007 got EPSAs for Block 39 in Salalah and Block 42 in Sharqiyah.

In late 2006, as the MOG said it was to offer increased EPSAs, it meant an acceptance that, after years of battling falling oil output, the time had come for a change of approach. The MOG admitted to the danger of being caught at a crossroads as it sought to address a growing gas supply deficit expected to top 1,200 MCF/day by 2010.