Oman's energy sector makes modest gainsby Yasmin Helal on Jan 10, 2017
Over the course of the first five months of 2016, Oman’s oil revenue plunged by 44.7% to $3.34bn compared to the same period in 2015. It has been estimated by the World Bank that the Sultanate lost about $10bn in revenues in 2015 alone – an alarming loss that has prompted the Omanis to take urgent steps towards driving oil prices in order to boost the economy.
During a visit to Abu Dhabi in early 2016, the Sultanate’s oil minister, Mohammed bin Hamad Al Ruhmy, told reporters, “Oman is ready to do any¬thing that would stabilise and improve the market. At least, if OPEC and few non-OPEC [countries] chop 10% [of production], I think the problem is solved.”
When OPEC and non-OPEC countries in Vienna in December reached an agreement to reduce output to prop up prices, Oman presumably displayed the utmost enthusiasm about the success of the talks. Along with Russia, it joined a monitoring committee set up by the OPEC to oversee the implementation of oil production cuts by adherents.
According to Nizar Jichi, audit partner and oil & gas leader at KPMG Lower Gulf, said, “OPEC and non-OPEC members recently cut oil production by almost 1.8mn barrels a day. This has driven oil prices up by 15% reaching $55/barrel. We anticipate oil and gas companies will maintain current levels of operations until the year 2020.”
“That being said, Oman oil and gas companies are advised to continue to focus on cost optimisation initiatives, lifting costs, and driving leaner operations. We anticipate oil prices will remain volatile for the foreseeable future, potentially increasing above current prices, but certainly not to the levels witnessed in the first half of 2014,” Jichi told Oil & Gas Middle East.
Even the (once angry) Omani workers and trade union leaders expressed optimism regarding the recent output cut deal. The chairman of the oil and gas trade unions, Saud Salmi, told the media shortly after the Vienna meeting, “We see a ray of hope not only for the workers in the oil and gas sector, but also for those who are working in other sectors. If oil prices recover, firing can come to an end, existing projects can continue, new projects will come and moreover, workers can get real jobs.”
During the downturn in the regional oil and gas industry, over 1,600 Omani oilfield workers have lost their jobs, sparking frustration among the affected. Leaders of trade unions, like Salmi, had anticipated this and the Oman Society of contractors (OSC) warned that up to 55,000 Omani construction workers risked losing their jobs if market conditions didn’t improve.
Modest, yet significant, reserves
Unlike its GCC neighbours, Oman has relatively modest oil reserves. Yet, the country’s reserves are significant enough to account for 90% of the government revenues, 70% of exports, and 50% of the GDP.
It has been reported that Oman has 5.3bn barrels of estimated proven oil reserves, as of January 2016, meaning the country has the 7th largest proven oil reserves in the Middle East and 22nd in the world. State-owned Petroleum Development of Oman (PDO) holds more than 70% of Oman’s oil production. PDO itself is 60% owned by the government while Shell owns the other 34%, Total 4%, and Potugal’s Partex 2%.
Oman’s production reached a record high rate of 1mn barrels per day in July last year, but a tweet from the ministry of oil and gas said, ‘Oman will cut oil production by 45,000 barrels a day, following an agreement reached by OPEC with independent producers outside the organisation’. The Sultanate’s total output will see a 4.5% reduction in January 2017.
Because of its complex geological structure, Oman’s oil reserves have proven to be hard, and expensive, to recover. The reservoirs across the country are located at a depth of more than 5.5km, far deeper than elsewhere in the world. This natural difficulty (in part) has also traditionally caused Oman to produce less oil than its other oil producing counterparts; something that has led Oman to fervently adopt – perhaps more intensely than its GCC peers – Enhanced Oil Recovery (EOR) technologies to suit production requirements.