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Oman Oil Minister Muhammad al-Rumhy speaks exclusively with MEES about the Sultanate’s ambitious LNG plans, including a pioneering bunkering strategy, and ‘immense’ opportunities to increase oil and gas output despite tricky reserves.
ON OPEC POLITICS
Q: After the June Opec+ agreement, Saudi Energy Minister Khalid al-Falih cited five countries with most of the group’s spare capacity; These included Oman. How do you rate Oman’s ability to increase production in the short term?
A: We cut by around 40-45,000 b/d following the December 2016 agreement. The idea is to bring it back, or at least some of it. But the decision to increase production was not specific on who can produce how much extra. In the last few months since Vienna in June we have seen an increase [in output], or at least a reduction in over-compliance, which used to be around 140-150%. The cut was much bigger than anticipated. And in order to cool down the market a little bit, we all agreed that it’s a good idea to increase production.
But there were different points of view of where this production will come from. The reality is there are many countries that cannot produce more than they do right now, though some of these say they can increase production, hence this ‘over-compliance.’ Traditionally whenever Opec and sometimes with non-Opec would agree on a production quota, compliance tended to be around 70-80% and that was regarded as excellent because there was capacity to increase.
We have already produced 3-4,000 b/d extra but it is really relatively small compared to [Opec’s] total number of around 1mn b/d extra. To be honest with you I don’t know where Mr. Falih came up with those five countries.
Q: I believe he was referencing the fact that they happen to be members of the JMMC…
A: No, really this was another thing. It was not necessarily accurate to say that ‘we are going to increase production and only members of JMMC can do so’. That has actually upset some non-JMMC members who are signatories to that cooperation agreement. They say ‘what about us? That was not the deal that if you are a member of a monitoring committee you get to produce more.’ That was not really agreed. Maybe, coincidentally, he thought that Kuwait, maybe Algeria [would be able to increase]. But, look, one of the JMMC members is Venezuela and we all know Venezuela is going through difficult times.
Q: For Oman in late 2016 before the Opec+ deal took effect the country produced 1,015,000 b/d which was a record…
A: And that was the benchmark that was used by Opec.
Q: In the short-term and by that I mean, say, end-2018 or end-2019, is such production feasible for Oman?
A: We can produce that much, given a couple of months’ preparation. Our fields are a bit complicated, we need to re-enter some wells and so on, so it needs time. But if an agreement is reached at the next meeting to tell everybody: “go back to producing at your October  level because we think this number is now what the world needs in order to maintain this kind of price range” then yes Oman can go back to where we were at 1.015mn b/d.
I think there is a consensus that this currently is the right price. You see these peaks of $75-76/B, but really we are talking about around the $70/B range.
Q: And you would see gains mainly coming from PDO?
A: No, it has to come from everyone who is operating here.
Q: Where do you see the best opportunities to ramp up production?
A: The opportunities to ramp up will mainly come from PDO, and then we go down the list with Oxy and then followed by Daleel and then maybe CCED. These are the top four here.
Q: Are there any upstream projects coming onstream in the next 12 months that could help bridge that gap?
A: Maybe. I’ll pick on condensate because our [Opec] numbers include condensate…there are some opportunities to shut down some dry gas wells and produce from the new discoveries that we’ve made. But because of the constraints of the processing facilities we have to juggle those wells, produce the wet ones and shut down the dry ones and increase the condensate level by a few thousand barrels here and there.
ON LNG EXPANSION…
Q: Moving to LNG, do you expect by end-2018 to exceed 10mn tons/year?
A: I think exit production could exceed 10mn tons. Especially with strong supplies in December, after summer when more gas is allocated toward domestic consumption. So December will be a good month to send more gas to Oman LNG.
Q: Is there any planned maintenance that would shut down some production?
A: Not in LNG. I think all three trains have finished maintenance for scheduled shutdowns, unless something unscheduled comes up.
Q: Has the recent discovery of Mabrouk NE changed the ministry’s outlook of gas outlook and consumption?
A: Oh yes, of course and we anticipate new projects that will take that gas. Some of the more mature fields are showing declines, so we need to take new findings into account to replace losses elsewhere. The gas future looks very promising, which is a nice problem to have.
Q: Given LNG constraints and satiated domestic consumption, is there a reason to develop Mabrouk any time soon?
A: There are two ideas that we have. One is to go to Oman LNG’s three trains and see if there is any opportunity to debottleneck there. The team is working on it and there is a small opportunity that we think could be realized before end-2019 to another half-a-million tons with just some easy fixes.
The other idea is to debottleneck using some more serious hardware over two years’ time, so by 2021 we could maybe add another million tons. Overall there is another 1.5mn tons/y to be realized, hopefully. So that’s the easy one. Within 18-24 months or maximum 30 months we could have a serious increase in that case.
The other volumes that could eventually come from Mabrouk NE require time and it would take at least 3-4 years before they can start to take the gas.
…AND LNG BUNKERING
Q: The recent MoU signed with Total for LNG bunkering caught a lot of people by surprise. What is the thinking behind it?
A: There is a lot of talk about the IMO 2020 regulations and how the shipping industry may move to alternative fuels – one of which is LNG. We think we have an opportunity to be part of that solution along with Total. It all boils down to the pricing. Will the marine industry compete with the utilities industry and be willing to pay the equivalent price as our buyers, say from Korea or Japan? Because they have other options such as diesel, clean fuel or desulphurization.
Total is serious about this and they want to be a key player. We think we could create a hub for Oman.
Q: It would be in Qalhat?
A: No it would be at another port, likely Sohar or even Duqm, and we want to make one of them the center for this refueling.
Q: And the gas will come from the Greater Barik?
A: Yes there are two parts. First there are our existing volumes, and then there is Greater Barik which is an exploration opportunity with Shell and Total. The level of confidence that we have, especially after the BP experience of Barik development [at Khazzan]. We think there are opportunities at Barik around the Mabrouk area to discover more. So these are both thoughts we have right now.
Q: Is there a timeline?
A: The idea is to do it in modules like these FLNG units: they come small at 500,000 or 1mn tons and if they see demand is there, they build up. They [Total] think this can be done very fast.
That’s one idea. The other idea is to take volumes from Oman LNG. We would create a system where we take the LNG, say, from Sur to Sohar, and use it specifically on some kind of floating arrangement to use as a refueling center, without it actually being a liquification center.
One idea is to send gas by pipeline, liquefy and then serve the shipping industry, while the other is to pipe the gas in liquid form from Sur to be sold. The latter would be probably an easier and faster option.
Q: Is the Rabab Harweel project still slated for mid-2019 completion, and how does it factor into Omani upstream?
A: Yes. Nobody has told me about any delays. It’s quite a big project and we are excited about the condensate produced in particular. It will provide a little more gas, which will go south to Salalah, including the LPG and ammonia projects that depend on the development. So things are looking good.
Q: What is the status with QP farming into Eni’s Block 52?
A: Well you’d have to ask them. They had a discussion between the two, and Eni has a relationship with QP, so they came to us and asked if their Qatari friends could come along and we said ‘sure.’ We welcome them.
Q: MOG Undersecretary Salim al Aufi told MEES in March that it has been finalized on the firms’ side and was caught up in ministry paperwork.
A: No, no, they came and signed and we told them once you are ready we have no problem. So it could be finalized.
Q: What is the current status of the proposed Iran-Oman pipeline given US sanctions?
A: We are actually proceeding. I must confess it is slowing down because of this. A few key players have dropped out – the likes of Shell who informed us officially they would be dropping out along with their partners the Koreans and Japanese [Kogas and Mitsui]. That has caused a slowdown, but there are others – the Russians for example and the Chinese who are still interested. So we will see if they can start soft work until the issue is resolved. But we haven’t actually closed everything down.
Q; Have you heard any updates on plans to expand the EEZ to include the continental shelf?
A: That one is handled by the ministry of foreign affairs and my understanding is they have submitted the required information. We helped them in defining the geological justification – things like seismic to justify the claim that our shelf extends beyond the 200km. So it will take time.
ON NEW EXPLORATION
Q: Are there any plans to award open blocks?
A: We have a few onshore blocks on which we are putting the data together, and a few offshore blocks that have been around a long time which many companies find too risky because of the depth. But we have onshore that will generate interest from key players.
Q: And what about an upcoming bid round?
A: You know, what we do here is we really don’t have bid rounds as such. When we have a block and all the information is collected, we go through our data base and send some 30 emails to key players. And out of that we get 5-7 who are interested and the process starts. They look at the data and submit their offer and we pick the best. Very simple process that doesn’t take time.
Q: What onshore blocks do you think would generate interest with these key players?
A: There is Block 54 in the south around Mukhaizna field. It was previously taken, but was returned after an unsuccessful well or two had been drilled. But that area has interested many geologists because there is a continuity with CCED’s Blocks 3&4 which has been very successful in producing. So there are some structures that some may feel were not penetrated. This is the beauty of our business: it’s like looking at a painting and each one sees different things.
Q: Very romantic…
A: Yes exactly.
Q: In terms of offshore, what is the status with Bukka and West Bukka in Block 8 where DNO plans to pull out?
A: We’ve given a service contract to one of our own firms, OOC, to take over and continue the operation, and now we are looking at a long-term solution. That block is interesting because it supplies gas to one of the power stations in Khasab, and we need that gas to continue otherwise there will be a disruption of utility in Musandam.
There are two other blocks that are being explored as we speak by [US-based firm] Petrotel: Blocks 17 and 40. Block 40 is adjacent to Block 8 and Block 17. The explorer there is very optimistic that there will be a declaration of commerciality, particularly of gas, so if they succeed they will complement Block 8’s declining production, which is why DNO is leaving.
Q: Would those blocks be repackaged as a bigger block?
A: No, we think that Block 8, because it has exchanged hands so often in the 20 years I’ve been here – I’ve dealt with four or five companies looking into Block 8 – has not received enough exploration. So we are looking for a company, and it could be OOC, to shoot 3D seismic to redefine the block. It’s possible someone will come and say ‘there is no structure there’ but we think there is potential.
Even in some of our private discussions with DNO some of their key people have said there is potential in Bukha—the old discovery. Around the old discovery there is a nearby shale oil prospect that was not explored, so I am optimistic that someone can give new life to Block 8.
Q: Speaking of OOC, how is its role as a conduit to bring in foreign majors progressing?
A: It’s going very well. A few years ago we created a system where any company that enters gives 20-25% interest to OOC. Now OOC is part of BP Oman. OOC will be part of Eni Oman. OOC will be part of the new initiative with Total and Shell at Greater Barik. These companies are actually growing with interest and future success will make OOC’s activities much greater. We want to build our capacities as well as the commercial benefits.
AND THE FUTURE
Q: Lastly, what excites you most about Oman’s oil and gas future, and what are its greatest challenges?
A: Well I think in the short term the opportunities are immense, huge. Even in oil. When we revisit our fields with new seismic and new technology, we see new opportunities that we did not see even three or four years ago. PDO now is embarking on a project to raise its output to 700,000 b/d, up from around 600,000 b/d, within maybe three or four years’ time. What gave them the confidence were fields in central Oman where only a couple years ago we thought ‘this is not oil bearing anymore, so let’s focus more on gas and less on oil.’ But now we are revisiting that and think we were wrong. They’ve drilled a few exploration wells and have been very successful. Small findings, scattered around, but this is how we do business in Oman. So there is a growth potential and that is very exciting. This is on existing structures.
Number two, the interest of big players like Eni gives us great confidence. I am very optimistic. For the first time in our history we have a company like Eni looking seriously into offshore potential. In the past we had small players with limited resources – risk takers, kind of gamblers, but in the end stuck with limited resources. Good people but if you do not have resources you are stuck. So I think the presence of these big ones is helping.
Number three is our gas finds. Gas is really looking brighter and brighter every day. We think we have the potential to meet our gas needs and grow our gas-based industries in the next 20-30 years. So we are fine. I actually thought we would be running out of gas by 2022-23, which is why we were pushing this Iran project and so on. And now it looks good. If we get more gas we can do more here, no question about it. But we certainly don’t have a shortage. Just two years ago we were thinking of building gas receiving facilities just in case. Maybe in the future we will need them, but not now. We have taken steps to stay away from certain types of energy like nuclear – coal is being debated – but we want to stay clean and cost effective. So in this space we are excited. There are some challenges in the longish-term where we think the transportation industry will transition toward electricity from liquids – and I’m sure the young people should start thinking about it.
Interview conducted by Waylon Fairbanks in Muscat on 2 September.