Q: Thank you for sitting down with us today. First off, what is PDO’s overall corporate strategy, and how has it evolved under your leadership since 2021?
A: PDO has an important role within Oman’s economy given we account for around 70% of the oil and gas industry production to generate robust revenue and cash flow for the Sultanate. Last year, with oil prices the way they were, I think the oil and gas sector accounted for more than 80% of the country’s revenue, so it is a significant economic contribution from the industry and from PDO. Naturally we must sustain this revenue stream and contribute to Oman Vision 2040 and its objective to diversify the economy. We are also clear about Oman’s net zero 2050 commitment and accordingly PDO has a decarbonization roadmap in place that we have defined over these past two years.
We recognize the need to grow and develop the existing energy system, given its central role in Oman’s economy, whilst we reduce emissions and support the building of a new energy system. It’s the same trilemma that everybody else is tackling i.e. energy security, affordability and sustainability.
PDO’s Purpose is “Building a sustainable and low-carbon future to maximize value for Oman.” Our Strategy, which we refreshed at the end of last year, realizes that through a number of fundamental pillars.
The first is cost competitiveness and how we are driving both our capital efficiency and our operating costs. Our portfolio runs at unit operating costs of about $6/boe and we have a number of programs in place to sustain that performance and reduce it further.
The second strand is carbon competitiveness of our current O&G [oil and gas] portfolio, which is where our decarbonization roadmap comes in. We’ve committed to net zero by 2050, and we also have an interim ambition to halve our scope one and two emissions by 2030. Every year we set a GHG emissions annual target, and we have an investment framework that sets our performance standards.
The third leg of the strategy is to sustainably grow our core Oil & Gas business. Today we produce about 665,000 barrels [per day] of oil and just over 100,000 barrels per day of condensate. We want to grow oil production above 700,000 barrels per day and sustain it for at least the next decade – and we have to continue to do that in a cost and carbon competitive manner. We have a number of investment programs in place to grow our business sustainably, to meet our dual objective of growing production whilst reducing our emissions.
Given the uncertainty about where oil is going to be in the energy mix in a few decades time, our strategy also includes the need to diversify PDO’s future revenue streams and sustain our contribution to Oman’s economy.
Q: Based on what you’re saying, is there an element of concern over the risk of stranded assets? That it is imperative to produce now?
A: I think many Oil & Gas players and nations are concerned about the risk of “stranded assets.” Given the oil and gas role today in Oman’s economy, we are focused on understanding how we maximize cashflow and revenue in the near-term but also in the future, as the nation diversifies its economy. The idea of stranded assets therefore does play into that, which is why we speak about a combination of both cost and carbon competitiveness. It’s about being the “last man standing.” We want to be there, right to the end of hydrocarbon production in the energy system, whenever that is, whilst at the same time having evolved into new energies, which is the fourth leg of our strategy - diversifying our revenue stream in support of the national economy. And we do that in harmony with the ecosystem within Oman, collaborating in partnership with other companies.
Q: How do you balance producing as much as you can now to avoid stranded assets versus the need to be more selective in what you develop?
A: We do that essentially through a strategy and investment framework that balances the key drivers and metrics, for example economically adding production whilst reducing unit costs and emissions.
Addressing emissions whilst growing core Oil & Gas business is critical. In 2019, we emitted about 12 million tons of CO2 a year. We’re driving to get to 6 million tons by 2030 which is ambitious, and of course net zero by 2050. We have a program of over 150 projects in our funnel that are about abating our emissions whilst we grow our production.
Currently, 60% of our emissions come from power generation. We have a captive power generation capacity of more than 1.5GW, much of which is gas-fired, with about 10% renewable, mainly solar. We have set a target for 50% of our power to be renewable by 2030, critical to drive down emissions.
And if I look at flaring, we’ve reduced our flaring by about 40% in three years. We’re committed to the World Bank’s zero routine flaring initiative by 2030 and we expect to get there in 2027/2028. We’re also working on non-routine flaring as you would expect.
Q: In terms of the emissions profile of Omani Oil, PDO’s oil, it has lower carbon emissions than many peers. Do you see that becoming increasingly a useful marketing tool?
A: I think it will become important yes, that’s why in our strategy we not only talk about cost competitiveness but also carbon competitiveness. There are already so-called green LNG cargoes with customers requiring relevant certification. I don’t know when, but it is not unthinkable that the same could happen in oil. If you want to be the last man standing, it’s not just about cost but also the carbon footprint associated with your oil production.
Most oil producers in Oman are thinking the same way, under the guidance of the Ministry of Energy and Minerals. And many of our neighbors are doing the same in the GCC. You hear about it a lot. I do think it can become a competitive advantage for Oman if we stay the course. And we will have to continue to work hard to get there, as our portfolio complexity (secondary and tertiary production) increases. We are seeking to employ technology that will enhance our secondary and tertiary production efficiency, such as the use of polymers, because they not only enhance oil recovery factor but also significantly reduce the associated emissions.
Q: You mentioned the use of polymer in EOR can you speak more about PDO’s plans in that? Is the Marmul Polymer Phase Three complete?
A: We are well-advanced in Marmul Phase 3, we just passed 12,000 b/d. We have another two or three polymer projects in the tender phase in the portfolio. The best of these polymer projects can increase oil recovery by 10% and halve emissions. Polymer projects reduce emissions because we remove the need for deep water disposal (DWD), which is energy intensive. We obviously continue to use produced water for pressure support but we also dispose of some of the water by deep water disposal; by various means, we are targeting to eliminate DWD by 2030.
Production water overall is an issue for us. We produce nine to ten barrels of water for every barrel of oil, much of which we use in our operations. And so, we’re looking at a range of possible uses for that water, including nature-based solutions. Currently, we have the Nimr Wetlands project and Rima water treatment plant, but we are also looking at potential new technologies. There have been some trials in the region concerned with cleaning up produced water for other uses. First of all, to be able to use in agriculture but potentially also for commercial sale. PDO is not a hydrogen producer but we are looking into whether we can use produced water in the green-hydrogen production process.
Q: If hydrogen is not currently in your remit, in what ways are you looking to diversify into new energy?
A: In terms of our strategy for revenue diversification in the future, the first option is via CCUS. Our initial focus is on the use of CO2 as well as the potential for CCUS to abate our own emissions. We’re currently trialing CO2 for Enhanced Oil Recovery (EOR) in the north of Oman; other options could include CO2 for pressure support (instead of using natural gas). We are only at pilot-scale at the moment but if successful we will look to upscale. For the purpose of EOR and EGR, we have the potential to use several times more CO2 than we produce from our operations.
Whilst we’re not a hydrogen producer, we are looking into ways to incorporate hydrogen into our energy mix as a user e.g. in mobility (logistics/heavy trucks) or H2-fired steam boilers. We are also working in collaboration with Shell you may have seen the MoU announcement last year - Shell are pursuing the potential for blue hydrogen/blue ammonia in Oman and we are working with them for the use and storage of the CO2 produced from the process. There’s a natural integration and synergy there across various forms of CO2 utilization and storage in Oman.
Q: Are there any plans to sell renewable power to the grid?
A: PDO has a captive power generation and distribution system for our operations, with a growing renewables component in our power mix. We generate power for our own use and we do not have plans to generate renewable power for sale into the grid. We are already connected to the national grid and we have co-invested in parts of the new high voltage North-South interconnector in Oman. Our interest is for our renewable power to be clean, affordable, reliable, and competitive. We can either buy that from a third-party generator or self-generate, depending on which makes more sense against those criteria.
Q: On the gas front, it looked as if PDO acted a lot as a swing gas producer over the last couple of years, cutting output when there was a national gas surplus [MEES, 16 September 2022]. In terms of new sources of demand for gas, do you see much coming online within Oman in the short to medium term?
A: Currently PDO is a gas swing producer with gas production capacity to meet the peak demand requirements. As you would expect, both the supply and demand side are a live discussion within Oman. On the supply side, we are actively exploring for more gas and we are pursuing means to liberate more gas from existing operations, for example by replacing gas-fired power with renewables. The Ministry of Energy and Minerals decides where the gas goes so you would need to speak with them about the supply-demand balance.
Q: As a final question, what are the key projects that we should be looking out for as PDO advances its strategy over the next few years?
A: We don’t have any mega-projects (like Yibal Khuff or Rabab Harweel) right now. But we do have a large portfolio of smaller projects and investments, right across PDO, both in existing and new fields; we are drilling 800-1,000 new wells a year. So you will see a significant number of brownfield and smaller greenfield projects in execution. We have a number of projects approaching or just past FID for example Habur [thermally assisted gas/oil gravity-drainage]; Amal West phase two steam; a number of polymer projects as we discussed earlier. These incremental production projects are quicker to bring into production and help us to spread risk across the development portfolio. We are keen to do more of these and we are adopting higher levels of standardization and archetypes/analogues to reduce hydrocarbon maturation time. Of course, our investments in carbon abatement go hand-in-hand with hydrocarbon development. We have over 150 emission reduction/abatement projects alongside our core oil and gas investments, potentially including some new renewable power projects.
As you can tell it is a broad waterfront with a lot of things happening in PDO, rather than one or two projects dominating. We still expect to invest the same kind of capital in the coming years, if the projects justify it. We currently spend around $4bn capex a year on the PDO oil business. It’s a material business and we intend to continue growing the business in accordance with our strategy and in service of Oman.
*Interview conducted by Senior Editor Jamie Ingram on 2 October in Abu Dhabi. Analysis (MEES, 27 October) by James Marriott.