Oman, BP sign $16bn pact for big tight gas project


Dr. Mohammed bin Hamed Al Rumhy, Minister of Oil and Gas, (third from left) addressing the media to announce the agreement with BP on Monday. Photo - Jun Estrada/Times of Oman

Muscat: Oman government and British oil giant BP on Monday signed a major gas sales agreement and an amended production sharing pact for developing the Khazzan tight gas field in north-central Oman with an estimated investment of $16 billion.

The full field development will involve a drilling programme of around 300 wells over 15 years to deliver plateau production of one billion cubic feet of gas per day and 25,000 barrels per day of gas condensate, the London-based company said in a statement Monday. This volume is equivalent to around a third of Oman's total daily domestic gas supply and will significantly contribute to ensure continuous and stable supplies from domestic sources. 

The total investment in the full field development is around $16 billion, which includes the investment made to date in the appraisal of the resource and early well testing programme.

"It is one of the largest projects we will be investing in over the next four years, during the major investment phase," BP's Chief Executive Officer Bob Dudley told journalists in Muscat. He declined to disclose the price agreed to for gas.

BP will own 60 per cent of the venture and Oman Oil will hold the rest 40 per cent.

"Today's signing is an important step in the Sultanate's plans to meet growing demand for energy over the coming decades and to contribute to economic development in Oman. The Khazzan Project is the largest new upstream project in Oman and a pioneering development in the region in unlocking technically challenging tight gas through technology," said Dr. Mohammed bin Hamed Al Rumhy, Minister of Oil and Gas.

"We will be awarding a contract for developing a central gas processing station (which is part of the overall Khazzan development). There are six bidders for the project now," said Naasser bin Khamis Al Jashmi, undersecretary at the Ministry of Oil and Gas, on the sidelines of another event organised by Occidental Oman.

The Khazzan project represents the first phase in the development of one of the Middle East region's largest unconventional tight gas accumulations, which has the potential to be a major new source of gas supply for Oman over many decades.

"As well as providing additional energy supply for Oman, the Khazzan Project will generate wider direct benefit with the development of Omani employees and delivering In Country Value (ICV) through the development of the local supply chain," added Dr. Al Rumhy.

Bob Dudley, BP Group Chief Executive, said, "We are very pleased to go ahead with this major project, which is very important for both Oman and BP. This enables BP to bring to Oman the experience it has gained in tight gas production over many decades. This is one more example of BP developing a long-term gas supply chain, in this case to bring energy to customers in Oman for decades to come."

David Dalton, President of BP in the Middle East Region, added, "The sanction of the Khazzan project follows an extensive and rigorous appraisal programme. This has given BP and the Government of Oman confidence in the strength of the project and our ability to deliver long term gas supply to Oman."

Construction work for the Khazzan project, located in the South of Block 61, will begin in 2014, and first gas is expected in late 2017. Gas production is expected to ramp up to plateau in 2018 and the project is expected to develop around a total of seven trillion cubic feet (tcf) of gas, which will require BP to successfully deploy new technologies.

The Sultanate's average daily natural gas production is estimated at 103 million cubic meters this year, which is expected to grow by 10 per cent next year.

The amended exploration and production sharing agreement and a gas sales agreement for an initial 30 years also provides for an  additional appraisal of further gas resources within Block 61, which are expected to be developed in the subsequent phases of the project.

The full field development involves a 15-year drilling programme, with production tied back to a new central processing facility in Block 61 via a 500km long gathering system.

Oman government also announced the intent of the state-owned Oman Oil Company Exploration and Production (OOCEP) to participate with a 40 per cent stake in Block 61. 

"We are delighted to work with BP on this challenging project to supply gas to the country. Unlocking an unconventional resource will help meet Oman's future energy needs. We are very pleased to be part of this exciting journey and to build the required unconventional skills across the upstream sector," noted Salim Al Sibani, CEO of OOCEP.

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