“Upstream companies are not deterred by the geological difficulties that Oman’s resources present.”

A safe and steady course in Oman

June 5, 2015

Usama Barwani, CEO of Petrogas E&P, talks to TOGY about the advantages of being a non-publicly listed company and evaluates Oman’s offshore potential. Omani upstream company Petrogas E&P acquired 11 North Sea blocks from Chevron Exploration and Production Netherlands in September 2014 and is looking for new opportunities in Mozambique and Tanzania.

Is there an incentive for privately held energy companies to go public?
Private companies enjoy certain advantages, particularly in the current oil price climate. The value of shares in many publicly listed companies in the hydrocarbons industry has dropped alongside crude oil prices.
Even though it is affected by the low prices from a cashflow perspective, a private company is protected from this loss in share value, which allows it to make more secure long-term decisions.

Oil and gas production comes at a high cost in Oman. How has the fall in oil prices affected Oman’s hydrocarbons industry?
The new production in Oman will largely be more complex, as in the case of heavy oil, deeper reservoirs or tight formations. BP Oman’s Khazzan tight gas project is technically challenging and expensive. There is a lot of oil and gas underground, but it is expensive to develop.
The oil price drop has hit profits for both producers and oilfield services companies. Oil prices of around $60 are fine for one year, but if that is the long-term price of crude, then tertiary recovery projects such as steam flooding, oxidation and fracking would be looked at more closely. There is a possibility that activities in fields that are expensive to produce will be slowed down or postponed until oil prices recover.
However, low oil prices eventually translate into lower costs in services industry. Additionally technology will drive down the price of oil and gas production in the long run. The market is oversupplied, and we are working in a challenging environment. As we cannot predict whether oil prices will rise or decline, our objective is to operate efficiently and with low costs, which will still allow us to be commercial at such prices.

 

Has Oman taken precautions to counter issues related to low oil prices?
Oman’s State General Reserve Fund, owned by the Sultanate of Oman and administered by the Ministry of Finance, was established in 1980 to monitor and prepare for such financial risks.
In addition, all of the oil and gas operators in Oman have been actively managing their costs, and making sure that they are prepared for an environment of low oil prices. Upstream companies in Oman have set the objective of maintaining and increasing production to ensure that their revenues are not badly hit by the drop in prices.

How attractive is Oman’s oil and gas industry to foreign investors?
Oman is one of the few countries in the Middle East that is open to foreign investment in the exploration and production sector. The presence of many international operators in Oman is proof of this. Shell, BP, US company Occidental Petroleum, Hungary’s MOL and Oslo-listed DNO are all international companies with assets and interests in the sultanate.
Upstream companies are not deterred by the geological difficulties that Oman’s resources present. They are more concerned by the political instability and security risks of other countries in the region. Oman provides for a politically stable environment that many companies find attractive.

What opportunities do Omani companies have for regional expansion?
Oman is a challenging environment from a geological and technical standpoint. This has helped the country develop a very skilled knowledge base, and helped grow very capable companies.
These companies have skills that can be exported regionally. For example, tertiary recovery methods have been in place in Oman much longer than most other countries in the region. Omani companies have developed the expertise to operate in mature assets overseas.

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