A. F. Alhajii
The economic boom continues, fueled by ever-increasing oil prices, but at a steep cost: rampant inflation that threatens economic stability, an increasing income gap that threatens social stability, shortages of skilled human resources that threatens prospects for sustainable economic development, and rising real estate costs that threaten the working class and several industrial and commercial projects. While higher oil revenues enabled these countries to reduce their debt, build massive infrastructure, and invest their budget surpluses in the West, political and economic reforms stalled. Higher oil prices, increasing production capacity and expansion of the petrochemical industries prevented these countries from diversifying their sources of income in a meaningful way. The most striking fact is that record oil prices and revenues have not resulted in new major oil and gas discoveries.
SAUDI ARABIA
More confident than ever, with oil prices around $140 dollars, huge budget surplus, massive amount of foreign reserves, steady economic growth, and major additions to production capacity, the Saudis turned to oil diplomacy, hosting OPEC’s third Summit in November last year and the Jeddah meeting this June. The budget for 2008 was the highest ever, with an 8% increase over the 2007 budget. Saudi Arabia is set to generate a massive budget surplus this year since the current budget assumes a price between $48 and $55 per barrel.
With economic growth of 7%, inflation is rampant. Loose monetary policy, easy credit and massive government spending on mega projects have all fueled rapid inflation. The economic boom and population growth have increased the demand for energy to unprecedented levels. Oil consumption is increasing at about 7% while power consumption is increasing at 8%. Without new gas discoveries, Saudi Arabia will experience an energy crisis of its own within few years.
Saudi Aramco’s work on 52 projects in recent years to expand oil production capacity to 12.5 million bpd by 2012 has paid off handsomely. Production capacity and production have increased, despite some delays. The combination of higher production and prices has generated massive amounts of budget surplus for the Kingdom. The 2008 Saudi budget is based on a price less than $50/bbl. Some estimates put the Saudi foreign cash reserves at $595 billion by the end of 2010. The economy continued to grow at high rates, but inflation is rampant and the income gap has increased drastically in recent years.
Exploration. The number of discoveries declined in 2007-2008 relative to past years. In early 2007, Aramco made only two oil discoveries near Ghawar Field: Mabruk and Dirwaza Fields and one gas discovery, Jana 6. No discoveries have been announced since then.
At the end January 2008, Total exited the Shell-led South Rub’ Al Khali Company (SRAK) after drilling three dry wells. Total’s shares (30%) were transferred to Shell Saudi Ventures Ltd and Saudi Aramco, making SRAK equally owned between Aramco and Shell. In May, the company announced that it is acquiring a 3,000-km 2D seismic survey in addition to 18,300 km previously acquired. The company spudded its fourth exploration well, Kidan 6, last March. It will be drilling three more exploration wells during the first phase of the exploration period, which ends in July, 2010. However, in May, the seven-year exploration phase was extended by 18 months.
SRAK is one of the four core ventures that Aramco formed with Asian, Russian and European companies. The other three are: Luksar Energy Ltd (with Luckoil), Sino Saudi Gas Ltd (with Sinopec) and EniRepSa Gas Ltd (with Eni and Repsol). All other ventures have discovered gas, but given the low gas prices in Saudi Arabia, none has proven commercial.
Drilling/development. Saudi Aramco completed 448 oil wells in 2007. This number is 34% higher than the 333 new oil wells completed in 2006. Of these 448 wells, 56 were offshore. It also drilled 73 gas wells during the same period, of which 3 were offshore. Workovers reached 175 onshore and 57 offshore for oil and 16 onshore for natural gas. World Oil expects the number of oil wells drilled to increase by 50 in 2008.
Saudi Aramco is in the midst of the largest capacity expansion in its history. The expansion started in 2004 and will end in 2012, will bring 4 million bpd onstream at a staggering cost. Aramco is working hard to avoid any further delays in ongoing projects. In fact, no oil company’s projects received press coverage like those of Aramco. The objective of these projects is to increase Saudi capacity to 12.5 million bpd as soon as possible. A summary of major projects follows.
Manifa is an offshore heavy crude field. It is the fifth largest oil field in the world. It was discovered in 1957. Once completed in 2012, it will produce 900,000 bpd of crude, 90 MMcfd of sour gas, and 65,000 bpd of condensate. Initial production might start in 2011.
Aramco signed a dredging contract for Manifa with Belgium’s Jan De Nul in February, 2007. Last April, Saudi Aramco awarded Halliburton a three-year service contract for the offshore portion of Manifa. The services include directional drilling, logging, cementing and related drilling activities. In July, Saudi Aramco awarded Valentine Maritime a $500 million contract for a 300-km pipeline and power cable equipment. It also awarded Japan’s JGC an $800 million contract to supply crude oil treatment equipment and construct storage and shipping facilities. It is expected that, by the time this article is published, Aramco would have awarded Italy’s Snamprogetti a contract for the $1.8 billion construction project of central processing facilities, and Spain’s TR for the $500 million power generation and main substation.
The Manifa development includes building a new Central Processing Facility. The facility includes gas-oil separation, wet-crude handling, gas-compression, gas-conditioning, crude-oil stabilization and produced-water disposal facilities. To meet reservoir water-injection requirements, the project requires the construction of several offshore oil-producing and water-injection platforms, subsea crude and water-injection pipelines, 27 land drill sites and 11 onshore water-injection drill sites. Recent reports indicate that the project includes plans to build four major downstream pipelines and terminal facilities at Ju’aymah and Ras Tanura. To utilize natural gas and condensates produced by Munifa, additional gas processing facilities will be added at Khursaniyah Gas Plant.
Khursaniyah is planned to go onstream in August, 2008, with initial production of 25,000 bpd. The project was initially scheduled to come online last December but was delayed more than once. Aramco blamed doubling delivery time for steel and cost increases for the delay. Incompatibility between the equipment of two contractors has also caused some delays. Aramco has started the pre-commissioning process several months ago. In January, Aramco officials stated that all water injection facilities are completed and water injection has started to pressurize the reservoir.
Khursaniyah is major development project of three fields: Khursaniyah (150,000), Abu Hadriyah (150,000 bpd), and Fadhili (100,000 bpd). Once finished, it will bring an additional 500,000 bpd of Arab Light and Medium and 300 MMcfd of associated gas. This project includes a gas plant and crude processing facilities. The gas plant will be able to process 1 Bcfd of associated gas, some of which will come from crude production in Khursaniyah.
Khurais, which contains about 27 Bbbl, will start production in June 2009. At the end of June of this year, Aramco announced that the central processing facility is 55% complete, 66% of oil wells have been drilled, and 99% of the project equipment is on site. About 2 million bpd of seawater from Qurayyah treatment plant will be injected to maintain pressure.
Khurais is an onshore light crude field that was discovered in 1957. It is the fourth largest oil field in the world. Aramco expects to produce 1.2 million bpd of Arabian Light crude and 70,000 bpd of condensate by 2009 from the current increment. Aramco sources indicate that the project includes dehydration and compression of 450 MMcfd of natural gas, and expansion of Southern Area seawater injection capacity by 4.5 million bpd to support reservoir pressure in the Khurais and Ghawar Fields. The project, which costs has increased from $10 billion to $15 billion according to some estimates, also includes the expansion of East/West NGL pipeline capacity from 425,000 bpd to 555,000 bpd to accommodate increased NGL production. The project involves drilling 420 wells, of which 169 are producer wells.
The use of water injection through 120 injection wells to start production at Khurais raised eyebrows. Two barrels of water must be injected for every barrel of oil produced from the field. Some experts believe that the field will initially produce the planned 1.2 million bpd, but not for long.
Shaybah. At the end of this year, Aramco will expand Shaybah production of Arabian Extra Light by 250,000 bpd. Even with delays, it should be online in the first half of 2009. The field has been producing 500,000 bpd since its completion in 1998. The expansion includes a gas-oil separation plant (GOSP) and various facilities for gas gathering, compression and injection. To eliminate gas flaring at Shaybah, Aramco is upgrading the gas compression facilities at the field. The upgrade will increase compression capacity by 200 MMcfd.
Nuayyim. Aramco will bring another 100,000 bpd of Arabian Super Light crude oil online in 2009 from this field, which was discovered in 1990 and contains 1 Bbbl. It involves the construction of new GOSPs and a revamp of the pipelines and pumping stations. It is located southwest of Ghawar Field, with estimated reserves of 250 million bbl. The field was brought into production in early 1997, but output was subsequently halted.
Karan is an offshore gas field that will produce 1.5 Bcfd. Aramco plans to bring it online in 2012, under pressure to produce more gas to meet increasing demand. Aramco awarded the FEED contract to Foster Wheeler last August. The problem at Karan is that the cost of production is higher than the domestic prices of $0.75 MMBtu. The field was discovered in April 2006.
Hawiyah. Aramco plans to spend $4 billion on the Hawiyah NGL expansion project to produce an additional 310,000 bpd of NGLs. The project will process 1.6 Bcfd from the Hard gas plant, and 2.4 Bcfd from the expanded Hawiyah plant. Three trains have been installed recently.
Production. Saudi oil production decreased for the second year in a raw. It declined from 9.1 to 8.5 million bpd over 2005-2007. However, between January and May, production increased by 122,000 bpd and stood at more than 9 million bpd in recent months. Crude oil production capacity increased in recent months to 11.5 million bpd.
Saudi gas production declined slightly to 8.0 Bcfd in 2007. Saudi crude oil exports declined by 5% in 2007. Exports of refined products declined by 26% in the same year. Meanwhile, NGL production has declined by 1%. Exports of refined products declined by 26% in the same year. Meanwhile, NGL production has declined by 1%. In recent months, Saudi oil production increased.
Reserves. In the light of doubts about Saudi reserves and Aramco’s ability to maintain its high production levels, Aramco officials have asserted on many occasions that Aramco is able to increase its production and sustain even at 15 million bpd. Aramco officials insist that the watercut at Ghawar is only 28% while the industry average is 80%. Gas reserves have recently increased to 254 Tcf. World Oil thinks that Saudi proved reserves were 260 Bbbl in 2006.
Refining. To meet the growing demand for petroleum products domestically and globally, Saudi Arabia plans to double its refining capacity. Domestic refining capacity is about 2.1 million bpd. However, the Kingdom is a partner is several refinery projects around the world. Most of the refining projects are joint ventures with oil majors.
Al Jubail refinery. In June, Aramco and Total established the Jubail Refining and Petrochemical Co. The main objective is to build a state-of-the-art 400,000 bpd full-conversion refinery in the Eastern city of Jubail. The refinery will process Arabian heavy crude into high-quality products. The refinery is expected to be operational by 2012.
Yanbu refinery. Last May, Aramco and Conoco Philips announced that they have agreed to continue funding for the 400,000 bpd full-conversion Yanbu refinery. The refinery would produce high-quality, ultra-low sulfur refined products from Saudi heavy crude. A joint venture with equal share will be formed to own and manage the project. Experts differ on the expected cost of the refinery. Most of them agree that it will be above $10 billion. Initial cost when the project was introduced was estimated at $6 billion. Aramco owns 62.5% of the venture while Conoco Philips owned the remaining 37.5%.
Samref refinery. Last March, Aramco and Exxon Mobil announced that they are planning to spend $1.5 billion to overhaul their 400,000 bpd Samref refinery in Yanbu. The revamp is divided into two phases, with a cost of $700 million and $800 million respectively.
Jizan refinery. The Ministry of Petroleum And Mineral Resources have pre-qualified over 50 companies for the 250,000-400,000 refinery. It will issue requests for proposal in September. However, it qualified only eight Saudi companies. No foreign companies can bid on their own without working jointly with at least one of the eight Saudi companies.
Ras Tanura expansion. Last December, Aramco awarded Samsung Engineering a lump-sum turnkey contract to build a 100,000 bpd refinery unit in Ras Tanura that will be completed by 2010.
KUWAIT
As indicated in last year’s report, Kuwait is still the most dependent on oil exports among the six members of the Gulf Cooperation Council (GCC). Oil facilities continued to suffer from explosions, leaks and fires, which plagued the Kuwaiti oil industry in recent years. Lack of accountability is one of the chief reasons for such incidents.
High oil prices continued to boost economic growth; however, the economy grew at 6% in 2007, the lowest growth rate in six years. Part of the decline was attributed to Kuwait’s oil production cut and the revaluation of the Dinar relative to the dollar. Despite a projected budget deficit of $28.48 billion for fiscal year 2008, increase in production and oil prices will yield a sizable budget surplus. The budget was based on an oil price of $50 for Kuwaiti crudes.
Exploration. No significant discoveries were made since the release of our last report. However, Kuwait continued to search for non-associated gas. Project Kuwait is still a victim of political bickering among Kuwaitis. In 2006, Kuwait Oil Company (KOC) made four major oil and gas discoveries. It made a non-associated gas/condensate discovery in the Afqiyah well in the northwestern part of Raudhatain Field in northern Kuwait. It made another gas discovery in Umm Niga. Discovery of 10-13 Bbbl of light crude was made in the Bahra and Rawdatain Fields in northern Kuwait. Another light crude oil and gas discovery were made at Arifjain in southeast Burgan-1 in southeast Kuwait.
Drilling/development. World Oil predicts that the number of wells drilled this year will be about the same as last year, at about 75. Last June, Kuwait announced that it will spend $55 billion over the next five years on oil development projects; however, most of the money will be spent on downstream operations. Kuwait will increase its outputs by 300,000 bpd by the middle of 2009. KOC plans to increase oil production capacity to 3 million bpd by 2010 (Phase 1), 3.5 million bpd by 2015 (Phase 2) and 4 million bpd by 2020 (Phase 3). The expansion in Phase 2 will cover oil coming from Ratqa and Abdali Fields.
A year ago, KOC launched the Lower Fars Pilot Project to produce heavy oil from northern Ratqa Field. Kuwait is still negotiating with ExxonMobil to assist in the exploration of heavy oil in the Lower Fars at Ratqa Field to produce 50,000 bpd by 2011, 250,000 bpd by 2015, and 900,000 bpd by 2020. A deal is expected soon.
After a six-month delay, KOC commenced production of non-associated gas for the first time in Kuwait’s history on June 4, 2008 from Sabriya and Umm Niga gas fields that were discovered in early 2006. The project was divided into 3 phases. In the Phase 1, the project will produce 175 MMcfd of non-associated gas and 50,000 bpd of condensates from 20 wells. Phase 2, which will start in mid-2008, involves drilling 34 additional wells. It will increase gas production by 2011 to 600 MMcfd from 175 MMcfd. Condensate production will increase to 165,000 bpd by 2011 from today’s 50,000 bpd.
Phase 3, which is still on the drawing board, brings the number of wells under development to 110 and will be finalized by the end of 2015. This phase will increase gas production to 1 Bcfd and condensates to 350,000 bpd. The gas deposit is estimated at 35 Tcf, with 60 to 70% recovery rate. Kuwait has 63 Tcf of associated gas.
KOC is working on several projects to revamp its oil facilities in Southeast Kuwait. Group A involves revamping seven Gathering Centers and two gas booster stations. KOC expects to finish the project in July 2009. Group B includes revamping 10 Gathering Centers and one gas booster. Work is expected to finish in January 2009. KOC is also constructing Gathering Center 24, with production capacity of 165,000 bopd and 240 MMcfd, to be finished in November 2010. Construction of Gathering Center 16 in western Kuwait is underway. It has a 100,000 bopd capacity. KOC expects it to start July 2010.
Production. Kuwait’s oil production increased by 10% to reach 2.45 million bpd. In its 2006-2007 annual report, KOC stated that it maintained a production capacity of 2.4 million bpd. Production of associated gas declined slightly by about 2%. It also reported that costs increased by 17% relative to the previous year. Kuwait plans to raise production capacity to 3 million bpd by 2010 and to 4 million bpd by 2020.
Reserves. Kuwaiti oil reserves figures remain under seal. Official figures put reserves above 100 Bbbl, while World Oil puts the figure at about 98 Bbbl.
QATAR
Qatar’s economy is the hottest in the world, fueled by an LNG boom and aggressive government. Qatar’s per capita GDP is the highest in the world at about $74,000. However, inflation is rampant and the income gap is threatening the social fabric of this small emirates. Expenditures in the recent budget increased by 46%. The budget forecasts a conservative surplus of only $2 billion. The actual surplus will be a multiple of that, since the budget is based on an oil price of $55 per barrel.
Exploration. Some modest exploration has been performed by ONGC Videsh Ltd. on the Najwat Najem structure, about 100 km northeast of Doha. Last October, Qatar Petroleum signed an exploration and production-sharing agreement with a consortium led by Germany’s Wintershall Holding Aktiengesellschaft covering the offshore 1,666-sq-km Block 3. The agreement calls for seismic studies and the drilling of exploratory wells.
Drilling/development. Number of wells drilled should increase by about 18% from 84 wells in 2007 to 99 in 2008. Qatar’s objective is to stabilize output from its current fields. The only increase is coming form Al Shaheen Field. Danish Maersk is working to boost capacity at the field in several phases. The company was able to boost Qatar’s production to 900,000 bpd and plans to raise it to 1.1 million bpd. The $5 billion expansion will increase production at the field from 240,000 bpd to 525,000 bpd by 2009.
Qatar Petroleum is trying to maintain production at its onshore Dukhan and the offshore Bul Hanine and Maydan Mhazam Fields. Occidental singed a contract in April to drill infill wells to maintain production. The company is one of the main operators in Qatar and has interests in several blocks including 12 and 13. Total is expected to sign a similar deal to stem decline in Al Khaleeji Field K.
Qatar Petroleum Development, a joint venture led by the Japanese Cosmo, sign a deal to increase production of Al Karkara Field on offshore Block 1 from 7,500 bpd to 13,000 bpd by 2010. Qatar is working to increase natural gas production from its North Field to reach 22 Bcfd by 2012. It is also planning to more than double its LNG production from the current 31 tonnes to 77 million tonnes by 2011.
Production. Qatar’s total oil production capacity reached 915,000 bpd. Qatar’s oil production has virtually remained the same for the last few years. It started increasing in the fourth quarter of 2007 and reached 920,000 of June.
Reserves. World Oil shows Qatar’s proved oil reserves at 20 million bbl and proved gas reserves at 905 Tcf.
UAE
Higher oil prices and a real estate boom in the UAE increased economic growth by more than 50% in the last six years. Commercial, residential and industrial development strained domestic energy sources and caused power and gas shortages. In fact, power and gas shortages have become the main threat to sustained economic development. Demand for natural gas is growing by about 15% annually. Natural gas is needed for power plants and, therefore, for various industrial and tourism projects. It is also needed for reinjection in the oil fields to maintain production. The value of crude exports rose by 69.4% in 2007 and expected to increase by additional 30% this year. The value of gas exports grew by 9.2% in 2007 and is expected to decline slightly in 2008. While the 2008 budget is balanced at $9.5 billion, the UAE will enjoy an enormous surplus this year. The budget is based is on prices around $50/bbl. The UAE comprises seven independent states. Each state has complete sovereignty over its natural resources.
Exploration. Most exploration activities took place in the oil-poor areas in the UAE, especially in Sharjah and Fujairah. Recently, Sharjah, BP and RAK Petroleum signed a 20-year agreement for the Sajaa Concession. RAK Petroleum is the main share holder (55 %) and operator, Sharjah (27 %) and BP Sharjah Holdings (18%). RAK will drill for gas in the concession. Any discoveries will be processed through the BP Sharjah existing plant in Sajaa.
In March, Dana Gas won a 25-year exploration and development concession covering more than 1,000-sq km in the Western offshore block in Sharjah. The concession includes the development of the Zora gas field, which was discovered in 1979. The agreement calls on Dana Gas to conduct geological evaluation, followed by seismic surveys and the drilling of exploration wells. It also calls for resumption of horizontal drilling of two wells originally drilled by the previous operator and Dana Gas’ major shareholder, Crescent Petroleum. It also involves various exploration and construction activities such as the installation of offshore platforms.
Last February, Crescent Petroleum signed a 25-year oil exploration and production agreement with Sharjah. The agreement covers 1,250 sq km to the south and southeast of the major SajaaField of Sharjah. Crescent will conduct seismic surveys and drilling of exploration wells, followed by development operations. Last September, Crescent Petroleum completed its second, and final, K2 appraisal well on the Mubarak oil field offshore Sharjah. Oil flow at 742 bopd, similar to first appraisal well. The wells were drilled to appraise the remaining reservoir potential, which has been producing since 1974. The company plans to evaluate further prospects during 2008 with a particular focus on the Ilam-Mishrif oil reservoir and the deeper Thamama gas condensate reservoir.
Ukraine’s Naftogas signed an exploration and development agreement with Fujairah in early 2005. In October, Naftogas discovered oil in Fujairah. Additional wells will be drilled to determine the commerciality of the discovery.
Drilling/development. World Oil predicts the number of wells drilled to remain the same this year at 116 wells. Abu Dhabi National Oil Company and its partners were hyperactive in drilling and development. Abu Dhabi continued spending and working on various projects that will increase its production capacity to 3 million bpd. The most important projects that started in recent years and scheduled for completion between now and 2010 are the Upper Zakum, Umm Shaif, Nasr, Shah and various fields in northern Abu Dhabi.
Upper Zakum Field. Work to increase production from 550,000 bpd to 750,000 bpd continued and is expected to be completed in 2009. ADNOC selected ExxonMobil in April 2005 as a strategic partner in this project and singed the agreement in the Spring of 2007.
Umm Shaif Field. Abu Dhabi is spending $1.6 billion to this offshore field to increase oil production from the current 200,00 bpd to 300,000 bpd in 2010 and reach a gas production of 1 Bcfd. In September 2006, Abu Dhabi Marine Operating Co. asked Korean shipbuilder Hyundai Heavy Industries to build offshore oil production facilities for Umm Shaif Field. The facilities include building of three fixed platforms, subsea pipelines and bridges.
Nasr Field. The development of this field will add 100,000 bpd by 2010.
Sahil, Asab and Shah Fields. The development of these fields is part of the ADCO Phase 1 development. It plans to spend more then $11 billion on gas projects, which includes integrated gas development, pipelines and debottlenecking of the NGL plant at Asab. It plans to start with onshore fields such as Shah and Bab before it focuses on offshore gas. In July, ConocoPhillips won a contract to develop sour gas reserves for a cost that will exceed $10 billion. Completion of the joint venture agreement (ADNOC 60% and Conoco Philips 40%) is expected at the end of this year. The contract involves processing 1 Bcfd at producing 570 Mcfd of network gas. Most of the gas will go for reinjection in oil fields.
Abu Dhabi Gas Industries (Gasco) announced last May that it is investing about $25 billion in processing plants and pipelines. The company is working on two gas plants and 10 onshore pipelines in the next five years. The two plants will be built at Habshan and Maqta.
As for Dubai, its production continues to decline. In 2006, it took back operating control of its offshore assets from Dubai Petroleum Company (DPC), which include four fields: Fateh, Southwest Fateh, Falah and Rashid; 70 platforms; and more 600 wells. DPC was a subsidiary of ConocoPhillips. It was operator on behalf of the DPC/Dubai Marine Areas (DUMA), a licensee consortium that also involved interests from Total, Repsol, RWE-Dea and Wintershall. The property was transferred to Dubai Petroleum Establishment (DPE), a government-owned company that was established to take over DPC assets. In April, 2007, Petrofac announced that it had taken over full operational responsibility for well and facilities management of Dubai’s offshore oil and gas assets on behalf of DPE from DPC.
Production/reserves. UAE average oil production declined in 2007 by about 175,000 bpd, to 2.6 million bpd. The decline came at the end of the year when the UAE cut its production by 600,000 bpd due to maintenance in three offshore oil fields: Upper Zakum, Lower Zakum and Umm Shaif. Abu Dhabi produces most of the oil of the UAE. Other emirates produce small amounts, including Dubai, which produces around 90,000 bpd. The UAE has increased its production in the last three months, probably by about 40,000 bpd. UAE proved reserves have remained virtually the same, at 98 Bbbl.
OMAN
Oman’s economy continued robust growth, the rate was 6.8% in 2007, fueled by higher oil revenues and various non-oil economic activities. Inflation reached its highest level in 20 years. While the draft budget of 2008 projects a budget deficit as expenditures increase by 20% over the pervious year, Oman will enjoy a surplus. The budget was based on oil prices of $45 per barrel.
Oman needs to halt production decline of its aging oil fields to support its economy and growing population. It also needs to find additional natural gas and condensates reserves to meet its own domestic demand and raise the average API of its heavy crude. However, it cannot make progress without the help of the IOCs and international financing. Even this help has limitations in the face of rising costs and limited skilled human resources.
The oil and gas sector in Oman is strikingly different from those of neighboring countries in the Gulf. Unlike Saudi Arabia, Kuwait and others, Oman depends heavily on IOCs’ involvement in its oil sector. For example, Petroleum Development Oman (PDO), which controls about 80% of Omani oil and nearly all of its natural gas, is a joint venture between the government of Oman (60%), Shell (34%), Total (4%) and Partex (2%). Oman’s oil and gas exist in small scattered fields in very complex geological structures, which make them difficult and expensive to extract. This explains the heavy dependence on IOCs, state of the art technology, and EOR (water, steam, gas, geothermal, chemical). It also explains the high number of wells drilled every year relative to the number of wells drilled in neighboring countries. Major oil fields are: Yibal, Qarn Alam, Karim, Nimr, Athel-Marmul, Harweel, Mukhaisnah and Safah. Gas fields include Khazzan, Shams, Kawther and Makarem.
Exploration. In 2007 and early 2008, PDO made several oil and gas discoveries in the Budour Northeast oil field, the Rabab-Southeast oil field, the Simr gas field, and the Burhaan West gas field. The gas discoveries will help Oman attract foreign investment, which might halt the production decline that Oman been witnessing in recent years.
Oman is expected to offer three onshore (Blocks 17, 36 and 38) and two offshore blocks (Blocks 40 and 50) in 2008. Total, a partner in PDO, has already announced last April that it will participate in the bidding. An additional five blocks are expected to be offered soon. Last May, Oman announced that it short listed Occidental, Reliance and Peteronas for the gas blocks.
Last February, Oilex, an Australian company, announced a new heavy oil (21.5oAPI) discovery, Sarha-1 exploration well, in Block 56 in Al-Khalta reservoir. Drilling started at the end of December and it is the first of three well to drill in the first half of 2008. Four more wells will be drilled in the second half of 2008 and early 2009. The Block, which might contain 4 Bbbl of oil reserves, was awarded in early 2006 to Oilex and four Indian partners.
Last August, Sweden’s Tethys Oil signed a contract with Kelix Energy Solution Group to carry out a reserve study on Block 15, where it discovered gas/condensate in Jabel Aswad well.
In November 2007, the Ministry of Oil and Gas awarded the 23,800 sq km offshore Block 41 to a subsidiary of Reliance Industries through an Exploration And Production-Sharing Agreement (EPSA). At the same time, it awarded another EPSA to Ras al-Khaimah Petroleum for the onshore Block 30.
Drilling/development. The number of wells drilled increased from 430 wells in 2006 to 439 wells in 2007. World Oil expects the number to increase further in 2008 to 458 wells. Oman hopes to reverse declining production in its fields. PDO officials believe that production would reach a plateau in 2007 and 2008, but it will start increasing in 2009 when several new EOR projects increase production in various fields such as Harweel (60,000 bpd in 2010 and 100,000 bpd within 10 years), Qarn Alam, Marmul and Fahud. Mukazna production is expected to increase from 22,000 bpd at present to 150,000 bpd by 2010. Karim’s production will increase from the current 12,000 bpd, to 31,000 bpd by 2010. Water flooding will also increase production in fields such as Dhulaima, Lekhwair and others. By 2012, PDO should have expanded or initiated 15 waterflood projects.
Last February, PDO awarded Petrogas Rima LLC, now a joint venture between the Omani Petrogas and Oman Oil Co., a 15-year service contract to develop a cluster of 18 small oil fields (nine developed, nine undeveloped) in the Rima area south of Oman, which contains over 500 million bbl. The contract involves studies, engineering, construction, operations and maintenance. The objective is to increase production in these fields from the current 2,000 bpd, to 7,000 bpd within few years. This contract will allow PDO to focus on larger fields and more complex EOR issues.
Also in February, Sweden’s Tetheys Oil announced that it anticipate production from Jebel Aswad wells on Block 15 to start in July 2009. The company announced last June that it spudded Jebel Aswad-2. It will continue its drilling program until it reaches 10 wells in October 2010. Full production, expected in 2010, should reach 1,500 bpd of condensate and 20 MMcfd gas.
Last May, Indango Petroleum Ltd spuded Zad well on the Adam prospect on Block 47. The Adam prospect is estimated by the company to hold about a half Tcf of gas and substantial associated condensates. Adam is located about 30 mi north of the producing Kauther Field and will benefit from the existing infrastructure.
Production. Omans’ oil production declined in 2007 for the seventh strait year, to 710,000 bpd in 2007, a 3.7% drop. PDO’s oil production is expected to decline from 561,000 in 2007 to 550,000 bpd in 2008. As domestic consumption increased, oil exports declined by about 5%. However, a turnaround is expected in 2008. Oman announced that it will produce an average 790,000 bpd of oil and condensates in 2008. The additional production will come from Occidental Petroleum’s Mukhaizna Field. The increase comes after a costly large-scale steam flood. PDO officials believe that the current EOR programs will increase PDO’s production starting in 2010.
Reserves. Oman oil reserves have increased recently after PDO booked the Habhab heavy-oil reservoir that was appraised in 2007. Oil now stands at 5.7 Bbbl and gas reserves are up to 32 Tcf.
BAHRAIN
Bahrain has benefited greatly from higher oil prices and from the economic prosperity in neighboring Gulf States. Real estate and financial sectors are booming. Economic growth averaged 6.5% in recent years and is expected to continue. Although a small oil producer, about 79% of treasury revenues came from oil last year. Revenues from this onshore field contributed only 14% of total oil revenues. About 77% of oil revenues come from the Saudi Abu Saafa offshore field, which are shared with Bahrain as a form of financial support to the government of Bahrain.
Only one field, Bahrain Field (a.k.a. Awali Field), produces. Production from this field has virtually remained the same at around 35,000 bopd. Bahrain produces about 388 Bcf a year of associated gas from this field. Because oil and natural gas reserves are dwindling, the government has embarked on a program to increase production, especially gas. Last November, eight IOCs participated in a bid to upgrade production methods and facilities at the field, including ExxonMobil and Occidental. Results of the bid were expected at the time of writing this report.
In March, 2007, Bahrain launched four offshore oil and gas exploration blocks, which cover all Bahrain’s waters. Last January, the Bahraini Parliament endorsed the PSA contract that Bahrain signed with Occidental for Blocks 3 and 4. During the seven-year exploration period, the company will carry geological studies and drill three wells. If oil is found, the contract will last for 24 years.
Thailand’s PTTEP signed a PSA contract for Block 2 at the end of 2007. The contract was endorsed by the Parliament last February. PTTEP is required to drill two wells.
SYRIA
Growing population and declining oil production and economic activity make oil and gas production of extreme importance to the future of Syria. Despite increasing gas production, it cannot keep up with demand. Syria needs to explore for oil and gas resources, but it does not have the capital nor the expertise to do it. Thus, cooperation with IOCs is needed. Unfortunately, bad economic policies, corruption, economic sanctions and lack of human resources are limiting foreign investment. Experts believe that Syria will become a net oil importer within a few years. Despite increasing oil prices, Syria’s economy grow at 4%, the lowest growth rate in the region, accompanied with one of the highest inflation rates.
Exploration. In early April, Syria announced that Al Furat Petroleum Co. discovered promising deposits of oil and gas in the Azraq Field near the Iraqi border, but the finds are not yet deemed commercial.
In May, the Syrian Ministry of Petroleum and Mineral Resources instructed the state-owned Syrian Petroleum Co. to drill the first exploratory well in the city of Latakia on the Mediterranean. The decision to drill came after a survey of the area and after the failure of the ministry’s efforts to attract major oil companies to bid for the offshore blocks that Syria offered last year.
Canada’s Stratic Energy Corp. reported that 2D seismic data acquired in 2007 from Block 17 revealed encouraging results. The company plans to drill an exploratory well in the fourth quarter of this year. The Block is located southeast of the large gas discoveries of the Palmyra region. Strategic is the operator of this Block. Last October, Syria signed a PSC with Canada’s Loon Energy for the exploration, development, and production of oil and gas from Block 9. The Block is located in northeast Syria near producing fields and covers 10,039 sq km.
Development. Several gas projects are underway. The North Middle Area Gas Project is under development by the Russian Stroitransgaz and will be finished in 2010. It will deliver gas, LPG and condensate from various fields in the region such as Twinan, al Dha’a, and al Ajouz. PetroCanada and Petrofac are developing the Elba Gas project which is due for completion in 2010. In April, Petro-Canada awarded Petrofac a $477 million lump-sum contract for the construction of a gas treatment plant for the Elba project. The Elba plant will produce 88 MMcfd of sales gas and 150 tons/day of liquefied petroleum gas, and handle the associated gas. Sales gas and condensate will be fed into the Syrian pipeline network and LPG will be transported via tankers.
Petrofac, on behalf of Hayan Petroleum company, is developing the Jihar Gas Project is expected to finish in 2011. The south Area Gas project is undertaken by Stroitransgas and expected to be finished around the Middle of 2009 after it was delayed on higher costs. As for the Arab gas project, Syria has finished the third phase and Egyptian gas started flowing in July.
Last February, Croatia’s INA will start production from the Jazal oil field and from the Mustadira gas field in the Hayan Block. INA was awarded a PSA for the Block in 1998.
Last April, China’s CNPC and the Syrian government signed two agreements. The first agreement involves building a 5 million tonnes refinery in eastern Syria. The second is focused on frame work for cooperation in the oil and gas sectors.
Syria’s oil production declined 5% to 386,000 bpd in 2007. The Syrian Petroleum Company produced about 51%. The remaining 49% were produced by foreign oil companies: Al Furat Petroleum Co., Dai Al Zour Petroleum Co., and Hayan Petroleum Co. Crude oil exports were slightly higher than 150,000 bpd. Oil reserves are in line with production, slightly down at 2.9 billion bbl, while gas reserves are at 12.7 Tcf.
YEMEN
Political violence and terrorist attacks have plagued Yemen in recent years. Terrorist attacks on oil facilities and pipelines have not affected production, but it continued to decline naturally. Oil revenues represent more than 70% of total government receipts. Higher oil prices compensated for the decline in production. In fact, revenues for the first four months of 2008 increased by 85% relative to the same period in the previous year. However, the combination of higher oil revenues and low economic growth indicate that Yemen’s economy suffers from sever structural problems at a time when political problems and corruption are crippling the country.
Exploration. Companies in Yemen are planning to drill 20 exploratory wells and 100 development wells in 2008. Last April, the Ministry of Oil and Minerals awarded 10 companies PSA contracts for seven blocks out of 14 that were offered in the Third Bidding Round in 2006. Blocks 19, 57 and 28 were signed with India’s Gujarat State Petroleum Corp., Al-Koor Petro, Western Drilling Contractors, and General Corp. for Oil and Gas. Blocks 82 and 83 where awarded to Medco Yemen Amad, Kuwait Energy Co., Indian Oil Corporation, Oil India, and General Corp. for Oil and Gas. Block 84 was awarded to DNO, Ansan Wikfs, TG Holding, and General Corp. for Oil and Gas.
The Fourth Bidding Round offered 11 offshore blocks in the Red Sea, Gulf of Aden and Mideast Gulf. Yemen pre-qualified 25 companies for the bid. The list includes major oil companies such as ExxonMobil, Total, Stateoil and Repsol. Winners will be announced at the time when this report is in press. A fifth round that covers the remaining 29 onshore and offshore blocks will be launched late 2008 early 2009.
Last July, Yemen and Total signed an MOU for gas exploration and production and the building of a power plant. Although it is just an MOU, Yemeni officials have announced that the gas-powered electricity plant will start operations in early 2009!
Drilling/development. Despite the government push to halt production decline and an increase in investment by Yemeni oil companies of 10%, and 110% by foreign oil companies, the number of oil wells drilled is expected to increase mildly from 138 wells in 2007 to 144 in 2008. Yemen drilled 166 wells in 2006.
Block 10. Total announced last year that it will invest $1 billion to raise production to 70,000 bpd, from 40,000 bpd. The plan involves expanding processing capacity and the drilling of nine additional water injection wells.
Block 14. Nexen is considering enhanced recovery options to slow the decline.
Block 9. Production is expected to increase from the current 5,000 bpd, to 30,000 bpd once a pipeline is finished in late 2009. The pipeline is operated by Canadian Callvalley.
Block 52. (S2): Production will increase from current 10,000 bpd to 30,000 once a pipeline is built. Operated by OMV.
Block 32. At the end of June, TransGlobe Energy Corp. and DNO announced that it they will start drilling one exploratory well that will be followed by an appraisal well.
Block 72. TransGlobe Energy Corp. and DNO plan to drill two exploration wells in August and toward the end of the year. Drilling will start once the processing of 3D seismic is complete.
Production. Yemen’s oil production declined by 13% to reach 317,000 bpd in 2007. Production is expected to decline further in 2008 to 300,000 bpd. Yemen says it plans to increase its production to 500,000 by 2010.
Reserves. Yemen’s reserves have been dwindling in recent years and currently stand around 2.7 Bbbl. Natural gas reserves are around 15 Tcf.
TURKEY
Turkey is enjoying economic growth similar to that of Saudi Arabia and other oil producing countries around the world, with recent economic growth over 6%. Unlike the majority of Middle East countries, the role of domestic oil and gas in the economy is pretty limited. However, Turkey is playing an increasingly important role in world energy markets as more pipelines and electricity lines pass through Turkey to Europe.
Exploration. Most of the new exploration activities are taking place offshore, while most of the proven reserves are located in southeastern Turkey close to Iraqi and Syria and in the Thrace region in the northeast. Drilling in the Black Sea started in 2005. Acreage there is divided into two areas and operated by different partners. One is a joint venture among TAPO, the Turkish state-owned oil company, and Torreador (US) and Stratic (Canada), which runs the Western Black Sea Exploration and Development Project (with about 1.4 Tcf of gas). Another joint venture, TPAO, BP and Chevron, runs the Eastern Black Sea Offshore Project. TAPO will start a joint exploration program with Brazil’s Petrobras in the western region of the Black Sea in 2009. According to the agreement, Petrobras will invest $400 million during the four-year exploration period.
The growing demand for natural gas and the vulnerability of gas imports from Iran made exploration for gas a priority for TAPO. Since 2002, Turkey has made several gas discoveries, mostly in the in the Thrace-Gallipoli Basin. Turkey also found gas in the Black Sea in 2004 when Ayazli-1 and -2 were drilled. Several discoveries were made since then in the South Akcakoca Sub-basin, especially in 2006, including Bayhanli-1 and Akkaya-3 wells. In June, Otto Energy, an Australian oil company, and its Australian partner Incremental Petroleum, announced that Kuzey Arpaci-1 well in the Edime Block flowed dry gas at a rate of 2.8 MMcfd from several intervals. This is the second well drilled in 2008. Two more wells will be drilled and production slated for mid 2009.
Last March, Incremental and Otto, announced the spudding of the first well in 2008 in the Edirne gas project in Thrace, near the Bulgarian and Greece Borders. The 2008 drilling program calls for drilling five wells targeting gas reserves of 10-20 Bcf. The first well, Ikihoyuk-1 would target depth of 540 m. Last November, Toreador announced a gas discovery in the Bati Eskikale-1 well in Sasb. It is located 5.5 km northwest of Akcakoca-3 well.
Drilling activities are World Oil forecast to increase substantially in 2008 the number of wells drilled to increase by 28%, from 125 wells in 2007 to 160 in 2008. Turkey produced about 40,600 bpd in 2007 and has proved reserves of 278 million bbl oil and 245 Bcf of gas. 
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