MUSCAT/DUBAI: BP will drill some 300 wells to flush gas trapped deep under the Omani desert over the next 15 years in a $16bn project that Oman is relying on to keep its economy growing.
The Khazzan tight gas project, which aims to extract around one billion cubic feet (bcf) per day of gas from sandstone at depths of up to 4,500 metres in central Oman, is a showcase for BP’s tight gas extraction technology.
Its success is vital for a country whose own gas exports have been eaten away by its voracious appetite for energy.
“Today’s signing is an important step in the Sultanate of Oman’s plans to meet growing demand for energy over the coming decades and to contribute to economic development in Oman,” the country’s oil and gas minister, Mohammed Al Rumhy, said in a statement after the signing in Muscat.
“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.”
BP will have a 60 percent operating stake in the project, which involves a 15-year programme of drilling into sandstone thousands of metres below the surface to extract gas using hydraulic fracturing technology developed in the US.
BP expects to invest around $9.60bn over the full field development, in accordance with its 60 percent stake in the $16bn project, a BP spokesman said.
State-owned Oman Oil Company Exploration & Production (OOCEP) will have a 40 percent stake. The $16bn total investment estimate includes around $1.5bn already spent.
After months of haggling, Muscat agreed in mid-2013 on the price at which BP could sell gas it can squeeze from deep under the desert of central Oman.
Neither side would reveal the price they had agreed to make the project worthwhile for BP, but BP Chief Executive Bob Dudley said the price was competitive within BP’s global investment portfolio.
“We are a company who have said that we will use a very disciplined capital framework and for the rest of the decade we will keep BP’s capital investments between $24bn and $27bn a year,” Dudley told reporters.
“There are other projects that we have put aside but this is one that is big, it is important and it is a good partnership... It fits with our strategy as a company to develop large reservoirs.”
Construction is expected to begin in 2014, with first gas expected in late 2017 and plateau production of around 1 bcf, or 28.3m cubic metres, per day expected in 2018.
This would be enough to meet around a third of the country’s current domestic gas needs. But Omani energy demand is rising rapidly and Muscat also hopes to import Iranian gas in a 25-year deal signed in August.
“The country needs the gas to develop its economy,” Al Ruhmy told journalists. “Our needs for gas increase day by day.”
BP expects to develop around 7 trillion cubic feet (tcf) of gas in the Khazzan project, and to pump around 25,000 barrels per day (bpd) of gas condensate, a light oil, helping ensure a good rate of return from the investment.
The 30-year production sharing and gas sales agreements also allow BP to appraise more gas resources in Oman’s Block 61, which it expects to develop in later phases.
The Omani government will take 55 percent of the gas sales revenues, while the rest will be split between the project partners, with 60 percent for BP and 40 percent for (OOCEP) after deducting costs, the minister told the news conference.
BP shares rose from close on Friday at 465.55 pence to around 470.35 pence at 1430 GMT yesterday. Reuters
