By Conrad Prabhu — MUSCAT — The Ministry of Oil and Gas and international oil major BP are making significant headway in negotiations aimed at clinching a landmark deal that will help harness the prolific gas resources of the latter’s Block 61 concession to fuel the country’s long-term development. According to a high-ranking official of the Ministry, a ‘Heads of Agreement’ is due to be signed in the coming months, laying the groundwork for the all-important Declaration of Commerciality (DoC) on the development of Block 61’s gas-rich Khazzan-Makarem field.
“Negotiations with BP have been progressing very well. In fact, we are in the last stages of discussions on this front. We are confident about having a Heads of Agreement with BP — God willing — by August, if not by September, to ensure that gas supply from the Khazzan-Makarem field commences by the end of 2016,” Shaikh Ali bin Thabit al Battashi, Adviser to the Ministry of Oil and Gas, said.
Al Battashi, who was appointed Adviser to the Ministry of Oil and Gas (Special Grade) by Royal Decree in mid-2010, has been leading negotiations with BP on the government’s behalf. The official has also been heading up a high-level team that has been negotiating amendments to gas pricing pacts governing the supply of natural gas as feedstock and fuel to a number of major industrial gas users in the Sultanate.
Revised gas price agreements have already been signed with Oman India Fertiliser Company (Omifco) and Jindal Shadeed Iron & Steel Company, with the majority of other users expected to sign up in the coming months. The higher earnings accruing to the Omani government as a result of the gas price revisions will help support the development of difficult and tight gas fields, notably BP’s Khazzan-Makarem field.
“Signing with these major industrial gas users gives us the ability to ensure we can proceed with the Khazzan-Makarem development on a fast-track basis. This is a huge gas field. We are expecting to develop about 1-1.2 billion standard cubic feet of gas per calendar day by 2017-18 to cover the wedge we expect from the current gas supply. So BP gas will offset the decline in gas volumes currently being supplied,” Al Battashi said.
According to the official, around 7.6 trillion cubic feet (TCF) of Khazzan-Makarem’s estimated potential of 100-150 TCF of gas in place will be earmarked for exploitation during the field’s initial development.
“We are looking at three phases of development: Phase 1 will kick in by end-2016 or early-2017. We are now exploring plans with BP to accelerate Phase 2, targeting another 1 billion standard cubic feet of gas per calendar day to ensure constant supply to the major gas users.”
Negotiations with BP on the development of Block 61’s ‘tight gas’ reserves have been intensive and protracted, the adviser said. “We have been negotiating for over a year now. These are very tough discussions. There’s a lot of benchmarking involved, and a lot of data has to be reviewed from both sides. All that is taking place right now, and we will be going back to BP on August 6 (with our response to their proposal received on March 19.”
Al Battashi credited the “world-class” team of the Government of Oman, comprising officials from the Ministry of Oil and Gas, Ministry of Finance, and Ministry of Legal Affairs, for the smooth, if arduous, pace of negotiations on the crucial Khazzan-Makarem project. He also thanked Petroleum Development Oman (PDO) and Oman Oil Company Exploration & Production (OOCEP) for their support.
“Clearly, the Ministry of Oil and Gas has been working 24x7 for His Majesty the Sultan and for Oman (in developing the country’s hydrocarbon potential). Upon the completion of our benchmarking and review of data, we will present our findings to Dr Mohammed bin Hamad Al Rumhy, Minister of Oil and Gas. He will consult with his colleagues in the Ministry of Finance.
We then go back to BP on August 6 with a counterproposal. BP will have one week to respond, and we will then sit down and finalise negotiations with BP.
At the same time, work is also under way on a field development plan (FDP) jointly between BP, the Ministry of Oil and Gas, and Ministry of Finance. “The FDP will be presented to the government latest by October this year. Once reviewed and finalised, we will have a Declaration of Commerciality by the second quarter of 2013, and that will lead to the full-scale development of the Khazzan-Makarem field.” Al Battashi added.