* Plateau production of 1 bcf/day seen by 2018
* BP to hold 60 percent of project, spend around $9.6 bln
* Khazzan tight gas project vital for Oman growth
By Sami Aboudi and Daniel Fineren
MUSCAT/DUBAI, Dec 16 BP will drill some
300 wells to flush gas trapped deep under the Omani desert over
the next 15 years in a $16-billion 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 United States.
BP expects to invest around $9.60 billion over the full
field development, in accordance with its 60 percent stake in
the $16 billion project, a BP spokesman said. State-owned Oman
Oil Company Exploration & Production (OOCEP) will have a 40
percent stake. The $16 billion total investment estimate
includes around $1.5 billion already spent.
MONTHS OF HAGGLING
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
"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 $24 and $27 billion 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
Construction is expected to begin in 2014, with first gas
expected in late 2017 and plateau production of around 1 bcf, or
28.3 million 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 on Monday.
Rock-bottom, government-set gas prices prevalent in the
Middle East have discouraged investments in projects needed to
meet rapidly rising demand for gas across the region, making
many countries rely increasingly on imports or watch rampant
domestic demand eat into their gas exports.
In a rare Middle East move to cut huge fuel subsidy bills,
Oman plans to double natural gas prices for some industrial
consumers from $1.5/mmbtu in 2012 to $3/mmbtu in 2015.
Oman currently exports gas from liquefied natural gas (LNG)
plants that were planned before the small non-OPEC oil producer
was forced to revise down its gas reserves.
Oman's gas appetite has already taken a bite out of its LNG
exports and analysts say the success of Khazzan will be vital
for the country to keep exporting over the next decade.
BP said it had also signed a non-binding memorandum of
understanding with state-run and Oman Oil Company to develop a
one million tonne per year acetic acid plant in Duqm, on the
Arabian Sea coast of Oman.