OIL AND GAS ADVISOR UPBEAT ON OMAN PRODUCTION

UNCLAS MUSCAT 001685 SIPDIS SENSITIVE SIPDIS STATE FOR NEA/ARP, EB/ESC/IEC/EPC, EB/CBA COMMERCE FOR COBERG E.O. 12958: N/A TAGS: PREL EPET EIND ECON MU SUBJECT: OIL AND GAS ADVISOR UPBEAT ON OMAN PRODUCTION FORECAST ¶1. (SBU) On December 10, Econoff discussed Oman's energy outlook with Khalifa bin Mubarak al-Hinai, technical advisor to the Minister of Oil and Gas. Hinai commented that contrary to popular concerns, Oman still had significant reserves to exploit. He noted that of the approximately 50 billion barrels of oil within the Sultanate, only 15% had been produced since 1967, leaving 38 billion barrels to recover. Hinai estimated that a substantial decline in production rates will only occur in 30 to 40 years' time, rather than the figure of approximately 20 years frequently used to describe Oman's remaining oil supply. ¶2. (SBU) Hinai remarked that the current dip in oil production, which has fallen from close to 1 million barrels per day (bpd) in 2000 to 750,000 bpd in 2006, should be reversed by 2010. He stated that the government had committed to making significant investments in enhanced oil recovery techniques on behalf of majority state-owned Petroleum Development Oman (PDO) during the course of the current five-year economic plan (2006-2011). Hinai noted that further exploration will result in the production of smaller fields, rather than larger ones. In this regard, he said that PDO would focus on using more nimble foreign operators to obtain better production from its mature fields, such as the Harweel cluster, which is difficult to produce due to geography, and the Daleel cluster, which only produces about 15,000 bpd. The government has already contracted with an Indonesian firm to operate 11 PDO fields, and has out to tender a contract to explore 16 other smaller fields. Complementing these efforts is Los Angeles-based Occidental Petroleum's $3 billion investment in its Mukhainza fields, which Hinai expects will result in an increase in production from 10,000 bpd to 150,000 bpd within a five-year time span. With these efforts, Hinai predicted that production numbers should be up to approximately 850,000-900,000 bpd by 2011. ¶3. (SBU) On gas production, Hinai remarked that the Omani government has just completed a tender for the exploration of a deep gas field recently discovered by PDO. While field production will be challenging, he commented that it potentially holds 10 trillion cubic feet (TCF) of gas. With the new fields being developed by British Gas along the Saudi border, Hinai was confident that production would bring up indigenous reserves, which he described as currently "thin." Hinai noted that Oman still exports gas to the UAE, but affirmed previous reports that Oman would begin importing gas in 2008 through its relationship with Dolphin Energy. He also confirmed that gas remains available to support the industrialization of Sohar, but that the government will delay construction of a methanol plant in the Salalah Free Zone until local gas production is strengthened. Regarding the government's three trains for the export of liquefied natural gas (LNG),Hinai said that they are running at 95% capacity, although the newest train, opened in December 2005, is running slightly "slower." FONTENEAU