RESOURCE NATIONALISM NOT EVIDENT IN OMAN

C O N F I D E N T I A L MUSCAT 001014 SIPDIS SIPDIS STATE FOR NEA/ARP, EEB/ESC/IEC/EPC E.O. 12958: DECL: 11/03/2017 TAGS: EPET PGOV MU SUBJECT: RESOURCE NATIONALISM NOT EVIDENT IN OMAN REF: STATE 150999 Classified By: Ambassador Gary A. Grappo, reasons 1.4 b and d -------------- Summary -------------- ¶1. (C) The growth of resource nationalism is not evident in Oman. The government controls majority stakes in Oman's primary energy production companies in long-term partnerships with foreign firms, and actively seeks further foreign investment to augment output in both the oil and gas sectors. It does not engage in policy actions that would disrupt its current relationships with, or discourage additional investment from, foreign energy exploration companies. End Summary. -------------- Energy Important to the Bottom Line -------------- ¶2. (U) Oman's economy is based primarily on petroleum and natural gas, which the government expects will account for 79% of its revenue in 2007. Oman's proven recoverable oil reserves are estimated at 4.8 billion barrels, though the Ministry of Oil and Gas estimates that there are potentially 38 billion barrels of recoverable oil. Most oil production is carried out by majority state-owned Petroleum Development Oman (PDO),in partnership with Royal Dutch Shell (34%) and Partax (6%). The company controls 90% of Oman's reserves and the lion's share of Oman's production. ¶3. (U) Given Oman's reliance on energy for revenue, oil production rates are of primary concern to the government. Oman's production for the first nine months of 2007 averaged 706,900 barrels per day (bpd),a 5.1% drop from the 744,600 bpd over the same period in 2006. Since considerable attention has been placed on PDO's ability to reverse declining production figures, the government has committed to making significant investments in enhanced oil recovery techniques during the course of the current five-year economic plan (2006-2011). Over the course of 2007, for example, the government will invest $1.53 billion to improve production numbers. The government is also compelling PDO to use more nimble foreign operators to obtain better production from its mature fields. ¶4. (U) Oman has developed its natural gas industry to the point where liquefied natural gas (LNG) will account for an estimated 12% of government revenues in 2007. Majority government-owned Oman LNG and Qalhat LNG account for total production capacity of 10.3 metric tons per annum, representing approximately 8% of LNG shipped worldwide annually. A September 2004 agreement guaranteed a long-term natural gas supply from the government to Qalhat LNG and outlined the terms of an investment partnership between Oman LNG, Qalhat LNG, and the Spanish firm Union Fenosa. As a result of investment in this sector, gas production is up 5.2% over the first 9 months of 2007 compared to the same period in 2006. The government will add another $1 billion of investment in 2007. -------------- Foreign Investment Important -------------- ¶5. (U) To promote competition in oil production, the government has turned to U.S.-owned Occidental Petroleum, which will invest over $3 billion in its recently acquired (from PDO) Mukhainza field. The government expects the investment will result in an increase in the field's production from 10,000 bpd to 150,000 bpd by 2012. Occidental, Oman's second largest producer with a current production rate of 50,000 bpd, will figure to be a major player once its production capabilites at Mukhainza are fully realized. ¶6. (U) The government is also opening gas production possibilities to foreign firms. In December 2006, it awarded a tender to BP for the exploration of a deep gas field recently discovered by PDO that potentially holds 10 tcf of recoverable gas. BP intends to invest $650 million to develop the Khazan and Makaram gas fields over the next six years. With the new fields being developed by British Gas along the Saudi border, the government is cautiously optimistic that indigenous reserves will increase by a sufficient amount to meet forecasted demand. -------------- Comment -------------- ¶7. (C) The Omani government has placed a high priority on finding more oil and gas through the assistance of foreign firms. On the oil side of the ledger, while renewing its long-standing relationship with Royal Dutch Shell, the government has begun to take away portions of PDO's concession to enable other foreign players to unlock Oman's difficult-to-reach reserves. The same is holding true for the gas sector, and Embassy does not foresee the government taking any actions that would diminish the attractiveness of the Sultanate to foreign oil and gas firms. End Comment. GRAPPO