BP strikes $16bn deal to help Oman meet demand

The Khazzan project is seen as a showcase of BP's technology. Picture: Mehmet Binay
The Khazzan project is seen as a showcase of BP's technology. Picture: Mehmet Binay
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OIL giant BP yesterday signed a 30-year deal to help develop a huge gas project in Oman, giving the green light to an investment worth $16 billion (£10bn).

The Khazzan gas project, which aims to extract around one billion cubic feet (bcf) of gas per day from deep under central Oman, will make a major contribution to meeting the Middle Eastern country’s growing energy needs.

The project is seen as a showcase of BP’s technology to develop so-called tight gas fields, where recovery is more difficult than conventional fields.

Oman’s oil and gas minister, Mohammed Al Rumhy, said that the deal was an important step to meet the sultanate’s growing demand for energy over the coming decades and to contribute to economic development.

“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,” he said.

BP has already spent hundreds of millions of pounds on the project since winning the concession in 2007. It expects total investment of around $16bn for the full field development, equivalent to about a fifth of Oman’s current annual economic output.

“This enables BP to bring to Oman the experience it has built up in tight gas production over many decades,” BP chief executive Bob Dudley said.

Construction is expected to begin in 2014, with first gas expected in late 2017.

Production of around one bcf, or 28.3 million cubic metres, per day is expected in 2018.

This level of production 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,” said Al Ruhmy. “Our needs for gas increase day by day.”

BP, which will operate the project, expects to develop around seven 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, from the field.

The production-sharing deal and a gas sales agreement also allow BP to appraise more gas resources in Oman’s Block 61, which it expects to develop at a later date.

State-owned Oman Oil Company Exploration & Production (OOCEP) will hold a 40 per cent stake in Block 61, while BP will hold 60 per cent.

The Omani government will take 55 per cent of the gas sales revenues, while the rest will be split between the project partners, with 60 per cent for BP and 40 per cent for OOCEP after deducting costs.

The agreement covers an area of around 2,800 square kilometres containing several “tight gas” reservoirs discovered in the 1990s. BP has developed its own technology designed to increase production from tricky tight gas reserves.

BP’s shares rose 7.5p to close at 473.2p.