Notwithstanding a commitment to capping crude production in line with a global output reduction pledge reached by Opec and non-Opec producers, activity levels in Oman’s oil and gas sector will continue to be sustained at peak highs, according to a top official of the Ministry of Oil & Gas.
The goal, says Ministry Under-Secretary Salim bin Nasser al Aufi (pictured), is to build capacity at the upstream end of the business in order that when the global production caps are eventually lifted or scaled back, the Sultanate can spring back to optimum production levels literally in a snap.
“We need to stay the course!” commented Al Aufi. “We have made some gains in the form of cost efficiency, improved productivity, waste reduction, and so on — gains that we should hold on to going forward.”
Speaking exclusively to OPAL Oil & Gas (published by Oman Daily Observer in collaboration with Oman Society for Petroleum Services OPAL), the under-secretary stressed that activity levels in the upstream sector would be maintained at full throttle notwithstanding the constrained fiscal environment linked to the oil price downturn. Neither will Oman’s pledge to lop off around 45,000 barrels from its daily crude production as part of a deal reached by oil producers last December, be a limiting factor, he noted.
“We have asked the operators to comply with the output reduction pledge but without cutting their activities, thereby building capacity as a result,” the under-secretary explained.
“Thus, whatever wells they were planning to drill, they will continue to drill. In the normal circumstances, the operators would have hooked up these wells and begun producing them. But in the current circumstances, with the production cap in place, they will drill these wells, potentially hook them up, and may or may not complete them, but not put them into production. However, if they start producing them, something else from their production assets will have to be sacrificed to make space for these wells.”
In line with its pledge to cut production by 45,000 barrels per day with effect from January 1, 2017, Oman has capped output at 970,000 bpd. The output cut is being shared pro rata among the nation’s oil producers, with Petroleum Development Oman (PDO), by far the largest producer, shouldering the lion’s share of the reduction.
But with the Opec-led global agreement to cut crude production due for review in July this year, Oman is looking to be suitably primed to respond to either of the two outcomes anticipated from that mid-year review. Analysts foresee either a partial rollback of the production cuts or a complete lifting of the cuts, depending upon whether existing crude inventories have been substantially depleted.
Thus by maintaining activity levels, Oman’s upstream operators are ramping up production capacity that can be rapidly brought on stream when required, Al Aufi explained. “If Opec decides to reduce or remove the production cap in July, our operators can respond very quickly by opening up wells. What we don’t want happening is that we cut oilfield activities in order to meet the 970,000 bpd cap and, come July, we are not able to respond to the new production number if Opec decides to reduce the cuts or scrap them altogether. So we are advising the operators to maintain activity levels in preparation for a return to full capacity when the opportunity arises.”
Having delivered record output levels averaging over 1 million bpd in 2016, the industry now aims to sustain this level during 2017, an ambition that is somewhat dependent on what is in store at Opec’s mid-year review of the global production cut.
Domestic production hit an all-time high of 1.015 million bpd in November, a peak that also served as the ceiling for the calculation of the 45,000 bpd cut agreed by Oman as part of the global deal reached by Opec and non-Opec producers last December.
Of late, however, the Sultanate has emphasised that it would strongly support a rollover of the global output cap for a further period in order to help bolster a short-lived rally in international crude prices. Substantial crude inventories are ascribed as a key factor in crude’s inability to rise beyond the range-bound price bracket of $50- 55 per barrel.