Oman must offer better deals on its limited gas resources to fend off competition from Saudi Arabia which is opening up its vast resources to foreign investors, industry officials and analysts said. "Oman will need to offer more security packages in profit sharing, offer longer commitment or face strong competition from the Saudis once they have fully opened up their gas fields to foreign firms," TotalFinaElf General Manager in Oman Jerome Bourceret told Reuters.

"Gas exploration is more economical in Saudi Arabia and the reserves are much bigger than in Oman," Bourceret said. Saudi Arabia has short-listed world firms for investment in its upstream gas sector, the first such opening since Riyadh nationalized oil exploration and production in the 1970s. Oman's proven gas reserves stand at 22 trillion cubic feet, with potential reserves more than double that figure. TotalFinaElf, which has a 5.54 per cent stake in the Oman LNG plant, is currently exploring for oil and gas in an offshore site in northern Oman.

Other firms with similar deals with Oman include Phillips Petroleum Corp and Occidental Petroleum Corp. Analysts said that Oman must revise and update the terms of the production-sharing agreements to remain competitive. "Officials need to revise the terms of the EPSAs (Exploration Production Sharing Agreements), they have not changed much since the 1980s, especially on the breakdown of the percentage of the profits between investors and the government," one analyst told Reuters.

"Since the government does not contribute to the exploration capital, it needs to reduce its share of profits so investors can keep a little bit more from their efforts," he said. An oil industry official, who declined to be identified, said Oman must also offer longer exploration contracts to make the deals more attractive. "Currently, Oman grants a two or three year exploration contract which binds the investor to find gas or relinquish the field. The timeframe may not be enough to assess a field and an investor may find himself relinquishing it to his rival after he has made a considerable investment," he said.

Mike Cubrillo, General Manager of Gulf stream Resources Oman, a unit of Gulfstream Resources Canada Ltd, said for now only his company has a gas production sharing deal in Oman. "We are the only firm which has signed such an agreement but we won't enjoy that status for long since the demand for gas is increasing every year," he told Reuters. In 1997, Oman awarded Gulfstream oil exploration and production rights in Hafar block 30. The deal commits the company to spend at least $20 million over six years on exploration.

Officials had said Oman planned to invite more foreign firms this year to Cubrillo said Gulfstream expected to start producing 100 million standard cubic feet per day of gas in 2002. Under the terms of the agreement, the Canadian firm will sell the entire gas production to the government. "Industry developments and population growth will call for aggressive exploration to provide cheap fuel for gas-based industries," he added.

According to official statistics, Oman gas demand in 2000 was 28 million cubic meter per day (cmd) and is expected to increase to 70 million cmd in 2005. The statistics also showed that more than 80 per cent of the demand would be consumed by the Oman LNG plant and planned projects, including refineries and power plants.

An oil and gas ministry official said that most of the power plants are currently fueled by diesel, which cost 30 baisas per unit. "Gas costs only 10 baisas per unit and more environmental friendly than diesel," he told Reuters.

Saudia-Online.com
Source: Gulf News 

  
Starting Business with Saudi Arabia Use the Saudi Business Guide