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BLOOMBERG: Occidental Ousts Shell in Developing Oman Oil Field

BLOOMBERG: Occidental Ousts Shell in Developing Oman Oil Field

2 May 2005

Occidental Petroleum Corp., the fourth- largest U.S. oil company by market value, will replace Royal Dutch/Shell Group in a $2 billion oil field project in Oman.

Occidental and its partner, Abu Dhabi’s Liwa Energy Ltd., plan to raise production from the Mukhaizna deposit to 150,000 barrels a day “within a few years” from the current 10,000 barrels, the parties to the agreement said in an e-mailed statement today after yesterday’s signing ceremony.

Mukhaizna, which holds enough crude oil to supply the U.S. state of New York with gasoline for 17 years, will provide an “important boost” to Los Angeles-based Occidental’s global output, Chief Executive Officer Ray Irani said in an April 26 interview. Shell, Europe’s second-largest oil company, lost development rights because of a disagreement with the Oman government over how best to tap the oil.

“We need to introduce more players and competition in the industry,” Sheikh Ali al-Battashi, director general of planning at Oman’s oil ministry, said in a telephone interview from Oman today. “Occidental coming in will hopefully be an enticement for other energy companies to come into Oman.”

Difficult Field

Petroleum Development Oman, in which Shell holds a 34 percent stake, controls 94 percent of Oman’s oil production. The company, which had planned to spend $1.8 billion boosting output from the field to 100,000 barrels a day, will still be offered the chance to retain a reduced stake in the Mukhaizna field, with Occidental acting as the field’s main operator, al-Battashi said.

Al-Battashi said the next step is to negotiate a contract that determines how much oil Occidental and its partners will receive for developing the field. Oman needs billions of dollars in investment to halt a four-year decline in oil production.

Mukhaizna holds crude oil that’s too thick to pump without use of steam, carbon dioxide or methane, a process Occidental already uses elsewhere. Occidental is already the second-largest oil producer in Oman behind Petroleum Development.

Occidental, which gets about half of its oil and gas from the former U.S. Naval Petroleum Reserve in California and the Permian Basin in Texas and New Mexico, almost doubled its first-quarter output in Oman to the equivalent of 32,300 barrels of oil a day. Oman accounted for 5.7 percent of the company’s worldwide production during the first quarter, up from 2.9 percent a year earlier.

Liwa Energy

“We can confirm that the shareholders of PDO are considering alternative options for the development of the Mukhaizna field under the operatorship of Occidental but still involving the original PDO shareholders,” Shell spokesperson Lisa Givert said today.

Liwa Energy, wholly-owned by Abu Dhabi’s state-owned Mubadala Development Company, in January won the right to explore for oil in Libya.

Oil production in the sultanate is expected to drop a further 5.3 percent this year to a daily average of 720,000 barrels after a 7.3 percent decline in 2004, the International Energy Agency said in an April 12 report.

Shell, which has operated in Oman since the mid-1930s, is competing with companies including Exxon Mobil Corp., BP Plc and ChevronTexaco Corp. for rights to develop fields in the Persian Gulf, the source of a quarter of the world’s daily oil supply.

Auction

Oman’s government is preparing to offer in July foreign companies the right to develop more of its oilfields once PDO relinquishes 10 percent of its existing assets held in Block 6, which covers an area that’s roughly the size of Massachusetts.

Shell’s Oman venture must return the acreage to the government by July 1 under the terms of the contract it signed in December. The Omani oil ministry then plans to auction the concession area, which includes territory that is yet to be explored for oil and some fields already in production, al- Battashi said.

Malcolm Brinded, Shell’s executive director for exploration and production, said in a December statement after extending the Oman franchise that Oman’s oil reservoirs are “among the most geologically complex in the world.”

Omani wells produce 400 barrels of oil a day on average, about a tenth the average volume per hole pumped in other Persian Gulf oil states like the United Arab Emirates and Saudi Arabia, according to the Energy Information Administration.

To contact the reporter on this story:

Dania Saadi in Dubai at [email protected];

Andy Critchlow in Dubai at [email protected]

http://quote.bloomberg.com/apps/news?pid=10000103&sid=awqRmxRgQ6EU&refer=news_index

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