Oman and Iran announced on 15 May that they had signed a five-point memorandum of understanding (MOU) for broad cooperation across the oil and gas sector. The accords include plans to supply initially up to 1bn cfd of Iranian gas to Oman via a new sub-sea pipeline, with some of the gas to be used at the liquefaction plant at Sur and the LNG to be marketed through a new Iranian-Omani joint venture company. Oman Oil Company (OOC) will be able to invest in Iranian gas fields with the Kish field earmarked for development first. The deal also envisages the joint development of the West Bukha/Hengam gas/condensate field.
The accords were signed by Irans Oil Minister Kazem Vaziri-Hamaneh and Omani Minister of Commerce and Industry and Oman Oil Company (OOC) Chairman Maqbul bin ?Ali Sultan during Iranian President Mahmoud Ahmadinejads two-day visit to Oman. A joint committee is due to be established within a month, with implementation within four months. Undersecretary of the Oman Oil and Gas Ministry Nasir al-Jashmi had told MEES in February that Muscat wanted to diversify its gas supplies through increasing domestic reserves and achieving an import agreement with Iran (MEES , 19 February).
Deal To Alleviate Oman Gas Shortfall
While the agreement is light on detail, it is significant and marks major progress in Omans efforts to secure much needed additional gas supplies from neighboring Iran after earlier talks to secure Qatari gas supplies, over and beyond the small quantity contracted from Dolphin, failed. In 2005, Dolphin Energy signed a 25-year gas sales agreement with Oman Oil Company (OOC) to deliver an average 200mn cfd of Qatari gas to OOC from early 2008 (MEES , 12 September 2005). For Oman, increased gas supplies are an essential component of the governments strategy to diversify and industrialize the economy through the downstream oil and gas industries such as petrochemicals. Additional gas supplies are also needed to fire power and desalination plants as well as to allow the sultanates two LNG trains to run at capacity while providing sufficient gas for Petroleum Development Oman (PDO) to pursue its gas-intensive enhanced oil recovery program, which in large part depends on thermal EOR projects. PDO has based its efforts to stabilize and increase oil production in the next 10 years on thermal EOR projects such as the Fahud Thermally Assisted Gas-Oil Gravity Drainage project (MEES , 12 February), where first steam is expected to be injected into the reservoir in early 2008.
Oman LNGs two 3.3mn tons/year nameplate capacity trains and its sister project Qalhat LNG with a single train of the same size at Sur are understood to be running well below capacity at levels just sufficient to cover long-term contracts. For Oman LNG, these include 4.1mn t/y to Korea Gas Corporation and 0.7mn t/y to Japans Osaka Gas (MEES , 5 July 2004). The agreement provides for the establishment of a joint company that would market LNG produced from the Iranian gas, which could provide Iran with early exposure to the LNG market before any of its own LNG schemes are completed. While volumes would clearly be limited, the scheme would allow Tehran to establish itself as an LNG seller before the worldscale projects based on South Pars gas come into being.
Joint Development Of West Bukha/Hengam
Aside from Iranian gas exports, the MOU provides for the joint development of the offshore West Bukha/Hengam gas/condensate field, which straddles the two countries maritime border, the transfer of technology, the establishment of joint petrochemical projects in both countries and investments in other countries through a joint venture company focused on the gas business. The agreement also allowed for the transport of gas from Irans northern neighbors to Oman for use in downstream industries there. The joint development of the West Bukha/Hengam oil and gas field has at times in recent years been pursued jointly and individually by both Oman and Iran. PetroIran Development Company (Pedco) started appraisal drilling on the Iranian side in mid-2006 (MEES , 17 July 2006 and 25 April 2005). On the Omani side of the structure, Indago Petroleum announced in May 2006 it had spudded the Bukha-2 appraisal/development well, targeting gas in Cretaceous age carbonate reservoirs at a depth of approximately 4,100ms. In February 2005, former Australian operator Novus signed a heads of agreement with Ras al-Khaimah Gas Commission (Rakgas) for the purchase and processing of gas from West Bukha (MEES , 14 February 2005).
The West Bukha/Hengam structure was discovered by the Elf-led Sofiran group in 1976 with the Hengam E-1 well, which flowed 2,906 b/d of 43 API crude oil and 13.5mn cfd of gas on test (MEES , 6 May 2002). The field is estimated to contain 1.8 tcf of gas and 400mn barrels of condensate (MEES , 26 June 2000). Novus Petroleum was acquired in July 2004 by Indonesias Medco Energi in a hostile takeover. Indago Petroleum was established in July 2005 by Meridian Capital, together with Silk Route Petroleum and management, to purchase from Medco Energi the Middle Eastern assets previously owned by Novus. Indago was listed in Londons AIM in December 2005.
The signing of the Iran-Oman MOU comes at a sensitive time, with expanding moves by the international community to isolate Tehran over the countrys nuclear program. The US and UK, in particular, both strong allies of Oman, are unlikely to view with favor a deal that appears to offer clear economic advantages to Tehran. International oil companies seeking to develop Irans energy sector are coming under growing US pressure to rethink their plans. From Irans point of view, the preliminary agreement with Oman marks a major step forward in the concept of natural gas exports to its Arab neighbors as well as giving it a fast-track entry into the LNG sector. The only other comparable gas exporting scheme within the Gulf at an advanced stage, involving the supply of gas from Irans Salman field to Sharjah, is being delayed by technical snags on the Iranian side and by a lingering dispute over pricing (MEES , 29 January).
