After signing the development contract for Omans Rima small oilfield cluster two weeks ago, Petrogas E&P is targeting growth through expansion of its current operations and the addition of new assets, both in Oman and beyond. In an exclusive interview with MEES, Chief Executive Officer, Jean-Denis Bouvier outlines the Omani oil companys plans.
Petrogas, which is one of the few privately owned oil and gas exploration and production companies in the region, remains a small player compared to the majors operating in Oman, such as Shell-led Petroleum Development Oman (PDO) and Occidental, but has grown markedly since its inception in 1999. The company has seen its foothold in Oman expand, as the government has sought to stem its declining production by awarding development contracts on fields that fall under the oil majors radar (MEES 21 April). Petrogas recently signed a contract with PDO to develop the Rima small oilfield cluster (which covers an area of 1,500 sq km) and under the terms of the agreement (in partnership with Oman Oil Company) will start drilling in October, aiming to increase production from the current 2,000 b/d to 7,000 b/d in a few years (MEES , 23 June).
Petrogas additions to production currently make it the third largest non-government owned oil producing company in Oman, behind PDO and Occidental. It plans to grow organically through exploitation of its substantial resources, particularly in Blocks 5 and 7 in Oman, explained Mr Bouvier. The company also intends to continue to expand through acquisition, while retaining a balanced portfolio of reserves, production and exploration assets. New acquisitions will be pursued in the MENA and Indian subcontinent regions, and also West Africa, said Mr Bouvier, noting that while the company has successfully added new assets, its next move should be a quantum leap through purchase of an asset or company which is large relative to Petrogas current size.
Gas Market Liberalization, Difficult Oil
While Petrogas assets are mostly oil, not gas, Mr Bouvier does not rule out adding gas operations to the companys portfolio, although he suggests that in the MENA region the gas market needs eventually to be liberalized in order to better reward exploration and development companies for their efforts. In most MENA gas producing countries, gas prices have been fixed at low levels by the respective governments, with $1/mn BTU seen in sales to Omani industries although some gas exporters in the region are securing as much as $8/mn BTU. Egypt, for example, recently hiked its prices to around $4.50/mn BTU for deepwater developments, recognizing the need for change (MEES , 17 March).
New oil contracts also need to recognize current circumstances, and offer better terms for small discoveries than for large ones, to provide incentives for smaller producers, said Mr Bouvier. Although the oil price has shot up, risks have also climbed because there is no more easy oil. Even at current high oil prices, smaller companies are vulnerable to shifting market conditions or strategic mistakes. This is confirmed by the disappointing 2007 results of several exploration companies that have taken on large work commitments which they find difficult to honor after drilling dry wells, he said. Others have seen their profits eaten up by escalating costs and/or windfall taxes imposed by governments.
The sharing of the oil pie between governments, national oil companies and international oil companies will have a marked impact on the global economy and needs to take into account the boom and bust cycles seen by those of us with a long history in the business, stressed Mr Bouvier. Petrogas is making considerable investment to ensure that its business can be sustained on a long-term basis. For example, one of the companys concessions, for the second year, has planned negative cash flow because investment in exploration and infrastructure refurbishment exceeds cash flow from operations. In the current boom cycle we are checking infrastructure and conducting maintenance in order to make sure that if/when the oil price goes down we can still run our fields, he said. We dont want to be stopped because an investment has to be made that cannot be sustained when the oil price is low.
Climbing Production
Petrogas has consistently increased production, revenues, capital expenditure (CAPEX) and profits over the companys lifecycle, and further gains are expected in 2008 on account of production increases. Production is expected to rise to 11,000 b/d (working interest) this year from 8,646 b/d in 2007. The 11,000 b/d will comprise 9,000 b/d from Petrogas 50% holding in Daleel (on Block 5) and 2,000 b/d from its full ownership of Block 7, but not the Rima production, which is not accretive for the full year. Despite the global increase in cost of commodities, equipment and services, Petrogas expenditure could be contained because its operations are mostly onshore, said Mr Bouvier, noting that the biggest cost escalation has been for offshore operations. Profits for 2008 will fall from the 2007 level as a result of acquisitions and higher exploration investment, although in the long run, this will boost the companys value. Most of the capital expenditure this year will be directed towards drilling some 40 exploration, appraisal and development wells on Blocks 5 and 7, while in Daleel commissioning is under way on a plant to extract condensate and LPG from associated gas.
Oman And Beyond
In addition to developing the Rima cluster of small fields, Petrogas (which is the umbrella company for MB Holding Companys exploration and production activities in Oman) is looking to hike oil output at its other Omani operations. The company acquired Block 7 (the Butabul concession) in 1999 from Elf and since then has produced 7mn barrels of oil. According to company estimates, the remaining proven and probable reserves total 7.5mn barrels, with current output at 2,000 b/d. Appraisal and development drilling is due to take place this year at both the Rija and Ramlat fields, while peripheral waterflooding is being extended to maintain or possibly increase production. The acquisition of new 2D seismic data and the reprocessing of existing seismic data will be used to evaluate these fields and the Sahmah-East and Sahmah deep gas prospects.
Petrogas 50:50 joint venture with China National Petroleum Corporation (Daleel Petroleum) has operated Block 5 since 2002. It has raised production from 5,000 b/d to almost 20,000 b/d, producing over 25mn barrels of oil. Proven and probable reserves are estimated at 95mn barrels and production of some 30,000 b/d is targeted by 2012. In order to achieve this objective, 118 exploration, appraisal and production wells, in addition to 82 water injection wells, will be drilled. Petrogas Malih (established in November 2007) has farmed in to Blocks 45 and 48 with a 50% interest, and under these terms will drill the first two wells (100% carry) on behalf of operator Maersk to appraise the Malih discovery this year and a shallower prospect next year.
In addition to its Omani operations, Petrogas also has interests in India and Egypt. The company was awarded 20% interests in three exploration blocks in India, and is the operator of one (MB-OSN-2004/2). On this latter offshore block Petrogas will acquire 3D seismic data this year, with a view to drilling three exploration wells as part of a four-year exploration phase, starting in 2009. In Egypt, Petrogas recently acquired 30% of the Area A block, which comprises two exploration concessions and four development leases located West of the Gulf of Suez. The block, which is operated by Oil Search, includes mature fields and exploration prospects and is currently producing 3,000 b/d, with two-three exploratory wells to be drilled this year.
Copyright MEES 2008.
