Khazzan to Deliver 30pc of Oman’s Gas Supply in 2020

Source: Oman Observer 1/22/2014, Location: Middle East

Energy major outlines potential for unconventional gas development in Mideast — By Conrad Prabhu — MUSCAT — Energy major BP expects nearly a third of Oman’s natural gas supply coming from its Khazzan-Makarem tight gas field in Block 61 in the year 2020, according to a top executive of the international oil and gas giant. David Dalton, Middle East Regional President, hailed the importance of the project, agreements for which were signed here last month, for both Oman and BP. “BP’s flagship project in partnership with Oman Oil Company is the Khazzan Makarem project — a project that is truly world-scale, a project that is important for Oman and important for BP as well. It has the potential to deliver up to 30 per cent of Oman’s gas supply in 2020.” BP, he said, was “privileged to have the opportunity to work on Khazzan”, having finalised key agreements with the Omani government with regard to its commercial development.

“We are tremendously excited about the opportunity that Khazzan awards both BP and Oman. We look forward to working as one team with the government and with contractors to deliver a truly stunning world class project,” Dalton said in a presentation to delegates at the International Unconventional Gas Conference & Exhibition held at the Ritz Carlton Al Bustan Palace earlier this week. Under an amended Production Sharing Agreement inked last month, BP plans to drill around 300 wells over 15 years to deliver plateau production of one billion cubic feet (28.3 million cubic metres) of gas per day and 25,000 barrels per day of gas condensate. The total investment in the full field development is around $16 billion. Block 61’s Khazzan-Makarem tight gas field ranks among the largest unconventional gas accumulations in the Middle East, Dalton said, while emphasising BP’s leading role in the exploration and development of such reservoirs.

At the same time, he warned that unconventional gas fields presented serious challenges relative to the development of conventional resources. “Firstly, there is the cost of production, well flow rates are lower, decline is faster, technologies needed are more expensive, while fraccing, horizontal wells, and high resolution seismic are all expensive and add to the cost and supply. Unconventional production also brings new challenges in water management, water utilisation and potential environmental challenges too.” But he stressed the need for all the key stakeholders — governments, operators and service providers in particular — to work together to overcome some of these challenges, given the immense promise that unconventional gas development holds for the Middle East region.

In this regard, he drew attention to North America’s extraordinary success in developing its shale hydrocarbon resources. “The industry experience in North America gives us the test-bed from which we can understand what the critical success factors are. Firstly, access to infrastructure: North America has a significant infrastructure network with third parties allowed access to that infrastructure. There are also an enormous number of wells providing a huge database of knowledge, with the regulatory authorities encouraging and allowing third party access to that knowledge. There is also a deregulated gas market where price is set by the supply/demand balance and not by governments. Most important is the intense competition in the industry, both between operators and along the supply chain. Fierce competition drives experimentation and innovation and results in a very efficient industry machine.”

But the US industry has its challenges too, particularly in terms of rock quality. Nano-darcy rock is the norm for tight gas in the US, he said. Secondly, public concerns are getting more and more vocal and more and more distrustful of the industry. In many places, wells and production facilities co-exist with local communities, resulting in conflicts in land use. In contrast, the Middle East offers better quality reservoirs that pose less severe technical challenges, said Dalton. Also, unconventional accumulations are found in areas that offer plenty of space for operations with minimal impact on local communities. Furthermore, decision-making is usually centralised in governments and ministries, making decisions simpler and more straight forward.

“So what’s holding things back in this region,” Dalton asked. “Most important is the lack of competition along the supply chain and among operators. There’s only a handful of frac spreads across the whole region, whereas in the US there are more than 50. Getting equipment across borders is time consuming and expensive and will result in duplication of equipment and inefficient operations. Because of lack of competition and low levels of activities, technology adoption is slow,” he lamented.

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