OMAN'S largest oil producer has a challenging remit. Year after year it is trying to add reserves, boost production and reduce costs per barrel, while working in the Gulf's most complex oil province. It is the proud claim of Petroleum Development Oman (PD0) that it can meet these extraordinary demands and even manages to exceed expectations in a good year.

Last year was no exception. New discoveries of 270.3 million barrels of oil and condensate were more than twice the target for the year. Gas discoveries were 120 billion cubic metres. By combining the new discoveries and appraisal wells and improvements to established fields, PDO has managed to push cumulative reserves of oil and condensate to a new record of 5,038 million barrels of oil. This contrasts with total production of 4,300 million barrels of oil since exports began in 1967.

PDO's task has not become any easier with the passage of time. Its oil assets are scattered over a large area and most of the additions are found in ever smaller pockets at ever greater depths. The system already has 47 gathering stations, 12 production stations and a 2,700 kilometre pipeline network. There are more than 1,800 wells in 75 fields. PDO executives are fond of comparing this complexity with the luxury enjoyed by Saudi Arabia, which produces 8 million b/d: average production per well in Oman is a mere 420 b/d against 3,700 b/d per well in Saudi Arabia.

The pressure is on PDO to produce a record 800,000 b/d this year and Minister of Petroleum & Minerals, Said bin Ahmed al-Shanfari, has spoken of 1 million b/d as a long-term ambition. This will come at a price, as extraction becomes a more complicated and costly task. The main fields at Yibal and Fahud are mature and have already produced more than half their total recoverable oil.

The PDO portfolio is increasingly weighted with smaller new discoveries, which will mean many more wells. In a speech in January, PDO oil and gas director, Abdulla Lamki, predicted that 5,000 - 6,000 new wells would be required over the next 20 years. 'Obviously, there are uncertainties in these forecasts, but the trends are clear and established and will create pressure on unit costs of production and hence cash flow in future,' Lamki said.

PDO has used technology to good effect to contain and reduce its costs - 3D seismic, horizontal drilling, artificial lift technology, automated well testing and corrosion resistant materials have all contributed to greater efficiencies and higher yields.

Oil is PDO's main preoccupation but it is also a major gas producer. Non-associated gas production began in 1978 and major discoveries over the last five years have pushed expected reserves to 25.3 trillion cubic feet (tcf) of associated and non-associated gas. Known recoverable reserves were 14.5 tcf at the end of last year. The main reserves are the Haima gas/condensate discoveries in North Oman where proven gas reserves stood at 9 tcf at the end of 1994 and expected reserves at 16 tcf.

Oman is set to become a gas exporter by the end of the century: the Omani LNG scheme has been allocated 7 tcf to meet its needs for an initial 20-year period from Saih Rawl, Saih Nihayda and Barik. There are several other schemes competing for access to the gas, including the ambitious Oman Oil Company project to pipe gas to India (Oman, MEED Special Report, 5:5:95).

PDO's immediate task is to inventorise its gas assets, which are not bankable until they are proven. The best gas prospects after Haima are to the north at Makarem, which has revealed a deep Huqf play.

While Oman's gas projects are grabbing the headlines, PDO has to keep adding to its oil potential. Recent additions to reserves and tight controls on capital costs have kept the company efficient, but the best new prospects are not economical to exploit with current techniques and technology. PDO's total costs per barrel are estimated at $3.70 for the period 1995- 2000, calculated as operating expenses of $1.40 a barrel, plus depreciation of $2.30 a barrel.

In the years to come these costs are certain to rise. PDO cites declining well yields, rising water cuts, increasingly complex operations, its ageing infrastructure and external inflation as the main cost pressures. Dollar depreciation has already played havoc with the 1994 and 1995 budgets at PDO which, because of Shell's role in the company, is sensitive to Dutch guilder/US dollar exchange rates.

PDO's big hope for the future is that exploration and production tests in south Oman at Al-Noor will open a new chapter in its history. PDO has been frontier drilling for some time to extend production areas and add wells, but Al-Noor has revealed the most interesting potential. 'The pursuit of this play will dominate the frontier exploration programme for many years,' Lamki told MEED in April.

Discoveries at Al-Noor have excited PDO because they are the first from the Athel formation, which has not proved very productive in Oman in the past. Al-Noor produced 630 b/d of very light oil from a test well in early 1994. The oil was 42 API and was mixed with gas condensate, which could indicate even lighter oil. But, the oil was found at depths in excess of 4,000 metres and would be prohibitively expensive to produce. PDO estimates costs per barrel at less than $10, but says that it could still cost as much as $8 a barrel to produce.

For its 1995/96 programme of work PDO has seven seismic crews in action, four rigs on oil drilling work and two other rigs devoted to gas exploration. The focus is also moving further towards deep frontier plays in the north and south of the country.

The company has never failed to replenish and boost reserves in the past, but is very aware that it is now moving into a more difficult period. This will be dominated by the effort to make the most of mature fields as they decline, while adding new reserves, which are commercially viable. Gas has given PDO another lease of life and broadened Oman's hydrocarbons potential dramatically. Extending the life of Oman's oil resources is a more daunting challenge.