PDO to slash operating costs

07 November 2003
Petroleum Development Oman (PDO)announced on 1 November plans to dramatically cut operating costs from 2004. The company, which produces over 90 per cent of the sultanate's hydrocarbons, plans to reduce costs by $2,000 million over the next five years, beginning next year with a reduction of $150 million (MEED 13:12:02; Cover Story).

The plan is the culmination of a comprehensive review of the company's operations carried out by US consultants Booz Allen Hamilton. More than 50 per cent of the cuts will come from reducing well-head engineering and servicing costs. The cuts also envisage introducing a more efficient contracting strategy and a further reorganisation of PDO's operating model that in the present cycle will not involve redundancies. US consultant McKinsey & Companyhas been brought in to help implement the changes.

'We are going to take out $2,000 million from the programme - that is about 20 per cent,' said managing director John Malcolm on 1 November. 'This is $2,000 million out of a programme that has already been sharpened. Next year we intend to take $150 million out of the programme. That's equivalent to 7.5 per cent of next year's budget. But if we achieve this, then the future is extremely good.'

However, PDO is sticking to its plan to boost oil output, which fell last year to a low of about 703,000 barrels a day (b/d), by investing in a series of expensive enhanced oil recovery (EOR) projects. Three areas are earmarked for investment that could result in recovery costs reaching $7-8 a barrel. They are Qarn Alam, Mukhaizna and Harweel. Average production costs in Oman of about $4 a barrel are already high by Gulf standards (Oman, MEED Special Report, 2:5:03, pages 25-26).

'EOR will bring us back to 800,000 b/d, through miscible gas injection in Harweel and steam injection in Mukhaizna and Qarn Alam. The goal is simple to state: before the end of the decade we want to be producing 250,000 b/d of EOR oil. If we do so, we will be the leading EOR company in the region and one of the leading EOR companies in the world,' said Malcolm.

Plans to press ahead with the development of Qarn Alam were put on hold last year when a pilot project operating in the field failed to deliver the required results. PDO has since gone back to the area to review its data. In Harweel, PDO is close to awarding the front-end engineering and design (FEED) contract for the phase-2 development of nine reservoirs that are estimated to contain 2,000 million barrels of stock-tank oil. Plans to develop Mukhaizna are also being brought forward (MEED 26:9:03).

'This basic plan includes $1,500 million for EOR and, if we accelerate Mukhaizna, that number will head towards $2,000 million in a five-year period. It is a large amount of money that we are going to invest in something that will have a payback in several years' time. But when EOR does yield a payback, it will produce oil year after year and should unlock hundreds of millions if not billions of barrels of reserves for the country,' said Malcolm.


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