May 09 - 15, 2005



Occidental Petroleum Corp, the fourth-largest US oil company by market value, is going to replace Royal Dutch/Shell Group in developing an oil field with an estimated cost of over $2 billion.

Occidental and its partner Abu Dhabi's Liwa Energy Ltd have committed to raise production from the Mukhaizna deposits from existing 10,000 barrels to 150,000 barrels a day "within next few years" the parties to the agreement said after signing ceremony held in Dubai last week.

"We need to introduce more players to generate healthy competition in the industry," Sheikh Ali al-Battashi, director general of planning at Oman's oil ministry, said in a message from Oman. "Arrival of Occidental will hopefully be a source of enticement for other energy companies to come into Oman."

According to reports, Shell lost the right to develop the 2.4 billion-barrel Mukhaizna field, Oman's sixth-largest, because of a disagreement with the Oman government over how best to tap the oil.

Currently, the Gulf sultanate needs billions of dollars investment to reverse a four-year decline in oil output. Petroleum Development Oman, in which Shell holds a 34% stake, controls 94% of Oman's oil production.

The company, which had planned to spend $1.8bn boosting output from the field to 100,000 barrels a day, will still be offered the chance to retain a reduced stake in the Mukhaizna field, with Occidental acting as the field's main operator, al-Battashi said. Oman in December extended Shell's franchise to 2044.

It is said that comparatively difficult Field Mukhaizna holds crude oil that's too thick to pump without use of steam or carbon dioxide, a process Occidental already uses elsewhere. Occidental is already the second-largest oil producer in Oman behind Petroleum Development Oman, majority owned by the Omani government.

Liwa Energy, wholly-owned by Abu Dhabi's state-owned Mubadala Development Company, in January won the right to explore for oil in Libya.

Energy experts were of the opinion that oil production in the sultanate is expected to drop a further 5.3% this year to a daily average of 720,000 barrels after a 7.3% decline in 2004.

Shell, which has been operating in Oman since mid 1930's, at present competing with companies including Exxon Mobil, BP and ChevronTexaco for rights to develop fields in the Arabian Gulf, the source of a quarter of the world's daily oil supply.

Informed sources said that Oman's government is preparing to offer in July foreign companies the right to develop more of its oilfields once PDO relinquishes 10% of its existing assets held in Bloc 6, which covers an area that's roughly the size of Massachusetts.

Shell's Oman venture must return the acreage to the government by July 1 under the terms of the contract it signed in December. The Omani oil ministry then plans to auction the concession area, which includes territory that is yet to be explored for oil and some fields already in production.



Malcolm Brinded, Shell's executive director for exploration and production, said in a December statement after extending the Oman franchise that Oman's oil reservoirs are "among the most geologically complex in the world".

Omani wells produce 400 barrels of oil a day on average, about a tenth the average volume per hole pumped in other Gulf oil states like the United Arab Emirates and Saudi Arabia, according to the Energy Information Administration.

Occidental still faces a challenge boosting output from Mukhaizna even with billions of dollars of investment, and technology known as enhanced oil recovery, officials said.

Shell said it books 246,000 barrels a day of oil and natural gas liquids as equity production in Oman, its fourth-largest stake out of at least 24 countries where the company pumps crude. The sultanate is Shell's sixth-largest gas holding, producing 471mn cubic feet day of gas the company can sell.


State-owned Kuwait Petroleum Corp (KPC) has signed a major contract with a Kuwaiti-US firm to set up the emirate's first calcined petroleum coke plant as part of a privatization plan.

The deal with Petroleum Coke Industries Co (PCI), in which three Kuwaiti private firms own 75% and US Oxbow and Minerals the rest, calls for setting up the plant at a cost of $150 million. Construction of the plant will start in September and it will go on line in December 2006 to produce 350,000 tonnes of calcined petroleum coke a year.

The entire production of the petroleum coke plant is intended for export to Gulf States, Africa, Europe and Japan in addition to Australia and China. Petroleum coke, produced in refinery coking units, is the essential raw material to produce calcined petroleum coke used in aluminum production.

PCI made the highest bid of $40 million at an auction held by KPC for the commercial license of the plant. According to the contract, KPC pledges to supply raw material to the plant for 20 years. The deal is part of a privatization strategy aimed at bolstering the role of private firms in the emirate's oil sector.

Meanwhile, another state-run firm, Kuwait National Petroleum Co was also expected to start inviting bids for its fourth oil refinery with a capacity of 600,000 barrels per day (bpd) early next year. "We are still in the front-end engineering stage which is scheduled to be completed in February. After that we will invite bids for the project," KNPC chairman Sami al-Rasheed said.

The new refinery will boost the emirate's refining capacity to about 1.5 million bpd. The cost of the project has not yet been precisely determined, but it will be "well in excess of $4 billion". The giant project will be handed to at least three contractors as it is too difficult to run single handedly by one contractor.