With oil prices continuing to remain weak and a number of foreign oil firms having recently abandoned exploration blocks in the sultanate, now is not the right time for newcomers to enter the oil exploration and production market, according to H E Salim al Aufi, undersecretary of the Ministry of Oil and Gas.
Speaking to Muscat Daily at The Oil and Gas Year 2015 launch event on Thursday, H E Aufi said companies which have relinquished blocks in Oman did so because there were no commercial discoveries. They left because there were no commercial discoveries, not because their financials were not working out or due to weak oil prices.
Swedish energy company Tethys Oil said last week, in its second quarter report, it has decided to withdraw from discussions over Block 15, which is operated by Odin Energi, in Oman. It follows DNO, a Norwegian oil and gas company with focus on Middle East and North Africa (MENA), which announced, also in its second quarter report, that it has withdrawn from Blocks 30 and 31 in Oman.
In June, Circle Oil, an Irish-incorporated Middle East and Africa-focused oil and gas exploration company that operated onshore exploration Block 49 and offshore Block 52 in southern Oman, decided to exit the country completely.
On whether continued weak prices could further pressurise and discourage foreign oil companies operating in the sultanate, H E Aufi said, It will definitely be a challenge, because anyone who is entering the market now is faced with a very grim forecast on what the oil price will look like. And accordingly, they need to calculate their cashflows and investments. It is not the best time for newcomers for sure.
Earlier this year, Total EandP Oman relinquished Oman’s offshore Block 41. Hungary’s MOL Group also had pulled out from a block last year.
The reason [for companies pulling out] was lack of discoveries, not because of financials or prices. But I am sure oil prices will also figure in their calculations. When you calculate the commerciality of any project you have to put in place a development programme, you need to understand how many wells and how big a facility are required, and the return on investment, H E Aufi said.
He added, However, companies are smart enough to know that they are investing today and before they start realising their investment it is three-four-five years down the line unless they have a very grim picture about oil prices in five years time.