Oman says may struggle to grow oil reserves and production

Dubai — Oman is facing a long-term slowdown in oil production, with limited future growth in reserves, its ministry of finance said in a prospectus for a sovereign bond issue.

The document, circulated among financial institutions on Oct. 19 and seen by S&P Global Platts, said the maturity of Oman's producing fields meant that increasing oil exports may not reverse dwindling revenues, should crude prices continue to be depressed for a prolonged period.

"Future growth in reserves is generally expected to be limited to successful implementation of enhanced oil recovery techniques," the prospectus said.

"As a result, if there is any failure to make use of such techniques, or if such techniques prove excessively costly (particularly in the context of low oil prices) or fail to help grow oil and gas reserves, a long-term slowdown in oil production may become more likely."

Oman, the largest Middle East oil producer outside of OPEC, is gearing up to sell up to $4 billion in three-, seven-and 12-year bonds whose proceeds will be used to plug a shortfall in government finances.

Oil and gas activities are Oman's principal revenue source, accounting for about 76% of government revenue in 2019.

Oman's crude and condensate reserves, as of the end of 2019, were estimated at 4.8 billion barrels of oil equivalent, allowing for 25-30 years of crude production at 2019 levels, according to the prospectus.

Oman averaged crude and condensate production of 970,900 b/d in 2019, as well as gas production of 122 million cu m/d.

However, if low oil prices continued for an extended period, Oman may have to cancel or scale back planned or future development of oil and gas production.

That is especially true where production assumptions rely on more challenging methods or have technological constraints on the extraction of tight oil or gas, which in turn would lead to actual, extractable reserves being less than current estimates, the prospectus said.

Oman has scaled back its production significantly under a supply accord between OPEC and 10 allies to combat the demand destruction caused by COVID-19, with its crude quota at 722,000 b/d until the end of the year.

In light of the impact of COVID-19 and resultant decline in oil prices, the national budget has been revised with lower revenue of Riyal 8.5 billion ($22 billion) expected, as well as lower expenditures of Riyals 13.2 billion, leaving a deficit of Riyals 4.2 billion.

The revised budget assumed an average oil prices $47.6/b. However, the government expected that its fiscal break-even price of oil will be approximately $82/b barrel in 2020, compared with $78/b in 2019.