Oman oil producers to share 45,000 bpd output cut on pro-rata basis


Conrad Prabhu –
The 45,000 barrels per day (bpd) output cut agreed by Oman’s government as part of a global deal by Opec and non-Opec producers to shore up international oil prices, will be shared by the Sultanate’s oil producers on a pro-rata basis, according to a high-level official.
Salim bin Nasser al Aufi (pictured), Under-Secretary of the Ministry of Oil and Gas, said the output cut will be apportioned on an equitable basis corresponding to the average production of each company. Thus, majority stated-owned Petroleum Development Oman (PDO) will shoulder the lion’s share of the cut, followed by the next largest producer, and so, he explained.
At the meeting of non-Opec producers held in Vienna early last month, Oman pledged to slash around 45,000 bpd from a peak production of around 1.015 million bpd corresponding to its October daily average. This limits the Sultanate’s production to 970,000 bpd effective from January 1, 2017 in line with the global deal.
However, as daily production has since eased slightly from the October peak due to “natural” reasons, the pro-rata share of each producer has become proportionately lower, he said.
Regardless of the cuts, oil producers have been advised to keep their activity levels in high gear, said Al Aufi. “While we are asking them to comply with the 970,000 bpd (production limit), they must do so without cutting their activities. Thus, regardless of what they’re planning to do, they must continue to drill,” he explained.
By maintaining activity at high levels, the oil companies will continue to build capacity even if this new capacity does not immediately contribute to output growth in light of the pledge to cut production, the Under-Secretary said. This prudent stance will hold producers in good stead come July 2017 when Opec meets again to
decide whether or not to maintain the cuts, or to scale them down, he pointed out.
“In normal circumstances, the oil producers would have hooked up these wells and produced them; but under the current circumstances, they will drill these wells, potentially hook them up, and may or may not complete them, but definitely not put them into production.
If they put them into production, then something else will have to give in order to make space for them. This means companies are actually building capacity in the process.
So, if after six months when Opec decides to reduce the cuts or remove them altogether, then the companies can respond very quickly by just opening up the wells.
What we don’t want happening is that if we cut activities to meet the 970,000 bpd target, and come July Opec decides they don’t want to continue with the cuts or reduce the share, and we find ourselves unable to respond to the new production numbers because we cut activities! So we’re telling the companies not to cut activities, to build capacity, and maintain activity levels to prepare for any eventuality,” Al Aufi added.