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Oman: A major oil player with great aspirations

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The Sultanate of Oman is in the southeast corner of the Arabian Peninsula. It has a strategic location and a variety of landscapes that make it rich on the outside and inside. It is bursting with enormous human and natural resources, and internally, it contains innumerable amounts of oil, gas, and mineral treasures.

Oman is the only GCC member located outside of the Persian Gulf, and it is near the Strait of Hormuz. One-fifth of the world's oil production and liquefied gas transit through the Strait of Hormuz, which is strategically located at the entrance to the Arabian Gulf and between the Arabian Gulf and the Indian Ocean.

It is also the world's oldest and most significant maritime commerce route. Oman's hydrocarbon reserves are lower than those of its neighbours, yet oil and gas are nonetheless vital to the country's economy. Oman has made infrastructure investments in an effort to take advantage of its advantageous location and establish itself as a hub for global logistics. The Oman Vision 2040 will continue to place a significant emphasis on diversification, privatisation, and omanisation in order to fulfil its short- and long-term strategic development goals.

Over the past centuries, the Sultanate of Oman has sought to consolidate and strengthen its economy by harnessing its various resources. Oil and gas have become the mainstay of the economies of the Gulf countries, including Oman. Since the oil and gas sector accounts for a large portion of Oman's economic growth and government revenue, changes in the sector can have a significant impact on the sultanate's overall progress.

The Ministry of Energy and Minerals of Oman has made significant efforts to achieve various goals connected to developing and improving the performance of the oil and gas sectors. Despite recent progress in diversification initiatives, hydrocarbons activity continues to attract a sizable portion of local and international investment, and this pattern is expected to continue for some time.

Sultanate of Oman oil exploration

The Sultanate of Oman faced numerous obstacles and challenges during the discovery and extraction of crude oil reservoirs. An Irish geologist by the name of "George Martin Lees" began looking for oil in the Sultanate of Oman in 1925, under the rule of Sultan Taimur bin Faisal, after surveying the region from the north of the country to the southeast coast of the Arabian Peninsula to the Dhofar Governorate. George worked with D'Arcy, which received a mining licence for a two-year renewable period. Although the primary motivation for founding the parent firm "Anglo-Persian" was oil exploration in Iran, D'Arcy was created as a subsidiary of the Anglo-Persian Oil Company (currently British BP) exclusively for crude exploration in Oman, and due to the difficult geological nature and the unstable political situation in the Arabian Peninsula and its inability to find oil, it withdrew in 1928. In 1937, an oil exploration concession was granted to the "Oil Concessions Company Limited," which entrusted the concession to the Oman Oil Company and Dhofar during the reign of Sultan Said bin Taimur, and the operations did not reveal the presence of oil.

In 1951, the Dhofar concession was terminated, the name of the company was changed to Petroleum Development Oman Limited, and a second exploration concession was awarded to the "City Service" American company, which had worked for the Dhofar City Services Company, which included a franchise in the Dhofar Governorate.

Oman used alternative methods of exploration, such as seismic surveys, and as the security situation improved, the nation ultimately found oil resources. It was reported that oil had been discovered in the fields of Jebal and Natah in commercial amounts in 1962, and the Fahud field in commercial proportions two years later. In 1966, a significant crude oil pipeline between the Fahud field and Mina al-Fahal was built.

On board, the Japanese tanker Moss Prince, the first shipment, which contained 543.8 thousand barrels and cost $1.42 per barrel, was exported in 1967. In 1970, the average daily production of crude oil was 332,000 barrels.

The Sultanate of Oman's government acquired a 25% stake in Petroleum Development Oman in 1973, increasing it to 60% a year later. In 1980, a royal order was issued to alter PDO's legal form to that of an Omani limited liability corporation, and in 1982, work at the Al Fahal port's Oman Oil Refinery got underway. In 1996, the government-owned Oman Oil Company was established to invest in the energy sector inside and outside the Sultanate, and the average level of crude oil production in 2001 reached 956 thousand barrels per day produced from 2546 wells. The Sohar refinery began its production in 2006, and in 2007 the two refineries were merged by royal decree under the name of Oman Refineries and Petrochemical Company.

The average daily production of crude oil and oil condensate was around 955 thousand barrels per day at the end of December 2016. The sultanate reduced its oil production by 45,000 barrels per day (bpd) in January 2017 after Opec signed a deal with independent producers that were not members of Opec. 2020 saw the signing of four new oil contracts, the first of which was for the 9,546 square kilometre No. 12 Concession Area with the Thai business (PTITIP) and the French corporation Total Exploration and Production. For the 4,557 square kilometres of concession area No. 58, Tethys Oil Co. signed the second agreement. For concession area No. 36, IUG Resources signed the third agreement. For concession area No. 70, Maha Energy signed the fourth agreement.

Oman is now the Middle East's largest oil producer outside of Opec, with approximately 150 oil and gas fields. The majority of which are small, more complex, and expensive compared to their counterparts in other Gulf countries. Even though Oman relies on fossil fuels, it did not join Opec. Instead, it joined the Opec+ alliance, which also has some crude producers that are not in Opec.

Oman's oil production

Oman complies with Opec+ regulations despite having the ability to produce up to a million barrels of crude oil and condensates per day. Oman's oil reserves are primarily made up of heavy crude, and China is its main export destination. 30% of Oman's GDP is derived from the oil and gas sector, which also provides the government of Oman with 70% of its annual budget through taxation and joint ownership of some of the more productive fields.

The Sultanate of Oman's oil output made a stunning recovery in 2022 following the record production cuts implemented by Opec+ starting in mid-2020 as a result of the Corona crisis that rattled the world's energy markets.

During the first half of last year (2022), Oman's oil sector saw an increase in production and exports of that fossil fuel as the nation continued to profit from rising worldwide market prices. During the first half of the year, Oman's output of crude oil and condensate grew by 10% compared to the same period last year (2022). Oman's crude oil reserves, according to the Ministry of Energy and Minerals (MEM), were estimated to be 5.2 billion barrels in June 2022. Additionally, according to MEM, new oil finds will raise Oman's production by 50,000 to 100,000 barrels over the course of the following two to three years.

The sector suffered greatly from the 2020 oil price decline, but it has recovered as oil prices have risen above pre-pandemic levels. The Omani Ministry of Energy and Minerals previously cited adherence to the Opec+ alliance pact to achieve a balance between supply and demand on a global scale as the reason for the Sultanate's decreased oil production. The nation took part in the Opec+ alliance deal, which was made public in the middle of 2020, and lowered oil supplies by a record 9.7 million barrels per day in order to balance out the world markets after the effects of the pandemic. However, the alliance decided to gradually reduce the cuts with economic recovery until they were completed in August 2022.

Based on typical oil prices of $50 per barrel, Oman's government budget estimates $27.6 billion in revenue, with oil accounting for 42% of total revenue. The government recorded revenues of $17.4 billion (and a $2 billion surplus) in the first half of 2022 based on an average oil price of $87 per barrel, and it is on track to produce its first annual surplus in ten years. Notably, the Sultanate of Oman increased its production volume from 0.957 million barrels per day in 2020 to 0.964 million barrels per day in 2021, placing it eighth among the top oil-producing Arab nations.

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