Muscat: With global crude storage capacity overwhelmed by an unprecedented glut in supply, the wisdom of leaving crude oil in the ground for now – as part of a global production cut by Oman and fellow signatories of the OPEC+ alliance of producers — has been lauded by upstream energy firm Tethys Oil.
The Swedish-based Oil & Gas company, which has a sizable portfolio of operated and non-operated assets in Oman’s upstream sector, has welcomed efforts by non-OPEC member Oman and its alliance partners peers to cut output in an effort to shore up flagging international oil prices.
Tethys Oil has a 30 per cent interest in non-operated Blocks 3&4 onshore Oman, output from which has been reduced with effect from May 1, 2020 in line with curtailments agreed by the Sultanate last month as part of the landmark global production cut. Other oil producers in the Sultanate too are adhering to a roughly 23 per cent cut in their respective outputs.
Putting a positive spin on the development, Tethys Oil’s Managing Director Magnus Nordin said the production cut was an opportunity for producers to address a major challenge faced by the global energy industry: a world awash with surplus crude amid a severe dearth of available storage capacity. Leaving it in the ground affords the cheapest form of storage, he noted.
“Our host country, the Sultanate of Oman, has joined up with a number of oil producing countries, OPEC+, to help stabilise prices by limiting production. The operator of Blocks 3&4 has informed us that we should expect production to be capped at a level equivalent to 30 percent below the first quarter 2020 average, for the remainder of the year. Despite these cuts and the drop in oil prices we remain confident that thanks to our strong result in the first quarter and ongoing cost savings, operations from Blocks 3&4 will be cash flow neutral on a full year basis in 2020.
And of course, no oil is lost through the production limitations. We are simply keeping it in the ground, the cheapest form of storage, in order to produce and sell it at higher prices in a, hopefully, not too distant future,” Nordin remarked in a letter to shareholders on Tuesday.