Company may lose Oman oil field rights

Tuesday, April 26, 2005 | 9:21 a.m.

Royal Dutch/Shell Group, Europe's second-largest oil company, may lose its rights to a 2.4 billion-barrel oil field in Oman because of a disagreement with the government over how to develop the deposit, officials familiar with the talks said.

Occidental Petroleum Corp. and its partner, Abu Dhabi's state-owned Mubadala Development Co., are in talks with the Omani government to take over production at the Mukhaizna field, the country's sixth-largest, from Petroleum Development Oman, said the officials, who asked not to be identified. Shell holds 34 percent of Petroleum Development Oman.

Shell is seeking new fields after disclosing in January 2004 that it had overstated oil and gas reserves for years, which led to the loss of three senior executives, more than a dozen investor lawsuits and a Department of Justice criminal probe. Oman needs billions of dollars of investment to reverse a four-year decline in crude oil production.

"PDO is reviewing all possible options on the development of Mukhaizna," Greg Greenwell, head of communications for the venture, said by telephone from Muscat. Larry Meriage, an Occidental vice president for communications in California, said the company is in talks with the government regarding an oil venture, and wouldn't elaborate. Shell's Michael Megarry, Middle East vice president for external affairs, said the company is considering "all options" for the field.

Petroleum Development Oman said in January it planned to invest $600 million to reverse the nation's drop in output, which is expected to bottom out at 635,000 barrels a day this year.

20 Years Left

Oman's oil may be exhausted within 20 years unless new fields are tapped, according to the U.S. Energy Information Administration.

State-controlled Petroleum Development Oman, known as PDO, has delayed investing billions of dollars into increasing Mukhaizna's output from 15,000 barrels a day to about 100,000 barrels a day because the field contains heavy oil, which is thicker in consistency and worth less on the international market because it's more difficult to refine, the officials said.

Muscat-based PDO has been instructed by the government to hand over all its geological and technical data on the field, operational since 2000, to Occidental, which has offered to boost its output to 160,000 barrels day, one of the officials said.

Occidental is already the second-largest oil producer in Oman after PDO, pumping 50,000 barrels a day from the Safah field, which it found in 1983, when it held 300 million barrels of oil, the company said on its Web site.

The Shell venture had planned to drill 1,800 wells in the Mukhaizna area and build at least 60 plants at a cost of $1.8 billion to inject high-pressure steam into the reservoir to boost output because most of the field's oil cannot be produced by conventional drilling methods that rely on natural underground pressure, an official said.

--Editor: Evers, Coulter

To contact the reporter on this story: Andy Critchlow in Dubai on (+971) (4) 352 2116, or at acritchlow1bloomberg.net

To contact the editors on this story: Tim Coulter in London (44) 20 7330 7901 or at tcoulterbloomberg.net

-0- Apr/25/2005 23:04 GMT