Tethys Discovery Shows Continued Onshore Upside Risk
BMI View : An onshore oil discovery by Tethys Oil highlights remaining upside risk to reserves in Oman, and could help boost the country's long-term production, which according to our forecast in set for a decline. However, we note that the country's largest upside risk rather lies in its offshore potential. With a continued uptick in exploration activity both onshore and offshore, Oman's potential could surprise to the upside, posing long-term upside risk to our production forecast.
Tethys Oil has reported an onshore oil discovery in Oman, at the B4EW6 wildcat, stricking oil in the Lower Buah formation. The well was drilled just 13 kilometres (km) south of the B4EW4 discovery well, and produced in excess of 2,200 barrels per day (b/d) of oil. Tethys highlighted that the well displays similar features to the B4EW4, and could therefore be as prolific as the previous discovery. In February 2013, Tethys Oil revealed an oil discovery onshore Block 4 following successful drilling on the B4EW4 well. Following an independent appraisal, Tethys booked some 5.3mn bbl in proven reserves on the Block, with an upside of 18.7mn bbl based on an audit. The reserves in the Farha South field are from the Barik reservoir section only.
Tethys holds a 30% stake in blocks 3 and 4, which are operated by CC Energy Development, which holds a 50%. Mitsui E&P holds the remaining 20%.
Oman has made efforts at boosting exploration and production in recent years. Since reaching a low of 714,000b/d in 2007, Oman's oil production has rebounded strongly, with total liquids supply estimated at around 941,800b/d for 2013. The bulk of the recent production gains have come from enhanced oil recovery (EOR) operations, with EOR accounting for around 18% of total oil output. However, the effects of EOR projects have started to dissipate, and production is beginning to slow. Indeed, we forecast oil production to peak in 2016 at around 975,300b/d, before trending gradually downwards to the end of the decade.
|New Plays Needed As EOR Effect Wears-Off|
|Oman Oil Production, Consumption and Net Exports (000b/d)|
New exploration and new discoveries will therefore be critical if the country is to arrest the decline of its oil output in the longer-term. Tethys' recent discovery is therefore a positive development, and will contribute to boosting the country's reserves and long-term production potential.
However, we note that the country's largest upside likely lies in its offshore potential, which has seen an increase in exploration activity in recent years. Despite a string of mixed signals, Rex International Holding's recent oil discovery in the Sea of Oman in Block 50 is an important one, putting potential oil resources estimated for the prospect at around 160mn barrels of oil (see 'Brighter Prospects For Offshore Acreage,' February 4).
Several companies such as DNO International are planning to increase investment in Oman's offshore potential. In December 2013, Total's acquisition of deepwater Block 18 demonstrated the interest of major international oil companies in the country's offshore prospectivity, and we see this as part of a broader trend, with Oman set to attract greater international attention in the coming years. In the past months, Oman signed production sharing contracts with Total and Petrogas. The Omani government announced in January 2014 that it plans to award two oil blocks to international firms for exploration in Sothern Sudan this year, part of the five blocks tendered last year. With a continued uptick in exploration activity both onshore and offshore, Oman's potential could surprise to the upside, posing long-term upside risk to our production forecast.