PDO hopes that the renewal of the partnership will help to increase KSF production from the current 17,500 barrels of oil per day to at least 20,000 bpd

Petroleum Development Oman (PDO) has signed a $600 million contract with the Indonesian oil and gas company MedcoEnergi to continue developing the Karim Small Fields (KSF) project in southern Oman.

The deal, described by the company as "very significant", runs until 2040 and builds on an existing contract from 2006.

PDO has been working in partnership with MedcoEnergi on KSF to maximise production from a series of 18 depleting small and marginal fields. The project throws up a series of tough challenges, not least the viscosity of the oil and the high oil-water ratio in the reservoirs. However, the combined efforts have so far generated revenues of close to $4 billion for the sultanate.

The extension of the production sharing service agreement contract was signed at an official ceremony at Mina Al Fahal, under the auspices of His Excellency Dr Mohamed bin Hamad Al Rumhy, Minister of Oil and Gas and Chairman of the PDO Board of Directors.

The event was attended by Sukanto, Ambassador of the Republic of Indonesia in Oman, Dr Alawi Shihab, Adviser to MedcoEnergi International and special Middle East and North Africa envoy for Indonesia, and eminent members of the Indonesian Parliament, as well as leading members of the MedcoEnergi executive team and the company’s partners.

The sum of $600 million covers the first five years from 2016-2021 – when it is expected around 100 new wells will be drilled – but should then increase by $80-130 million per year depending on variables such as the production target and budget.

PDO managing director Raoul Restucci says: "This signing represents a new way of working between PDO and MedcoEnergi, with our current agreement being amended to create a true business alliance. What we are doing is leveraging the fundamental strengths of both parties and moving towards a deeper, stronger partnership to deliver long-term value for PDO and Oman.

"The purpose of this contract is to maximise, in a safe and sustainable way, production from the KSF cluster, using the resources of MedcoEnergi.

"In the current tough volatile oil price environment, MedcoEnergi has shown itself to be fully committed to continue delivering value in an efficient way with the guarantee of significant investment, further support for In-Country Value (ICV) and without compromising on our overarching priority of safety."

PDO hopes that the renewal of the partnership will help to increase KSF production from the current 17,500 barrels of oil per day (bpd) to at least 20,000 bpd over the next few years through secondary recovery, such as water flood, full field application of cyclic steam, enhanced oil recovery, re-instatement of unconnected fields and more exploration and appraisal.

Restucci paid tribute to the way MedcoEnergi had embedded ICV in its operation to give job and training opportunities to Omanis. There are currently 160 Omanis working at KSF out of a total workforce of 188 – an Omanisation rate of 85 per cent. A number of Omanis have also been posted to Jakharta to gain the experience of working to international standards and training as drilling engineers and subsurface and LNG specialists.

In addition, MedcoEnergi has contributed significantly to the development of Local Community Contractors (LCCs), spending over $25 million to date with LCCs.

It is currently working with a total of 23 LCCs, giving them an opportunity to grow and gain valuable experience in the oil and gas business.

MedcoEnergi chief executive officer Lukman Mahfoedz says: "We are very pleased to have the KSF Contract amended and restated with a lot of improved terms. We believe that this additional 25-year contract period demonstrates our success in the last nine years of diligent and successful effort in doubling the production.

"We are looking forward to working together with the Government of Oman and PDO in the next 25 years with the objective of increasing production, executing exploration programmes successfully and maintaining safe operations."

Petroleum Development Oman (PDO) is the major exploration and production company in the Sultanate. It accounts for about 70 per cent of the country’s crude-oil production and nearly all of its natural-gas supply.

The company is owned by the Government of Oman (which has a 60 per cent interest), the Shell Group (which has a 34 per cent interest), Total (which has a 4 per cent interest) and Partex (which has a 2 per cent interest). Gas fields and processing plants are operated by PDO exclusively on behalf of the government.