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Declining oil production in Oman

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  • J.H. Crawford
    Hi All, See this NYT story: http://www.nytimes.com/2004/04/08/business/08OIL.html?pagewanted=1&hp pg.1 is pasted below. Oman s Oil Yield Long in Decline, Shell
    Message 1 of 1 , Apr 8, 2004
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      Hi All,

      See this NYT story:


      pg.1 is pasted below.

      Oman's Oil Yield Long in Decline, Shell Data Show


      Published: April 8, 2004

      The Yibal oil field in Oman has been declining since 1997, despite advanced production techniques.

      The <http://www.nytimes.com/redirect/marketwatch/redirect.ctx?MW=http://custom.marketwatch.com/custom/nyt-com/html-companyprofile.asp&symb=RD>Royal Dutch/Shell Group's oil production in Oman has been declining for years, belying the company's optimistic reports and raising doubts about a vital question in the Middle East: whether new technology can extend the life of huge but mature oil fields.

      Internal company documents and technical papers show that the Yibal field, Oman's largest, began to decline rapidly in 1997. Yet Sir Philip Watts, Shell's former chairman, said in an upbeat public report in 2000 that "major advances in drilling" were enabling the company "to extract more from such mature fields." The internal Shell documents suggest that the figure for proven oil reserves in Oman was mistakenly increased in 2000, resulting in a 40 percent overstatement.

      The company's falling production and reduced reserves in Oman are part of a broader problem facing Shell, the British-Dutch oil giant that earlier this year lowered its estimate of worldwide reserves, a crucial financial indicator, by 20 percent, or 3.9 billion barrels.

      Documents show that senior executives were told the calculations of reserves were too high in 2002, at least two years before the company downgraded its estimate this January.

      While Oman represents a small part of Shell's reserves, oil industry experts say the company's experience there highlights broader questions about the future role of Western oil companies and their technology in the Persian Gulf, which has most of the world's oil reserves.

      In the case of the Yibal field, for example, Shell and Omani oil engineers and auditors have expressed concerns that a technique Sir Philip said would recover more oil not only did not do so, but also increased the amount of water in the extracted oil to as much as 90 percent of the total volume, increasing production costs.

      "In Oman, Shell seems to have fumbled on technology," said Ali Morteza Samsam Bakhtiari, a senior official with the National Iranian Oil Company.

      Perhaps more ominously for the world's oil outlook, he added that the failure of Shell's horizontal drilling technology in Oman suggested that even advanced extraction techniques "won't bring back the good old days."

      In the last 10 years, horizontal drilling has become one of the most important innovations in the oil production business and is widely used around the world. If properly managed, it can extract more oil from some fields, and can pump it out sooner and more efficiently than traditional vertical drilling.

      Shell helped pioneer the technique, and it did accelerate production in Yibal, documents show. But a Shell document last fall did oes not project the technique to increase the amount of oil that will ultimately be recovered from the field, and it resulted in additional water being mixed in with the oil, increasing production costs. That suggests that although it may work in some places, horizontal drilling may not always be the answer to declining production rates in the mature fields of the Middle East.

      Sir Philip made his optimistic assessment of the Oman field in May 2000, when he was the company's head of exploration and development. He was named chairman a year later. The board dismissed him and Walter van de Vijver, chief executive of the exploration and production business in early March, about two months after Shell reduced its reserves estimate.

      Regulators in Europe and Washington, as well prosecutors at the United States Justice Department are investigating whether Shell's disclosures about its reserves complied with securities laws. The company says it is cooperating with the investigations and expects to announce the results of an internal review in the next few weeks.

      "Shell has been open about the production shortfall in Oman, most recently in the presentation to analysts on Feb. 5," Simon Buerk, a company spokesman, said in an e-mail message responding to questions. Mr. Buerk said that production targets were met in 2003. Pending investigations limited the company's ability to comment on Sir Philip's statements, he said.

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      J.H. Crawford Carfree Cities
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