Oman's oil production to drop in 2016; budget cut

We have reduced the budget to a large extent to the things that we think are very critical and are important for execution: Ministry of Oil and Gas Undersecretary

"Production may go down a little bit in 2016, compared to what we have this year," Salim bin Nasser Al Aufi.
"Production may go down a little bit in 2016, compared to what we have this year," Salim bin Nasser Al Aufi.

Oman’s oil production is expected to drop slightly next year, according to a senior official, who said the Sultanate is ready to support OPEC in cutting production if it sees ‘credible’ actions first.

“Production may go down a little bit in 2016, compared to what we have this year. But it is not because of the activities alone,” Salim bin Nasser Al Aufi, Undersecretary at the Ministry of Oil and Gas, told the Times of Oman on Tuesday.

“We do have some planned activities that will actually take some production away. We are focusing more on activities that have as little impact as possible on production, including one or two rigs that we have decided to shelve. Their impact on production in 2016 will be minimal,” he said on the sidelines of an event.

Al Aufi was also asked about Oman’s view on the comments made by some officials at OPEC, who said the cartel may decide to cut production if non-OPEC members cooperate.

“We would be more than happy to support, but we need to see credible actions first, not just talk,” Al Aufi replied.

Oil prices have tumbled by over 40% since the start at the year, with brent crude - the global benchmark – presently trading at around $36 a barrel.

Asked if capital expenditure will be cut for 2016 in light of declining oil prices, the official said, “We have already planned in terms of what activities will be executed in 2016. We have reduced the budget to a large extent to the things that we think are very critical and are important for execution.”

“The only thing that probably remains for the companies to do is to go back and revise their own activities and make sure they become a little bit more efficient. But in terms of cutting activities, I think we have already gone past that bridge,” he noted.

“We are not cutting any additional activities because the consequences of cutting more activities are severe. It will impact production, it will impact employment, it will impact the cash flow of service companies of the contracting community, and then it will have a ripple effect that we may not be able to recover from,” Al Aufi added.

“So we are being very cautious that we do not... paralyse the industry to the extent that we cannot pick it up again,” he stated.

Asked what the break-even cost of production for Oman would be, the undersecretary said, “We can go down to as low as it takes. It does not matter because.... ‘shutting in’ is going to cost us more money because you still need to pay for maintenance; you still need to pay for employment and so on.”

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