Focusing on Value Creation

‘Exploration is very much on track with higher investment in 2015 as compared to the previous couple of years,’ says Intisaar Al Kindy, Exploration Director, Petroleum Development Oman (PDO) in an exclusive and candid chat with Akshay Bhatnagar and Kavita Nair-Fondekar. Excerpts of the conversation:

Can you take us through your professional journey and your association with PDO?

I am a geologist by background and did my Master’s degree at Imperial College of London, where I was sponsored by PDO after graduating from high school. You could say PDO is in my blood!

After finishing my Master’s, I joined PDO in 1990 and became a seismologist. After six years, I went on my first posting with Shell in the UK. I came back and took my first leadership role as a portfolio manager and thereafter joined the Gas team as a team leader, and later on as Oil team lead. I then went on my second posting, which was in Jordan as the General Manager and Country Chair of Shell Jordan to set up the unconventional venture there. I came back to Oman in 2011 and took over this position as Exploration Director. So my whole career has been in different positions in exploration.

In the first quarter of this year, the Ministry of Oil & Gas and PDO reiterated that they remain committed to planned investments in 2015 despite the lower oil price environment. We have seen that international oil prices are continuing to be under pressure this year and most of the global oil & gas companies are not expecting any change in the trend in 2015-2016. With this backdrop, what is the mandate for the Exploration Directorate (ED) of PDO in 2015 and the coming years?

Has there been any change in the investments and planned activities on the exploration side?

On the exploration side, the investment levels are higher in 2015 compared to 2014 or the previous 2-3 years. What has changed is actually the risk profile that we are addressing. We are targeting portfolio segments that have high potential to deliver significant production wedges towards PDO production targets, creating value and adding low unit technical cost (UTC) projects that will hopefully replace some of the high cost projects in the company.

In terms of activities, our exploration programme is very diverse and our strategy is to strike a good balance between long-term growth and short to mid-term value creation. Discoveries span geographically from the North to the South, both oil and gas. Specific results are set to be announced at the annual Ministry of Oil and Gas media briefing early next year.

Tell us about the key projects taken up by the ED in 2015. What have been the unique achievements of the ED so far during this year?

We have three themes ongoing. The first is exploring near field to fill any existing ullage in our facilities. The second theme is exploring for mid-term growth opportunities; these are decision-focused wells/projects that support key asset business decisions, like facilities upgrades. The third and main theme is addressing long-term growth.

These are typically high-risk opportunity openers and take a long time to mature. This year has seen another high exploration success rate with very attractive low UTCs. Discoveries span geographically from the North to the South, both oil and gas. Production testing of these discoveries is still ongoing and final results are set to be announced at the annual Ministry of Oil and Gas media briefing next year.

How much production can we expect from there?

The advantage of exploring in PDO with its advanced infrastructure is hooking up discoveries in record short time so they can start contributing to production. This year, whatever we have discovered has made its way to the pipeline. The typical contribution from exploration wells per year averages around 3,500 barrels per day.

Last year, you had acquired the Yibal/Al Huwaisah seismic survey. What are the findings of the survey and how do you plan to take them forward?

The Yibal/Al Huwaisah survey is the largest seismic survey ever done in Oman. It is in one of the most notorious terrains you can think of. Sand dunes and sabkha cover more than 70 per cent of the survey. However, it is one of the few remaining under explored areas in Oman. Acquisition was completed last year. Processing was finalised this year and interpretation of the data is ongoing.

Preliminary interpretation is very promising. We will start drilling the first wells around 2016-2017.

PDO has been targeting discovery and development of smaller prospects in the East flank of the Rima-Marmul field. What progress has been made on this front?

There is so much potential along the eastern flank. Opportunities along this trend tend to be small to medium size but have a high value, low UTC due to their proximity to infrastructure. This year, we drilled three opportunities, of which two are commercial discoveries.

How much difference are they expected to make?

I can’t quote a number right now because all discoveries are going through production testing.

The Upper Shuaiba project in Lekhwair is expected to contribute significantly towards the increase in oil production by PDO by 2017. What is the status of the project? Are you on track to meet your commitment for production by 2017?

The project is advancing as per the plan, which is to be on production by the second quarter of 2017. This year, the shareholders are expected to take a final investment decision and the Exploration team has actually just finished drilling 11 appraisal wells within the Upper Shuaiba. We are also addressing a new exploration concept this year within the Lekhwair field. If it works, it has a promising potential to contribute a significant production wedge in the near future.

On the gas side, tell us about the developments in the Khulud and Mabrouk Deep projects.

Oman in general is a tight gas terrain. The Khulud project is a pilot to test commerciality of ultra-tight and deep reservoirs. Because of the high subsurface uncertainties associated with Khulud, and the capital expenditure exposure, a phased development approach is in place. Phase I will add about 2.5 million standard cubic metres by 2019 ramping up to 5 million in 2021. Learnings from the Khulud appraisal are integrated with exploration studies to define reservoir “sweet spots” for future drilling locations.

The Mabrouk Deep field carries a three-phase development plan formulated to accommodate both the accelerated production as well as potential performance uncertainties.

Phase I was completed in the second quarter of 2014, to de-bottleneck the existing plant along with the drilling of five appraisal wells. Phase II, which is ongoing, consists of construction of a 20” CS pipeline from Mabrouk to the Saih Rawl Central Processing Plant and drilling of three development wells. Phase III of the overall development plan includes construction of separation and super heating facilities at Mabrouk and drilling and hooking up of an additional 11 wells to the new facility. The expected on-stream date for the project is the third quarter of 2018.

What are going to be your focus areas in the coming months?

We continue with our themes, as stated earlier, with a focus on value creation and portfolio diversification, especially on the gas front. Our shareholders invested a lot on new, state-of-the-art seismic and the focus is on harvesting all the opportunities and maturing them to drillable prospects as fast as possible. Block 6 is considered a very mature area from an exploration angle but the diversity of its plays (opportunities) makes exploring a rich experience.

What have been the major achievements of the ED as a result of the implementation of Lean business efficiency measures?

Lean is all about efficiency and waste elimination. From exploration, the most important achievement is the turnaround time it takes to acquire seismic and processing it. The optimised time has resulted in millions of savings.

What are your views about the significant cut down in the exploration activities globally by the oil and gas majors?

Naturally, when oil prices go down and companies look for areas to reduce expenditure, exploration always becomes a target business to reduce expenditure because of the long-term impact on business.

However, the exploration mindset is shifting largely towards value creation. A carefully struck balance between long-term reserves replenishment and short/ mid-term gains is what is needed in any exploration business.

If the oil prices continue to be in the same band, what is going to happen to the unconventional assets?

Unconventional resources in Oman are still at their infancy stage of acquisition and analysis of data. The break-even costs required to make these unconventional plays work are very high. At times of low oil prices, it’s logical to delay these projects and replace them with lower UTC projects, and this is what is happening now.

What are your final thoughts on the overall exploration scenario in Oman?

Exploration is a very healthy business in Oman. It’s actually healthier than ever before because of the diversity of its plays. It’s all about technology and the creative thinking of our staff. I heard someone once say: “The Stone Age did not end because we ran out of stones”, and I strongly believe that the exploration business in Oman will not stop because we ran out of prospects.

PDO’s aspiration is to achieve 600 million barrels by 2019 and sustain that plateau for as long as we can. The exploration challenge is to fill the project portfolio funnel with low UTC projects that can hopefully prolong the plateau and delay the high UTC projects from enhanced oil recovery.

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