According to Oil & Gas Journal (OGJ), proven oil reserves in Oman stood at 5.5 billion barrels as of January 2007. Oman's petroleum deposits were discovered in 1962, decades after most of those of its neighbors. Moreover, Oman's oil fields are generally smaller, more widely scattered, less productive, and pose higher production costs than in other Persian Gulf countries. The average well in Oman produces only around 400 barrels per day (bbl/d), about one-tenth the volume per well of those in neighboring countries. To compensate, Oman uses a variety of enhanced oil recovery (EOR) techniques.

Oman’s oil production has declined during the last 6 years. Oman produced an estimated 743,000 bbl/d of total oil liquids in 2006, about 5 percent less than 2005 levels. Of the country’s 2006 output, 676,000 bbl/d was crude oil, 61,000 bbl/d was lease condensate, and the remainder consisted of natural gas plant liquids. EIA forecasts that the Oman’s oil production will continue to decline in 2007 and 2008, with 2008 output dropping to 690,000 bbl/d, or 7 percent less than 2006 levels.

During 2006, Oman consumed an estimated 64,000 bbl/d of oil, with net exports of 679,000 bbl/d. Oman is not a member of the Organization of the Petroleum Exporting Countries (OPEC), though it is a significant exporter of oil. Most of Oman’s crude oil exports go to Asian countries, with China, India, Japan, South Korea, and Thailand the largest importers.

Petroleum Development Oman (PDO), which is 60 percent owned by the Omani government, accounts for more than 90 percent of the country’s oil reserves and 85 percent of production. Aside from the government, the PDO consortium includes Shell (34 percent), Total (4 percent), and Partex (2 percent). While private companies hold equity stakes in PDO, the company is controlled by the state through Oman’s oil ministry. Although PDO is the leading oil producer in Oman, several foreign companies are also involved in upstream activities, with Occidental Petroleum holding the largest market share.

Oman’s government manages its investments in the downstream sector through the state-owned Oman Oil Company (OOC). The company was established in 1992 as a government-owned vehicle to pursue energy sector investments domestically and abroad. OOC’s operations are financed by funds from the State General Reserve Fund (SGRF), which uses oil revenues to help diversify Oman’s economy.

Oman’s Ministry of Oil and Gas (MOG) coordinates the state role in the country’s hydrocarbons sector, although all energy sector developments must receive approval from the Sultan of Oman.

To help offset declining oil output, Oman’s Minister of Oil and Gas announced in April 2006 that the country planned to invest $10 billion in upstream oil and natural gas projects during the next five years. Much of this effort will focus on enhanced oil recovery (EOR) initiatives to improve recovery rates at several of the country’s oil fields. Oman also plans to increase exploration and production (E&P) activities, although the natural gas sector will receive much of this investment.

There are numerous EOR projects in the pipeline that are expected to increase recovery rates at several of Oman’s oil fields. The largest of these efforts is at Occidental Petroleum’s onshore Mukhaizna field, which the company acquired from PDO in 2005. Occidental plans to invest $3 billion to increase output from 10,000 bbl/d to 50,000 bbl/d in 2008, and then to a peak of 150,000 bbl/d by 2012. PDO is also engaged in several EOR schemes, most notably at the Harweel field, where it hopes to increase output from 18,000 bbl/d to 70,000 bbl/d by the end of 2009. Other planned EOR projects by PDO are Qarn Alam, Marmul, and Fahud.

Oman’s long-term oil output targets rely heavily upon the success of these and other planned EOR projects. The Mukhaizna development plan involves a relatively new EOR process that seeks to use steam flooding to help recover heavy, viscous oil reserves that are not easy to recover using conventional methods. Not only is this costly, the technique uses large amounts of water, which is relatively expensive and scarce in the Persian Gulf. In addition, EOR schemes use substantial natural gas as a feedstock. This has led Oman to redirect some of its natural gas supplies that it had designated for export to use at EOR projects around the country.

Oman’s pipeline system is mostly focused on delivering crude oil to the country’s only oil export terminal at Mina al-Fahal, near the capital Muscat. PDO operates the Mina al-Fahal facility, as well as the Main Oil Line that runs to the export terminal. PDO operates approximately 1,000 miles of oil pipelines throughout the country, according to industry sources.

According to OGJ, Oman had 85,000 bbl/d of refining capacity at one plant, the state-owned Oman Refinery Company’s (ORC) facility at Mina al-Fahal. ORC is currently upgrading the refinery to boost its capacity to 107,000 bbl/d, which the company expects to complete in 2007. In October 2006, operations reportedly started at a second refinery near Sohar, owned by the Sohar Refinery Company (SRC), which is 80 percent-owned by Oman’s Ministry of Finance and 20 percent-owned by OOC. The SRC plant is expected to reach peak capacity of 116,000 bbl/d in 2007. When initially designed, the SRC envisioned sending about 80 percent of the refinery’s output to export markets, although the company has reconsidered this as domestic demand for petroleum products in Oman has risen.

Oman is currently considering building a large refinery and petrochemical complex at Al Duqm in southern Oman, which would be geared toward export markets. The government received bids for the complex’s front-end engineering and design (FEED) contract in February, and is expected to award the contract in mid-2007. Under current plans, a joint venture of the Omani government and international investors would build a 200,000–300,000-bbl/d refinery, a crude oil export terminal, and several large petrochemical facilities. If the government proceeds with this plan, construction is expected to get underway at the end of 2008, with commercial production scheduled for 2012.