BLOOMBERG: Shell to Lose 10% of Oman Oilfield Acreage as Production Falls: “Royal Dutch/Shell Group will be forced to give up 10 percent of its oil and gas acreage in Oman, its biggest source of oil in the Middle East, as the government considers bringing in other companies to revive production.” (ShellNews.net) 28 April 05

April 28 (Bloomberg) -- Royal Dutch/Shell Group will be forced to give up 10 percent of its oil and gas acreage in Oman, its biggest source of oil in the Middle East, as the government considers bringing in other companies to revive production.

Shell's venture will ``relinquish'' areas of the Block 6 oil- field concession as of July 1, according to a Shell memo obtained by Bloomberg. The entire area holds 94 percent of Oman's oil reserves. The government's right to reclaim the land was part of Shell's agreement in December that renewed its operating contract in the country for 40 years.

``A schedule of relinquishment is a standard part of these types of agreements and normal business practice,'' Simon Buerk, a Shell spokesman in London, said in an interview late yesterday. Shell's Oman venture last handed back acreage to the government in 1995, Buerk said. He wouldn't say whether the area included fields that are already producing crude.

The plan may be a second setback for Shell in Oman, the biggest Persian Gulf oil producer outside of the Organization of Petroleum Exporting Countries. Oil output in the country has declined for four years. Occidental Petroleum Corp. two days ago said it may take over from Shell the development of a 2.4 billion- barrel oil field in the country.

Shell is seeking new fields after disclosing in January 2004 that it had overstated oil and gas reserves for years, which led to the departure of three senior executives, more than a dozen investor lawsuits and a U.S. Department of Justice criminal inquiry.

Shell today is scheduled to report earnings for the first quarter. Net income is expected to rise to $4.67 billion, from $4.33 billion a year earlier, according to the median estimate of seven analysts surveyed by Bloomberg.

Another Lost Field

The specific areas that Shell will give up are ``under discussion'' with the government, according to the Shell memo.

In addition to the 10 percent handover, Shell may lose its rights to a 2.4 billion-barrel oil field, Oman's sixth-largest, called Mukhaizna. Occidental Chairman Ray Irani this week said the company is in advanced talks with the government to take over the development, to boost the field's output from 15,000 barrels a day.

Oman's oil may be exhausted within 20 years unless new fields are developed and billions of dollars are invested to tap previously unreachable oil with expensive drilling technology, according to the U.S. Energy Information Administration.

Production in the sultanate is expected to drop 5.3 percent this year to a daily average of 720,000 barrels, after a 7.3 percent decline in 2004, the International Energy Agency said in an April 12 report.

The 34 percent-owned Shell venture, formally called Petroleum Development Oman, in December extended its franchise in the country to 2044. The contract covers an area the size of Massachusetts known as Block 6.

Shell has operated in Oman since the mid-1930s. It bought an 85 percent stake in PDO in 1960, which was cut to 34 percent when the government took a 60 percent interest in the venture in 1974, four years after the country's ruler, Sultan Qaboos bin Saeed, deposed his father in a bloodless coup.

To contact the reporter on this story:

Andy Critchlow in Dubai on at acritchlow1@bloomberg.net

http://www.bloomberg.com/apps/news?pid=10000085&sid=aPPgZmtTAAVA&refer=europe 

Click here for ShellNews.net HOME PAGE