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The agreement to sell a 20% stake of BP's participating interest
in Oman's Block 61 to Thailand's PTT Exploration and Production
Public Company Limited (PTTEP) for USD 2.6 billion was announced on
1 February 2021. Under this agreement BP will continue as the
operator of the block with a 40% working interest.
The USD 2.59 billion deal includes an initial USD 2.45 billion
payable upon completion and an additional USD 140 million payable
on pre-agreed impending conditions. The arrangement is subject to
approval from the Sultanate of Oman and the other partners with an
expected completion during 2021. This deal is part of BP's recently
announced divestment programme which aims to raise USD 25 billion
by 2025.
The Khazzan (Block 61) gas asset, located approximately 350 km
southwest of Muscat, Oman, is one of the largest tight gas
developments in the Middle East targeting 10.5 Tcf of gas resources
and 400 MMbbl of condensate. The asset is made up of two
development projects, Khazzan and Makarem (Phase 1) and Ghazeer
(Phase 2), which began producing in 2017 and 2020 respectively.
Production from Block 61 reached an all-time high in 2020 with
1.23 Bcf/d gas and 35.6 Mbbls/d condensate after the Ghazeer (Phase
2) project came on-stream in October 2020. The Ghazeer project is
expected to contribute an additional 410 MMcf/d by 2022, giving a
total capacity of 1.5 Bcf/d gas and 65 Mbbls/d condensate. Gas is
exported into Oman's national grid, supplying roughly 35% of Oman's
domestic gas demand, as well as contributing to Oman's LNG
supply.
The remainder of Oman's gas demand is predominately met by
Petroleum Development Oman's (PDO) Block 6, with total gas sales
expected to be greater than 1 Tcf in 2021. Recent blocks carved out
of Block 6 will aim to explore potential gas developments. The gas
produced from these blocks will be used to supply both the domestic
energy demand as well as the Oman LNG bunkering facility, which
will fuel marine vessels allowing Oman access to a new gas market.
Despite this activity it is assumed currently that no new
development will displace or out-compete Khazzan.
The current point forward cash flow derived from IHS Markit
Vantage for the Khazzan asset (figure 1) models the revenue to be
within USD 3.3 - 3.6 billion during production plateau until 2030,
assuming there is no drop in reservoir performance or changes to
the sales gas price. Cash flow to the partners is expected to drop
significantly from around USD 2 billion to below USD 1 billion in
the late 2020s once all initial costs have been recovered. It is
assumed that most of the capital expenditure has been sunk during
the initial developments of the field, but it is estimated that
between $2.5-3 /boe (real 2021) will be required for near term
capital expenditures. In addition, operational costs are modelled
between $3-4 /boe (real 2021) with an expected decommissioning cost
of $0.5/boe (real 2021). Point forward Khazzan costs are estimated
to be amongst the lowest upstream costs in Oman, giving Khazzan the
edge over Oman's other predominantly mature assets.
Figure 1: Point forward cash flow and production of the
Khazzan (Block 61) asset.
As of February 2021, using the IHS Markit Vantage DCF valuation
model, the Block 61 (Khazzan-Makarem Gas Field) asset is valued
with a gross net present value of around USD 13 billion at a 10%
discount rate. A key component of this valuation is the export
price for the gas, which was $3.5 /Mscf in 2019 and is assumed to
be inflated 2% annually. This valuation matches the $2.6 billion
that PTTEP is paying BP for a 20% interest in the asset.
