Regional report- Middle East
Though acting more like an outlier of late, Saudi Arabia nonetheless continues to wield the juice that comes with being the de facto leader of the OPEC+ alliance.
If oil prices refuse to cooperate, the Saudis have hinted their voluntary 1.0-MMbpd production cut—extended until the end of 2023—could go further. Regional OPEC members Iraq, the UAE and Kuwait fell in line, along with affiliate Oman, in agreeing to pull between 211,000 and 400,000 bpd off the global market. More recent production data, however, has the Middle East, as a whole, heading in a different direction.
In the latest OPEC monthly market report, Saudi Arabia's 943,000-bopd reduction in average July production was, by far, the steepest drop within the 13 member countries and the only decline reported among the Middle East membership.
Saudi Arabia needs up to $100/bbl, analysts say, to shore up its budget and help fund ambitious internal programs. Brent crude settled at a 10-month high of $92.06/bbl on Sept. 12, amid a projected 3-MMbpd global supply shortfall going into the fourth quarter.
In 2022, Middle Eastern oil and condensate production, excluding Egypt, increased year-over-year 12.6% to an average 27.877 MMbpd (Table 1), according to World Oil’s mid-year forecast data. However, according to the Energy Institute's 2023 "Statistical Review of World Energy” (After a more than 70-year run, BP ceded the yearly statistical review to the EI this year), aggregate gas production reached a 10-year high of 69.79 Bcfd in 2022 (Table 2). This was fueled largely by increasing domestic consumption and continuing efforts to offset the shortfall caused by OPEC ally Russia's war with Ukraine.
From all indications, the upward trajectory in gas production will carry over this year and beyond, with Wood Mackenzie forecasting a nearly 20% increase by 2030.
"The Middle East can be part of the solution for the global gas markets, as the region continues to ramp up production from its gigantic gas reserves,” Alexandre Araman, principal analyst for Middle East Upstream, said on May 3. “To fulfill the level of production growth we have predicted, investments in non-associated gas projects are set to reach a record US $25 billion this year and a cumulative total of US$120 billion by the end of the decade.”
On the drilling side, regional demand for land rigs is expected to grow 25% between 2023 and 2027, the Westwood Global Energy Group said in a May 17 analysis. Nabors Industries, Houston, will have five new rigs at work in Saudi Arabia over the course of 2023, with five more under construction, as part of a 50-rig joint venture with Saudi Aramco, President and CEO Anthony Petrello said on July 26. The UAE's ADNOC Drilling has stepped up a newbuild program, to increase its operated fleet from the current 115 rigs to 142 rigs by the end of this year or early 2024, Fig. 1. Activity, likewise, is picking up in the Persian Gulf, the deepwater Eastern Mediterranean and elsewhere, with 172 jackups and floaters under contract as of Sept. 1—up by 31 offshore rigs, year-over-year, according to S&P Global's Petrodata.
Meanwhile, a country-by-country review of recent activity shows OPEC members and non-members, alike, advancing a number of promising conventional and unconventional plays.
SAUDI ARABIA
With OPEC-reported production falling to 9 MMbopd in July, down from just over 10.1 MMbopd to close out the second quarter, Saudi Arabia exports dropped to roughly 5.6 MMbopd in August (Fig.2)—its lowest level since March 2021, according to a Bloomberg analysis. The Kingdom intends to keep oil production at around 9 MMbpd for the rest of the year.
Despite interim production cuts and longer-range plans to move away from an oil-dominant economy, Saudi Aramco is spending heavily to increase oil production capacity to 13 MMbpd by 2027 and expand gas production by more than 50%, by 2030. "We are maintaining the largest capital spending program in our history, with the aim of increasing our oil and gas production capacity and expanding our downstream business," said Aramco President and CEO Amin H. Nasser in an Aug. 7 release.
Aramco is pressing ahead with development of a major unconventional onshore gas play, while at the same time working to squeeze a cumulative 550,000 bpd of incremental production from the aging Marjan and Berri Persian Gulf fields. The company says it also is on track to begin producing the onshore Jafurah field—the Kingdom's largest non-associated unconventional gas play—by 2025. The field is expected to reach a sustained rate of 2 Bcfgd by 2030.
UAE
The United Arab Emirates says no additional production cuts are in its future, beyond the estimated 144,000-bopd reduction agreed to in May. For now, OPEC's third-largest producer is going full-bore on plans to ramp up to 5 MMbopd, compared to the production just under 2.9 MMbopd reported to OPEC in July.
Getting a jump on its strategy to increase oil production capacity, state-owned Abu Dhabi National Oil Co. (ADNOC) teamed up last December with Malaysia's Petronas to help develop an estimated 22-Bbbl onshore unconventional oil prospect, on Block 1 in the Al Dhafra region.
For now, however, gas has taken center stage, as highlighted by the $10-billion expansion of the Al Hosn processing plant for the onshore Shah sour gas-condensate field ADNOC operates jointly with Houston's Occidental Petroleum Corp. The expansion increases the field's production from 1.0 Bcfd to 1.45 Bcfd.
"The Al Hosn expansion came online two months earlier than planned, " Occidental President and CEO Vicki Hollub said in an Aug. 3 earnings call. "We have now successfully expanded the plan in stages, from 1.0 Bcf a day to 1.45 Bcf a day for a very small incremental capital investment."
Al Hosn netted Occidental—which holds interest in 2.5 million gross acres—88,000 boed in the second quarter, including a record 289 MMcfd of gas production.
ADNOC, however, may fall short of a 2025 target date to begin production of more than 1.5 Bcfd from the world's largest offshore sour gas development. The April termination of two principal onshore and offshore pre-construction services agreements for the Hail and Ghasha development has cast uncertainty over the multi-billion-dollar project. While providing no reason for the cancellations, ADNOC proceeded to launch a fresh tendering round for the so-called Ghasha mega-project within the Marawah Marine Biosphere Reserve, west of Abu Dhabi Island.
IRAQ
Iraq agreed to reduce oil production by 211,000 bpd, but the country already had been producing below its 4.22 MMbpd OPEC quota, according to S&P Global. Based on OPEC secondary source data, Iraq was producing just over 4.2 MMbopd by July, representing a 41,000-bopd increase over the prior month.
OPEC's second-largest producer also sustained an estimated 450,000-bopd shortfall from the March closure of the main export pipeline in the Kurdistan region to the north. The Iraq-to-Turkey takeaway network was shut down over a pay dispute, and while talks continue, the pipeline remained shut down in mid-September.
The closure has been particularly tough for Norway's DNO ASA, which has taken a spectacular hit in its Tawke and Baeshiqa licenses. Cumulative net oil production from the Kurdistan concessions in the second quarter fell precipitously from 70,947 bpd in the first quarter to 41 bpd. The takeaway closure forced the company to lay down three previously active rigs and reduce staff levels.
DNO began partial production from Tawke field on Aug. 17, selling around 40,000 bopd, reportedly at a steep discount, to the Kurdistan Regional Government (KRG) and local traders. The nearby Peshkabir field remains shut-in.
"While there is no certainty regarding the reopening of the export pipeline, we anticipate an increasing reliance on truck transport for our Tawke field shipments under a pay-and-load framework," said DNO Executive Chairman Bijan Mossavar-Rahmani.
Near the Kuwaiti border in the Basra region to the south, Iraq also is engaged in expanding the production capacity of the world's third largest conventional oil field. The Iraq Oil Ministry plans to boost production at the 69-year-old Rumaila field by 300,000 bopd over the next five years.
In an effort to reduce flaring at the super-giant field, the first phase of a liquefied natural gas (LNG) plant was inaugurated on June 1, designed to process up to 200 MMcfd of associated gas that will be directed to power plants and other local consumers.
OMAN
Among the 10 non-member affiliates of the expanded OPEC+ regime, Oman agreed to a comparably modest 40,000-bopd cut, which was reflected in second-quarter oil production falling slightly to 1.051 MMbpd, says the Middle East Economic Survey (MEES). First quarter crude production averaged 1.064 MMbpd, matching the year-end 2022 output.
Oxy recently put an onshore near-field oil exploration well on production on Block 65, following the highest initial production (IP) rate in a decade. After delivering a 24-hour IP rate of 6,000 boed, the onshore well went online in the second quarter, less than one month after completion.
"We do have incremental opportunities in Oman for additional wells that are similar to that in Block 65," says Oxy's Hollub. "In Safah field in the north of Oman, we've set the production records there, and that's a field that's been in operation for over 40 years. So, we're still finding new things to do there."
Through a joint venture with Oman Oil Co. Exploration and Production (OOCEP), Oxy Oman has interests in 6 million gross acres in five blocks, where it netted second-quarter production of 67,000 boed after closing out 2022 with average gross production of 220,000 boed. Oman's cumulative gas production in the second quarter was up 2.3% from the same 2022 quarter to just under 925 Bcf, according to the Muscat-based National Centre for Statistics and Information (NCSI). Exports reached a monthly high of 1.08 MMtons in March, after shipping out a yearly record 11.58 million tons of LNG last year.
The reported completion of a debottlenecking project at the LNG export terminal at the Port of Qalhat in Sur raised capacity by 1 Mtpa and coincides with the signing of three major supply contracts in August, including a four-year agreement on Aug. 31 with the German-run Securing Energy for Europe (SEFE) that calls for the supply of 400,000 tpa.
Operator Eni and equal partner BP plan to drill a tight gas exploration well this year on Block 77 in central Oman, hoping to replicate BP's flagship development some 19 mi to the west. As the Middle East's largest tight gas play, the BP-operated Khazzan and Ghazeer fields on Block 61 are reportedly producing at a record 1.5 Bcfgd.
KUWAIT
Kuwait is a paradox, in that while agreeing to cut 128,000 bopd, it is actively engaged in trying to maintain the 2022 reversal of once-sagging oil production rates. Energy Institute statistics show crude production rebounding from three years of decline to 3.028 MMbpd, a 12% increase over 2021, but still well below the 10-year high of 3.173 MMbpd.
State-owned Kuwait Petroleum Co. (KPC) has set an oil production target of 3.5 MMbpd by 2025, mainly through an aggressive offshore drilling campaign and pulling more oil from the graybeard Greater Burgan field.
Speaking at the Oxford Energy Seminar on Sept. 12, 2022, CEO Shaikh Nawaf Saud Al-Sabah said secondary and tertiary recovery techniques have effectively stemmed the natural declines at Burgan and elsewhere. "Like those of every major producer that has been in this business for the past eight decades, our fields are starting to age. That age, however, is mostly over," he said.
Meanwhile, KPC subsidiary Kuwait Oil Co. has taken delivery of a second rig in September in preparation for the next phase of an inaugural drilling campaign in Kuwait's woefully underexplored Persian Gulf. The newbuild Oriental Dragon jackup will join sister rig Oriental Phoenix currently drilling offshore Kuwait, which kicked off its long-delayed six-well exploration program in late 2022. The KPC chief has predicted the undeveloped continental shelf could eventually provide some 25% of Kuwait's total oil production.
IRAN
In a threat to the OPEC game plan, Iran intended to increase oil production to 3.4 MMbpd by the end of September, continuing a drive that has boosted production by around 50% over the past two years, Bloomberg reported on Aug. 22, quoting Oil Minister Javad Owji's comments to the Iranian parliament's energy committee.
The August OPEC report had Iran producing 2.828 MMbopd in July, based on secondary sources, which would represent a 68,000-bopd increase over the prior month. Owing to continuing U.S.-led sanctions, the Islamic Republic is exempt from OPEC quotas, allowing unfettered production with no blowback. Accordingly, with production closing in on the reported 3.8-MMbpd capacity, exports have risen steadily, largely under the radar and mostly to China, Persian language news outlet Iran International reported on Aug. 23. Iran oil and condensate exports reportedly averaged a 2023 monthly high of more than 2.2 MMbpd in the first 20 days of August.
Among initiatives aimed at increasing production, state-owned National Iranian Oil Co. last year reportedly planned to add 420 new producing and injection wells to the massive Azadegan onshore field, bringing it from 190,000 bpd to 380,000 bpd. Sister entity Iranian -Offshore Oil Co., likewise, is engaged in restoring Persian Gulf fields (Fig. 3) to pre-sanction levels, though no updates have been made available.
Qatar
Chinese NOC Sinopec in April became the sixth international entity to grab a stake in Qatar's $30-billion North Field East (NFE) LNG expansion project, Fig. 4. With its 5% interest, Sinopec joins Shell, TotalEnergies, Eni, Exxon Mobil and ConocoPhillips as partners in the project that, when completed in 2026, will lift LNG processing capacity from 77 Mtpa to 110 Mtpa, says state-owned Qatar Energy.
The NFE expansion and the subsequent North Field South (NFS) project, will, together, increase Qatar's LNG production capacity to 126 Mtpa. The two-phase project collects feedstock from the Persian Gulf North Field, the world's largest non-associated natural gas field.
"By 2029, about 40% of all new global LNG supplies will be provided by Qatar Energy projects," President and CEO Saad Sherida Al-Kaabi said in a July 19 presentation to the 12th LNG Producer-Consumer Conference in Tokyo.
A one-time OPEC member, Qatar has shifted its focus from oil to gas and, in 2022, produced a cumulative 10-year high of 178.4 Bcm, according to the EI. A U.S. Energy Information Administration (EIA) analysis of LNG shipments over the first half of 2023 ranks Qatar third, with an average of 10.4 Bcfd, behind the U.S. average of 11.6 Bcfd and Australia's 10.6 Bcfd.
Israel
The Energean plc-operated Karish field commenced production a year ago this month and with a capacity expansion underway, year-end production is on track to reach 140,000 to 155,000 boed. A second export riser and the Karish North flowline were delivered in March, to connect the production network on the Energean Power floating production storage and offloading (FPSO) unit to the pipeline to shore.
Karish's 1.75-Tcfg resource base, however, pales in comparison to Leviathan and Tamar fields in the eastern Mediterranean Levantine basin, with estimated reserves of 35 Tcfg and 7.1 Tcfg, respectively. Operator Chevron and Israeli partner NewMed Energy (45.34% interest) made a final investment decision (FID) on July 3 to increase Levantine gas throughput capacity from 1.2 Bcfd to nearly 1.4 Bcfd. The new gathering pipeline is expected to be in operation by the second half of 2025.
"We're working toward a concept for the next expansion of Leviathan, ideally by the end of this year, and floating LNG is one of the concepts that we continue to look at," Chevron CEO Mike Wirth said in a July 28 earnings call.
Egypt
Egypt's run as being among the fastest-growing LNG exporters among the Organization of Arab Petroleum Exporting Countries (OAPEC) has come to a screeching halt.
After shipping out 1.9 million tons in the first quarter, according to OAPEC, exports from the Idku and Damietta LNG terminals were suspended in June, to meet rising domestic demand from the summer heat wave. The Ministry of Petroleum and Mineral Resources says shipments will resume in October, but analysts say low prices and increasing internal consumption make it doubtful the country will return to previous levels. Exports averaged 3.5 million tons over the first half of FY2022, after reaching a 10-year high of 6.8 million tons the year prior.
The LNG export picture mirrors the drop in cumulative gas production, which fell to a three-year low in the first five months of 2023, according to Reuters. At the same time, government officials have set a 2023 oil production target of 650,000 bpd, up from the average 613,000 bpd produced last year, according to EI statistics.
Much of that expected increase will come from the Western Desert, where premier leaseholder APA Corp., Houston, is on track to produce 154,000 bopd this year. Second-quarter production of 144,026 boed (61% oil) was up from 143,536 boed, produced in the like 2022 period.
"We are projecting gross oil production will be up 5% in the third quarter, to 148,000 barrels per day. And we are making good progress toward our fourth-quarter guide of 154,000 barrels per day," President and CEO John Christmann said in an Aug. 3 call.
APA, which has a 5.3-million-acre position in six separate concessions, averaged 17 rigs in the second quarter, drilling and completing 32 wells.
Also in the Western Desert, Canada's TAG Oil Ltd. is emerging as a significant player, as it begins development of an unconventional reservoir that its CEO says mimics the South Texas Eagle Ford and the home country Montney shales, Fig. 5. The Vancouver-based independent recently began drilling its first horizontal oil well at Badr (BED-1) field, targeting the Abu-Roash F (ARF) carbonate reservoir, at a programmed TVD of around 10,827 ft. The well is expected to be completed by the fourth quarter.
The BED4-T100 well follows the May recompletion of a vertical well that flowed more than 500 bbl during a short flowback. TAG has plans for three to four horizontal wells in 2024 within the 26,000-acre play.
"We’re very excited about the scope and scale of the ARF and the fact that it’s a relatively new play. A recent resources evaluation report prepared by RPS Energy Canada Ltd. estimates that there is potentially more than 500 million barrels of oil-initially-in-place in the ARF, and to date, the zone has never been developed in Egypt," said CEO Toby Pierce.
Elsewhere, the UK's Energean plc says three new offshore development wells will go online by year's end at its wholly owned North El Amriya and North Idku (NEA/NI) concessions in the Western Nile Delta, pushing production to 40,000 boed. The operator eyes FY2023 production of between 28,000 and 32,000 boed, after averaging 26,500 boed in July, as two wells came online in the NEA and NI concessions located near the Abu Qir gas fields in the Mediterranean Sea.
CYPRUS
Despite five significant Eastern Mediterranean gas discoveries, Cyprus is still waiting for the first molecule to hit burner tips.
A Chevron-led consortium is in a holding pattern, after the government's Aug. 25 rejection of an initial development plan for the deepwater Aphrodite field in the Levant basin. Cypriot Energy Minister George Papanastasiou has blamed the omission of a mutually agreed floating gas processing plant in the plan for the rejection.
The parties are talking, but as of mid-September, the impasse had not yet been resolved. Speaking to analysts before the development scheme was rejected, the Chevron CEO said, "In the Eastern Med, our Aphrodite appraisal well in Cyprus met our expectations, and we've submitted a development concept to the government. Eastern Med is a very strong position."
The Aphrodite reservoir is estimated to hold recoverable reserves of 4.5 Tcf. The initial production phase was expected to comprise five production wells, capable of producing up to 800 MMcfd. Chevron mobilized the Stena Forth drillship in May to begin drilling a third appraisal well.
Chevron has a 35% operating interest on Block 12, with partners Shell (35%) and NewMed Energy (30%).
Off the southwestern coast, 50-50 partners Eni (operator) and TotalEnergies plan to spud an appraisal well by the end of the year on Block 6, to further delineate the estimated 2.5-Tcf reserve estimate for the Cronos discovery well. Along with the Cronos-1 discovery, Block 6 is also home to the Calypso-1 gas discovery and the December 2022 Zeus-1 discovery well that encountered just under 345 ft of net gas pay in carbonate reservoirs.
Bahrain
State-owned Tatweer Petroleum has hit pause on developing a major offshore shale prospect and has returned to its known conventional assets. The NOC wrapped up 2022 with 10 new wells on the onshore Khuff gas field and added 73 wells in a continuing program to slow down the decline of the 90-year-old Bahrain field, which peaked at 79,000 bopd more than 50 years ago.
Tatweer is focused on developing two deep gas discoveries, targeting the Al-Juba and Al-Jawf unconventional reservoirs. The prospects—which could hold some 10-20 Tcf of reserves—lie beneath the onshore Al-Khuf and Al-Onaiza gas fields. Tatweer drilled one Juba and two Jawf exploration wells last year.
Tatweer, for now, has put the brakes on developing the high-cost Khaleej al-Bahrain unconventional prospect off the west coast, estimated to hold at least 80 Bbbl of tight oil.
YEMEN
A stalemate—albeit a tenuous one—in the nearly 10-year civil war has done little to ease Yemen's flagging oil and gas prospects.
A perennial also-ran among Middle East producers, Yemen's four-year decline in oil and condensate continued in 2022, falling to a miniscule 53,000 bpd, while gas barely registered with aggregate production of 0.1 MMcf—unchanged in five years. The shuttered LNG export terminal at the Gulf of Eden remains in force majeure.
Canada's Zenith Energy Ltd. on Sept. 4 terminated an earlier agreement to pay just over $21.6 million to acquire OMV's stakes in three blocks.
Lead photos: Left: Saudi Arabia's nearly 67-year-old Safaniya field remains the world's largest conventional offshore field. Image: Saudi Aramco; Middle: An Energean rig drilling ahead in Egypt's Upper Desert. Image: Energean Plc; Right: The drillship Stena Forth is drilling an appraisal well off Cyprus. Image: Stena Drilling Co.
