What fall in oil prices? Omani energy company redevelops luxury community

Ras Al Hamra's nine-hole golf course, school and community centre are not far from an enticing beach. There is even plenty of parking — a rarity in Muscat, Justin Vela reports.

Handout photo of the Ras Al Hamra development. Photo courtesy KEO International

MUSCAT // Tucked behind the rocky headland overlooking Oman’s capital, a multimillion dollar redevelopment is taking place.

The majority state-owned oil company, Petroleum Development Oman (PDO), is revamping a residential community for oil workers into a luxury complex. Originally built in the 1970s, the community, named Ras Al Hamra, is located next to Mina Al Fahal, the country’s main petroleum refining and exporting site.

According to architect David Green of KEO International Consultants, PDO is redeveloping the 700-acre neighbourhood in a bid to attract more long-term expat and Omani employees.

Though there is an aim to finish the development by 2017, the project faces challenges from falling oil prices and regional instability.

Redeveloping Ras Al Hamra also appears counter intuitive considering the country’s current production levels, Oman is thought to have only about 15 years of proven oil reserves left.

Like many Gulf Arab countries, Oman is trying to diversify its economy away from a dependency on energy resources, but hydrocarbons still account for more than 80 per cent of government revenues.

Yet, as recently as August, PDO issued tender notices for the final phases of the project. The first phase of the project — 250 housing units — is expected to be completed this year.

A PDO representative declined to comment on Ras Al Hamra.

The project is one indication that PDO, which is 60 per cent owned by the Omani government, is confident that untapped oil reserves will come online and that the company will increase its use of alternative extraction, or enhanced oil recovery, techniques such as steam injection.

“Enhanced oil recovery (EOR) projects were once again at the forefront of PDO’s activity during 2014, and after a sustained period of focus for the company, such projects were paying dividends in terms of increasing national oil production to target levels,” said Jenny Caddick, a UK-based oil and gas researcher at IHS Energy.

“By 2023, PDO expects that EOR will account for one-third of its production.”

PDO aims to produce 600,000 barrels of crude oil per day by 2019, according to Reuters, a five per cent increase.

In July, Oman’s total oil production reached more than one million barrels per day for the first time, according to the ministry of oil and gas.

“It is becoming more expensive to extract Omani oil and the government budget will be heavily in deficit this year,” said Steffen Hertog, an expert on Oman at the London School of Economics. “So project budgets within PDO are also likely to tighten – but not to the extent of endangering the integrity of the company; it can finance its operations out of retained earnings and the Omani government is likely to cut elsewhere first.”

At its core, however, the Ras Al Hamra project appears to be about making a lasting impact on Muscat and its reputation as a city that people would aspire to live in — regardless of the twists and turns of the energy industry.

“PDO is interested in making a statement about the quality of life possible in Muscat,” said Mr Green, senior project manager for the project’s phase 1 and 1a design.

Ras Al Hamra originally consisted of villas set against Muscat’s rocky hills, built not long after oil was discovered in Oman in the 1960s. The community only ever housed about 400 residents, though it was built for 1,000 families. At times, PDO may have even rented some of the buildings on the commercial market.

The oil company now aims to remake the community into a luxury suburb where any industry employee, foreign or Omani, would want to live.

A nine-hole golf course, school and community centre are not far from an enticing beach. There is even plenty of parking — a rarity in Muscat. Keeping with PDO’s mandate that the community should be environmentally friendly, foot and bicycle paths will lead to Mina Al Fahal, where PDO’s headquarters are located. Oil companies Oman Oil Refineries and Petroleum Industries Co (ORPIC) and Shell, a PDO partner in Oman, also have a presence at Minal Al Fahal.

There is also a practical element to the project. PDO likely stands to save money in the long term by having employees live in properties that the company owns, as opposed to paying rents for workers in Muscat.

“It’s a better deal,” said Mr Green. “That was the real determinate to upgrade the facility and expand its capacity.”

The finished community is expected to stand for at least 35-40 years.

Mr Green said this projection was in line with PDO’s long term view for its oil activities, even if the company must now contend with low prices.

The redevelopment is also aimed at helping with Omanisation efforts.

“There was always this sense that we had to respect Omani cultural norms and not make it unwelcoming for Westerners, but also not create two different projects,” Mr Green said.

While Mina Al Fahal is mainly for oil refining and export, the community could also house employees working with Liquefied natural gas (LNG) production. PDO accounts for nearly all the natural gas supply in Oman, according to Ms Caddick.

If completed, the revamped community could be a boost to Oman’s efforts to attract talent as it attempts to become a Middle Eastern shipping hub outside the at times volatile Strait of Hormuz, the most important oil transit channel in the world. The country could even become an ideal place to store oil and natural gas during times of glut.

Ms Caddick said Oman is also building a new energy storage site, the Ras Markaz Crude Oil Park project, near Duqm in southern Oman, which is expected to hold 200 million barrels of crude oil.

“The new terminal aims to be one of [THE] largest storage facilities in the Middle East region, and given its location and expected investment, it certainly has the potential to be a global hub for oil storage,” she said.