Throughout the Middle East, the oil and gas industry — and the upstream landscape in particular — has evolved during the last 10 years, with even the most intransigent of countries finding they are unable to escape the impact of emerging global themes.

The perennial issue regarding the lack of international access to conventional oil resources, particularly within OPEC-aligned countries, has prompted companies in search of growth opportunities to seek out costly yet accessible unconventional hydrocarbon, deepwater, coal bed methane (CBM), and even uranium projects.

And gas, once widely regarded as an inconvenience that afforded negligible value, has assumed importance as a substitute fuel. It has become a significant exploratory objective with non-OPEC constrained liquid benefits in the process. Indeed, the exploration term “gas-risk” has migrated down the value chain and adopted a very different connotation, associated with the long-term sustainability of feedstock to supply tertiary oil recovery, power, and industrialization projects.

Historically, gas rights have been retained by government authorities and have been the subject of separate negotiation to conventional concession agreements, so this change in perception has had a fundamental impact.



The state of the industry

The regional energy balance itself is in a state of flux, but the underlying rationale for establishing and sustaining a long-term presence in the Middle East remains undiminished.

Conventional hydrocarbon discoveries during the last decade of exploration have yielded an estimated 52.9 Bboe in 2P recoverable reserves, of which
20.6 Bbbl of oil are supplemented by 159 Tcf of gas and 5.7 Bbbl of condensate, despite an emphasis on reserves growth through near-field exploration and appraisal drilling for a number of major resource holders.

Notwithstanding the discovery of high-profile accumulations in the CIS, Far East, and Latin America, eight of the 20 largest global discoveries during this period have been made within the Middle East. Iran accounts for the top five regionally, with Kish (36 Tcf), Azadegan (6 Bbbl), Yadavaran (4 Bbbl), Tabnak (21.8 Tcf), and Sefid Zakhur (12.8 Tcf) under appraisal or in development.

The recent dominance of Iranian discoveries should not be surprising, for the incentive to explore, particularly within OPEC-constrained countries that have historically low production-to-reserve ratios, tends to be strategic. In this case, drilling has focused on leads and prospects close to existing infrastructure at Abadan and Shiraz or the ports of Assaluyeh and Kharg Island, structures shared with contiguous countries like Iraq and Azerbaijan, frontier basins close to domestic demand centers such as Qom (Tehran), or on pipeline routes such as the Kopet Dagh region on the Turkmen border.

Similarly, domestic demand for non-associated gas feedstock led to the recent success that Saudi Arabia has achieved in the Eastern Province, with significant new deep-pool gas additions at the offshore Karan, Jana, and Hasbah Fields in addition to the Arabiya discovery. All are planned for fast-track development under the latest five-year plan compiled by Saudi Aramco, which is likely to be supplemented by additional exploration programs both in the Eastern Province and near the Red Sea port of Yanbu, where world-scale petrochemical projects are under construction.

Drawing up a list of top 10 regional discoveries made since the beginning of 2009 highlights some more contemporary trends, the most notable of which are the multibillion-barrel Miran West discovery in the Zagros Fold Belt (Zagros Province) of Iraq, which is governed by the Kurdish Regional Authorities (KRG), and the opening of the Levantine Deep Marine Basin with the Tamar and Dalit gas wells in the Eastern Mediterranean.

Despite its resilience, the Middle East has not been immune to the global machinations of the last 12 months, and although it is too early to gauge the longer-term effects of the precipitous decline in oil prices during the second half of 2008, countries have weathered the storm, and confidence is returning. Mid-2009 numbers indicate that exploration activity has been impacted most severely. Indeed, the recent economic turbulence has served to highlight the dichotomy between those countries that have actively sought foreign industry investment and those that retain, at best, a degree of ambivalence toward international oil companies (IOCs).

In recent years, Yemen, Oman, Turkey, Syria, Jordan, and even the Northern Emirates have all adopted strategies to either offset forecast production declines or encourage the use of new technologies by launching international licensing rounds or field tenders. This action is providing “unconventional” opportunities and is stimulating investment in enhanced or improved oil recovery projects. The theme of diversification also has manifested itself in their positioning for future opportunities, which is to serve as conduits for (or as end-users of) hydrocarbons emanating from the central gulf region. This has been undertaken by the development of midstream and downstream projects intended to capitalize on geographical location, as resource distribution inevitably becomes more polarized and the focus intensifies upon the Rub’ Al Khali, Zagros, Central Arabian, and Widyan-Mesopotamian geological provinces.

More players enter the game

The situation for these countries also has been exacerbated by the fact that major IOCs, which lack a significant existing foothold, have gradually migrated elsewhere in search of scalable growth opportunities. As a result, myriad smaller, nimble new entrants have assumed increased responsibility for exploration. Unfortunately, many of these players have been adversely impacted by the recent credit crunch.

The short-term effect has been twofold. First, it contributed to a rapid postponement or rescheduling of seismic and exploratory drilling commitments as companies hurriedly reorganized their exploration portfolios.

Subsequently, it yielded a surge of farm-in opportunities and divestitures, which in the worst instances have led to acreage being handed back to the government with commitments unfulfilled.

Elsewhere, a muted response to recent acreage offerings in countries such as Qatar (pe-Khuff gas), Yemen (Bid Round IV predominantly offshore), Iran (Bid Round and field development) and particularly Iraq (first bid round) does not necessarily indicate that the IOC appetite for risk has diminished, but rather that participation will not be undertaken “at any cost.” This also applies to some other emerging opportunities, such as technologically complex sour gas developments and enhanced recovery projects. If future bidding rounds are to prove successful, an equitable balance must be achieved that benefits all parties concerned.

However, with more “out-of-round” negotiations and restricted or “invitation-only” licensing rounds becoming more prevalent, transparency is fading, and it is proving difficult to benchmark.

A look ahead

In 2010, offshore exploration should resume in the Iranian sector of the southern Caspian Sea after a hiatus of more than 10 years, following the long anticipated inauguration of the Iran-Alborz semmisubmersible rig. It will be the country’s first deepwater drilling program, vying for headlines with similar deepwater wells planned by Petrobras and others in the Turkish sector of the Black Sea, although the Red Sea, Mediterranean, and central Arabian Gulf are also capable of producing surprises.

In shallower waters, the fledgling use of transition zone 3-D technology has yielded some intriguing prospects, and a handful of high-impact well plans has been submitted for 2010, although environmental permitting might delay schedules.

Onshore, it is not inconceivable that northern Iraq will continue to provide significant new discoveries, which will be complimented by deep Permian and pre-Permian exploratory wells with objectives down to the Cambrian/Infra-Cambrian, which could have a regional impact.

Finally, there is little doubt that a degree of compromise is required to enable pipeline transit agreements and the unitized development of approximately 375 Bboe in accumulations that straddle national and cultural boundaries if the region is to ultimately fulfill its longer-term productive potential.