Oil and Gas Sector and Gas-Based Industry

The petroleum sector continues to provide some of the best prospects for U.S. goods and services. The Omani government had, until 2000, continuously increased its level of oil production, and hoped to reach a production level of 1,000,000 barrels per day. However, Petroleum Development Oman (PDO), the national oil exploration and development company, began facing oil recovery problems in 2001, causing PDO’s production to drop as low as 780,000 b/d by December 2002. In 2002 average daily production was 897,400 b/d, a 7% drop from the 2001 level of 955,700 b/d. This drop in oil production is attributed to the Zauliyah well blow out in part, and to technical difficulties in general. PDO has since announced its intention to invest more than $1.5 billion on enhanced oil recovery systems over the next five years. In 2002, PDO also announced that a final investment decision regarding the construction of a major steam injection plant at Qarn Alam in central Oman is expected in 2003. The $200 million project is vital to PDO’s goal of extracting heavy oil from the Shuaiba reservoir in the Qarn Alam area.

In 2002, Occidental Petroleum produced some 45,000 b/d, making it the second largest producer. Bermuda-based, Saudi-owned Nimr and Gulf Stream (Canada) acquired concession areas in 1997. In 1999, Occidental, in a joint venture with BP/Amoco and Neste, signed a $25 million exploration agreement for five concession blocks in northern Oman. Phillips Petroleum signed a $29 million exploration agreement in May 1999 for a second concession block in southern Oman, along the Yemeni border but departed in the summer of 2000 after drilling several wells in the concession area. In 2002, American firm, Hunt Oil Company, signed onshore and offshore concession agreements with the Omani government for exploration and oil recovery in the east of Oman. U.S. independent Anadarko also has upstream acreage in Oman.

PDO awarded the contract for the construction of the upstream gas treatment expansion in Saih Nihayda in Central Oman to a joint venture between SNC Lavalin and the local Al Hassan group of companies. The $103 million project is designed for the supply and installation of a 20 million cubic meters/day gas treatment plant and associated gas gathering facilities. The plant will also produce 10,000 cubic meters/day of condensate, light petroleum oil used in feedstock and 1000 cubic meters/day of water. The project should be completed in 2004. This is only a part of the gas treatment facility in central Oman; the government is planning to invest between $250-$300 million to expand the upstream gas infrastructure in the central Oman gas fields. The project has been divided into three engineering and procurement (EPC) packages. This was the first part of the project. The second EPC covers the installation of wellhead compression facilities at Yibal. The final Package centers on the installation of a 48-inch pipeline running from the gas field to Sur and the construction of a gas booster station. Bids were due earlier this year; these new facilities will be managed by PDO and will contribute feedstock to the proposed third LNG train.

There are still many opportunities for American companies in Oman’s oil and gas sector. A significant portion of the country’s oil infrastructure is aging. Pipelines, wellheads, pumps, and related equipment need regular replacing. Additionally, Oman has a number of older fields and fields with complex geology. As a result, Oman needs advanced technology for secondary and tertiary recovery, as well as 3-D seismic analysis to facilitate exploration efforts. Finally, there is interest in computer systems that can monitor remote wells and cut labor costs. The Omani environmental protection authorities seek advanced equipment that will monitor and control on-shore leaks.

In 2000, construction was completed on the first phase of a $2.6 billion liquefied natural gas (LNG) project, called Oman LNG. This project is located near Sur, a town on the coast 150km southeast of Muscat. Oman LNG (OLNG) is Oman's most expensive and ambitious project thus far. It began exporting LNG to Korea in May 2000 and to the U.S. in July 2000. The plant consists of two LNG trains with a combined output of 6.6 metric tons per annum (MTPA) of LNG. Most of the LNG is being exported under long term contracts, most notably a 4.4 MT per annum contract with Korea and a 0.7 MTPA contract with Osaka Gas of Japan. According to financial reports, OLNG achieved excellent results in 2001 with $691.75 million in profits in its first year of full operation, a 44% average return on capital employed. As of the date of this report OLNG’s 2002 profits have not been declared. However, in 2002 OLNG succeeded in refinancing a loan facility of $1.3 billion with twelve global banks. The debt facility was given a rating of A-3 and A- by Moody's Investor Services and Standard and Poors, respectively. OLNG also has a 20-year contract for the supply of 1.65 MTPA to Spain. The success of the project encouraged the Omani government and OLNG to embark on an expansion plan for its current facility, by adding a third train. Work on the new train began in early 2003. The tender for the construction of a third LNG train was awarded to Japan's Chiyoda Corporation and America’s Foster Wheeler Corporation. The new train will have the capacity to produce 3.3 MTPA bringing the total plant capacity to 9.9 MTPA. The $600 million project is expected to be fully operational by January 1, 2006.

Oman Oil Company recently awarded the tender to build an $881 million catalytic cracking refinery in Sohar. The tender to build the new facility was awarded to a Japanese team of JGC Corporation and Chiyoda Corporation. The facility will have a 116,400 b/d crude capacity unit and a residue fluid catalytic cracking unit with a capacity of 75,260 b/d. On site construction is expected to begin in the fourth quarter of 2003, while commercial production should commence in the second quarter of 2006. The U.S. firm UOP is the technology provider and Bank of America is the financial adviser for this project. ABB Lummus Global carried out the design, technical consulting and construction of the project.

The world’s largest methanol production unit, the Sohar Methanol Project, is planned for the Sohar industrial area. The project made major headway with the signing of an off-take agreement with the Holland-based Vitol Holding BV. Oman Oil Company, the government’s investment arm, the Omar Zawawi group, a leading business group in Oman, and Ferrostaal AG, part of the Germany-based MAN group, are the promoters of this project, with an estimated investment of about $500 million. If the financial closure takes place in 2003, operations could commence as early as 2006.

The Sultanate successfully closed a $644 million debt facility for the $969 million dollar Oman-India Fertilizer Company (OMIFCO). Once completed, Oman will have the largest urea production facility in the world, producing 1.65 million metric tones of urea annually in addition to 250,000 tones of ammonia. The project is a joint Omani-Indian Investment. A joint venture between Italy's Snamprogetti and Paris based Technip-Coflexip has signed a turn key contract with OMIFCO. Athens-based Consolidated Contractors International Company is the main subcontractor involved in the project, scheduled for completion during the second quarter of 2005.

Another multi-million dollar gas-based project is the Sohar fertilizer plant, a private sector project promoted by the Suhail Bahwan group of companies with an estimated investment of some $550 million. Germany’s Kurpp Uhde has been selected as the preferred bidder for the engineering, procurement and construction contract to build the fertilizer complex for Sohar International Urea & Chemical Industries (SIUCI). The project will have the capacity to produce 3,500 tons of urea a day from an ammonia output of 2,000 tons per day. Stamicarbon of the Netherlands is the licensor for the urea plant; while the granulation unit will be based on technology supplied by Belgium-based Hydro Fertilizer Technology. The plant is scheduled to begin production by April 2005. In April 2002, Transammonia of the U.S. signed an off take agreement of the plant’s entire urea output, while the excess ammonia will be marketed in the Indian subcontinent.

In 2002, ABB Lummus Global, LG International and Oman Oil Company signed a MoU to build a polypropylene plant. This export-oriented project -- with an estimated investment of as much as $200 million -- will have an annual capacity of 340,000 tones of polypropylene.

Transport

A sizeable market exists in Oman for airport and port equipment. In late 2001, the Omani government awarded a consortium led by the British Airport Authority the management and development contract for Muscat’s Seeb International Airport and Salalah Airport. A new company has been formed for this purpose of which 75% belongs to the strategic partners and 25% is owned by the Omani government. The 25-year contract dictates that the strategic partners should build a new terminal that has the capacity of handling 8 million passengers a year at Seeb International Airport, a major expansion program for the airport. Work on the expansion commenced in 2003 and is scheduled to end in 2006. In May 2002, the government announced its intention to develop a new small commercial airport in the Ras al Had area.

Port Salalah (known formerly as Port Raysut) is another successful project completed in Oman within the last five years. Port Salalah is a $250 million container transshipment port, and opened in November 1998. Port Salalah was established as a joint venture between the Omani government, private investors, and shipping companies Sea-Land and Maersk. In 1999, Maersk bought Sea-Land, in the process of acquiring 15 percent stake in Salalah Port. After its opening, Port Salalah witnessed rapid growth in shipping traffic in its first three years, and it has the potential to generate rapid industrial development in southern Oman. A MoU between the Sultanate of Oman and the port operator, Salalah Port Services (SPS) Company SAOG, was signed in 2000, establishing a free trade industrial zone at Salalah Port. This free trade zone, when operational, is expected to attract storage and warehousing facilities, as well as value-added light industries. Salalah Port Services has also proposed to its shareholders an expansion of the port itself to make way for increasing demand. The project would increase the number of berths and extend the breakwater.

Construction work on the Sohar port, a $250 million project, is expected to be completed in 2004 and the port will be commercially operational towards the end of 2005. The Omani government signed a MoU with the Rotterdam Port to operate the new facility. All indications are that it will serve as an industrial port servicing upcoming gas-based projects. The Omani government is also embarking on other smaller port projects, including a port with dry dock facility in Duqum, and another $33 million port at Khasab.

Electrical and Mechanical Equipment

Electrical machinery and mechanical equipment (H.S. Section XVI) continues to be the leading sector for U.S. exports to Oman with a total value in 2001 of $215.5 million, representing nearly 55 percent of U.S. exports into Oman. With a number of new electrical and mechanical projects underway or on the horizon, e.g., Salalah, Barka and Sharqiya power projects, the Sohar refinery, and the Sohar port, this sector is expected to continue robust in the make up of Omani imports. Transport equipment (vehicles, aircraft, and vessels) are another leading import. Oman’s national airline, Oman Air, signed purchase and lease deals worth a total of $56 million with Boeing in 2001.

Medical Equipment

The Omani market also offers good prospects for U.S. health care products. Having completed major regional hospital construction in the last five-year plan, Oman currently emphasizes upgrading facilities, including diagnostic abilities and operations theaters. The health authorities seek to rationalize services provided at principal hospitals while extending the rural clinic network. The current five-year plan contains 39 large health projects and 151 new rural clinics. Nearly 12 percent of the Omani government’s budgeted expenditure is in the health sector. Oman’s 2002 budget indicated that the Ministry of Health’s capital expenditure is estimated at $11.6 million for the establishment of many small-specialized hospitals and clinics in rural areas. In 2001 Omani imports of medical equipment from the U.S. exceeded $35 million. The FY03 budget indicates that the Omani government expenditure in this sector will be around $370 million.

The Omani national population is growing at around three percent annually, and the existing health system is overburdened and in need of expansion. The Government’s determination to provide its citizens with basic health care means that the demand for health care products and health-related expenditures will continue to grow. In 2002, the government shifted expatriate care to private hospitals and clinics. The Omani upper class market is attracted to the modern private services. The Ministry of Health has expressed interest in U.S. health care management information technologies as part of its efforts to standardize operations and establish interconnectivity among Oman’s 150 hospitals and regional clinics. Of Oman’s $175 million market in the medical equipment category, which includes visual and photographic equipment, the U.S. captured 15 percent in 2001 with exports valued at approximately $26 million.

Tourism

Oman continues to promote and develop its tourism potential. By 2020, the Government plans for tourism to contribute 5 percent to GDP— a 100-fold increase from the current level. It recruited a consortium of international consultants, including U.S. Parson’s and Ernst & Young, to design a development plan for the sector. The plan, finalized in late 2002, entails the construction of a number of tourism resorts and attractions. The government also announced a package of investment incentives for this purpose. More lodging facilities are in the planning stage – in addition to golf courses, theme parks and other attractions. This will require the construction of roads, hotels, recreation facilities, and, in some locales, desalination plants. Companies with expertise in designing and developing tourism infrastructure and companies experienced in tourism marketing should find business opportunities in Oman.

More tour groups are discovering Oman from Germany, Austria, and Scandinavia; however, the majority of Oman’s estimated “tourist” visitors are actually business travelers. The peak season for hotel occupancy in Muscat is October through March. With a potential tourist season that extends through the summer, local investors in Salalah are seeking foreign partners for hotel and vacation villa complexes. While the rest of Oman is very hot in the summer, the Dhofar coast from July through September attracts Gulf Arabs to its misty, monsoon-cooled days. In September 2001 the Omani government founded a tourism and hospitality college with Austrian collaboration.

Power and Telecommunications

Companies specializing in power plant construction, power generation equipment, and power plant operations and processes should find opportunities in Oman. With its growing population and need for expanded power generation, Oman has made privatization of future power projects a priority. The Tender Board has recently invited interested parties to indicate interest in participating in the 500MW power and desalination project for the new industrial area in Sohar. Furthermore, the Omani government is planning on selling its existing power generation units to the private sector. Many of Oman’s existing assets in the power and desalination sector are aging and new investors will be required to undertake upgrades.

In 1996, Oman became the first Arab country to turn exclusively to the private sector to build, own and operate (BOO), a major power project—the 90 MW plant in Manah. The Manah project has been a successful and profitable operation, and the plant was expanded to 270 MW in early 2000. Among the other BOO power projects recently negotiated is the $260 million 200 MW power project in Salalah. The project was awarded to a consortium led by the New Jersey-based energy company PSEG; the concession agreement was signed in early 2001 between the Omani government and the consortium. The tender for a 400 MW power and 3800 cubic meter desalination plant at Barka was awarded in November 2000 to Virgina-based AES Corporation, and officially opened for business in June 2003. The contract for a 200 MW power plant in the Sharqiya region was awarded in September 2000 to consortium led by U.K.- based National Power Company. Oman and the UAE are planning on unifying their power and desalination assets beginning at the border area. This project will require substantial investments from both countries.

The government is also moving ahead with a variety of telecommunications and rural electrification projects. Oman plans to make electricity and telephone service available in all but the smallest villages. In addition, Oman intends to upgrade telecommunications and broadcasting systems. American companies have had limited success in these areas. The government has announced plans to privatize Omantel (formerly known as the General Telecommunications Organization, or GTO) and selected Merrill Lynch as financial advisor on the planned privatization. As of 2003, the means and manner in which it intends to privatize Omantel were still under discussion; however, the government has stated it will maintain 70% control of the company. Omantel has contracted with Ericsson, Siemens and Motorola to expand GSM service in Muscat, Salalah, and the Batinah coast, respectively. GSM service continues to expand in outlying areas.

Education

Training programs and other educational services are also in demand and represent an opportunity for U.S. service providers. The demand for higher education leaves room for the establishment of U.S. branch universities along the lines of those in the U.A.E. The Modern College of Business and Science and Mazoon College are both affiliated with the University of Missouri system. Oman Medical College, a new private medical school associated with West Virginia University, commenced operations in September 2001. In 1999, the government announced that it would permit the establishment of private universities with up to 49 percent foreign investment. A private university in Sohar began operation in September 2001 and a two-year private college of administrative sciences in Muscat began offering B.Sc. degrees in September 2000. A private university is to be established in Nizwa and is scheduled to open its doors to students in 2004.

Consistent with “Omanization,” the present five-year plan places a high priority on education and vocational and technical training for Omanis. The government has adopted the British “General National Vocational Qualification” (GNVQ) scheme for vocational training, but it lacks the exacting standards necessary to develop the skills and experience that an apprentice system could offer. With the sole Omani university, Sultan Qaboos University, already substantially oversubscribed, and the government committed to Omanization policy, expanded vocational training is a necessity. One area of educational services in particular demand is information technology (IT) training; a number of leading Omani firms have expressed interest in partnering with U.S. private IT educational providers to establish IT institutes in Oman.

Franchises

A number of U.S. franchises are well established in Oman, particularly in the fast-food restaurant sector (McDonalds, KFC, Pizza Hut, Hardees, Subway, Chili’s and Starbucks). U.S. car rental franchises (Hertz, Budget, Avis, Thrifty and Pay-Less) are also popular. Omani businesspersons continue to express interest in U.S. franchise opportunities.

Water

Development and rapid population growth have impacted Oman’s water resources significantly. There is substantial demand in Oman for water conservation technology. Salinity of groundwater is a growing problem in coastal agricultural areas. Water tables are falling throughout the country. Companies that can provide equipment for small-scale irrigation should find a ready market among the large number of small farms in the country. Companies with expertise in sewage and wastewater treatment should also find opportunities.

Joint Venture Projects

The Omani government seeks foreign capital. It provides incentives to investors. It looks to the private sector to invest in tourism projects, higher education, agriculture, services, and light industry. It also welcomes foreign investment for the technical expertise it brings and the training it provides to Omanis. In accordance with Oman's accession to the WTO, certain changes were made to the foreign investment regime, in particular, relaxation of restrictions on majority foreign-owned investments and elimination of tax discrimination against majority foreign-owned companies in Oman.

The Government of the United States acknowledges the contribution that outward foreign direct investment makes to the U.S. economy. U.S. foreign direct investment is increasingly viewed as a complement or even a necessary component of trade. For example, roughly 60 percent of U.S. exports are sold by American firms that have operations abroad. Recognizing the benefits that U.S. outward investment brings to the U.S. economy, the government of the United States undertakes initiatives that support U.S. investors, such as Overseas Private Investment Corporation (OPIC) programs, Bilateral Investment Treaty negotiations and other business facilitation programs. Oman is also a designated beneficiary for the Generalized System of Preferences (GSP) program, which assists Oman in exporting selected products to the U.S. with preferential tariff treatment.