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* Plateau production of 1 bcf/day seen by 2018
* BP to hold 60 percent of project, spend around $9.6 bln
* Khazzan tight gas project vital for Oman growth
By Sami Aboudi and Daniel Fineren
MUSCAT/DUBAI, Dec 16 (Reuters) - BP will drill some300 wells to flush gas trapped deep under the Omani desert overthe next 15 years in a $16-billion project that Oman is relyingon to keep its economy growing.
The Khazzan tight gas project, which aims to extract aroundone billion cubic feet (bcf) per day of gas from sandstone atdepths of up to 4,500 metres in central Oman, is a showcase forBP's tight gas extraction technology.
Its success is vital for a country whose own gas exportshave been eaten away by its voracious appetite for energy.
"Today's signing is an important step in the Sultanate ofOman's plans to meet growing demand for energy over the comingdecades and to contribute to economic development in Oman," thecountry's oil and gas minister, Mohammed Al Rumhy, said in astatement after the signing in Muscat.
"The Khazzan project is the largest new upstream project inOman and a pioneering development in the region in unlockingtechnically challenging tight gas through technology."
BP will have a 60 percent operating stake in the project,which involves a 15-year programme of drilling into sandstonethousands of metres below the surface to extract gas usinghydraulic fracturing technology developed in the United States.
BP expects to invest around $9.60 billion over the fullfield development, in accordance with its 60 percent stake inthe $16 billion project, a BP spokesman said. State-owned OmanOil Company Exploration & Production (OOCEP) will have a 40percent stake. The $16 billion total investment estimateincludes around $1.5 billion already spent.
MONTHS OF HAGGLING
After months of haggling, Muscat agreed in mid-2013 on theprice at which BP could sell gas it can squeeze from deep underthe desert of central Oman.
Neither side would reveal the price they had agreed to makethe project worthwhile for BP, but BP Chief Executive Bob Dudleysaid the price was competitive within BP's global investmentportfolio.
"We are a company who have said that we will use a verydisciplined capital framework and for the rest of the decade wewill keep BP's capital investments between $24 and $27 billion ayear," Dudley told reporters.
"There are other projects that we have put aside but this isone that is big, it is important and it is a good partnership...It fits with our strategy as a company to develop largereservoirs."
Construction is expected to begin in 2014, with first gasexpected in late 2017 and plateau production of around 1 bcf, or28.3 million cubic metres, per day expected in 2018.
This would be enough to meet around a third of the country'scurrent domestic gas needs. But Omani energy demand is risingrapidly and Muscat also hopes to import Iranian gas in a 25-yeardeal signed in August.
"The country needs the gas to develop its economy," Al Ruhmytold journalists. "Our needs for gas increase day by day."
BP expects to develop around 7 trillion cubic feet (tcf) ofgas in the Khazzan project, and to pump around 25,000 barrelsper day (bpd) of gas condensate, a light oil, helping ensure agood rate of return from the investment.
The 30-year production sharing and gas sales agreements alsoallow BP to appraise more gas resources in Oman's Block 61,which it expects to develop in later phases.
The Omani government will take 55 percent of the gas salesrevenues, while the rest will be split between the projectpartners, with 60 percent for BP and 40 percent for (OOCEP)after deducting costs, the minister told the news conference.
BP shares rose from close on Friday at 465.55 penceto around 470.35 pence at 1430 GMT on Monday.
LOW PRICES
Rock-bottom, government-set gas prices prevalent in theMiddle East have discouraged investments in projects needed tomeet rapidly rising demand for gas across the region, makingmany countries rely increasingly on imports or watch rampantdomestic demand eat into their gas exports.
In a rare Middle East move to cut huge fuel subsidy bills,Oman plans to double natural gas prices for some industrialconsumers from $1.5/mmbtu in 2012 to $3/mmbtu in 2015.
Oman currently exports gas from liquefied natural gas (LNG)plants that were planned before the small non-OPEC oil producerwas forced to revise down its gas reserves.
Oman's gas appetite has already taken a bite out of its LNGexports and analysts say the success of Khazzan will be vitalfor the country to keep exporting over the next decade.
BP said it had also signed a non-binding memorandum ofunderstanding with state-run and Oman Oil Company to develop aone million tonne per year acetic acid plant in Duqm, on theArabian Sea coast of Oman.
