Occidental Petroleum 2006 Annual Report Download - page 17

Dolphin Energy is the operator under the DPSA on behalf of the three DPSA participants, including Occidental. Dolphin Energy also has the
rights to build, own and operate a 260-mile-long, 48-inch natural gas pipeline, which will transport dry natural gas from Qatar to the UAE.
The Dolphin Project is expected to cost approximately $4.8 billion in total, including investments in the local UAE eastern gas distribution
system and the Al Ain-Fujairah pipelines, which were added to improve the natural gas distribution system but were not contained in the original
scope of the Dolphin Project. Occidental expects to invest approximately $1.2 billion of this total. The project is being financed by a combination of
participant investment and project financing. During 2007, Occidental expects to spend a combined total of approximately $185 million for the gas
exploration and development activity and the investment in Dolphin Energy, compared to $361 million in 2006.
In 2003, the Government of Qatar approved the final field development plan for the Dolphin Project. Construction of an onshore gas processing
and compression plant at Ras Laffan in Qatar commenced in 2004 and is continuing. The pipeline is projected to start up with temporary third-
party gas volumes in the first quarter of 2007. The gas volumes produced under the Dolphin DPSA are expected to replace the temporary third-
party gas commencing with the start-up of the onshore gas plant in mid-2007.
Based on existing supply contracts, the Dolphin Project is expected to export approximately 2.0 billion cubic feet (Bcf) of natural gas per day
(plus associated liquids and byproducts). However, the pipeline is expected to have capacity to transport up to 3.2 Bcf of natural gas per day.
Demand for natural gas in the UAE and Oman continues to grow and Dolphin Energy’s customers have requested additional gas supplies. To help
fulfill this growing demand, Dolphin Energy will continue to pursue an agreement to secure an additional supply of gas from Qatar.
To date, Occidental has recorded 265 million BOE of proved oil and gas reserves for the Dolphin Project DPSA activity. Proved developed, non-
producing oil and gas reserves are 133 million BOE, with the rest included in proved undeveloped reserves. No revenue or production costs were
recorded in 2006 for the Dolphin Project gas exploration and development activity.
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In addition to the Dolphin Project, Occidental participates in two production projects in Qatar: Idd El Shargi North Dome (ISND) and Idd El
Shargi South Dome (ISSD). Occidental continues to target the development and recovery of additional reserves in both the ISND and ISSD fields
by applying advanced drilling systems and improved reservoir management techniques. Capital expenditures in Qatar for the ISSD and ISND
projects were $257 million in 2006.
Occidental’s net share of combined production from the two fields averaged 43,000 barrels per day in 2006.
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Occidental owns interests in four blocks in Yemen, including a 38-percent direct-working interest in the Masila fields, a 40.4-percent interest
in the East Shabwa field, comprising a 28.6-percent direct-working interest and an 11.8-percent equity interest in an unconsolidated entity, and a
75-percent interest in Block S-1, which was part of the Vintage acquisition. Average production was 30,000 barrels of oil per day in 2006, with
19,000 coming from Masila, 6,500 from East Shabwa and the remainder from Block S-1. In addition, Occidental owns and operates an 80-percent
working interest in Block 20 and is finalizing the PSC for Block 75, which was acquired in an exploration bid round.
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Occidental's Oman business includes Block 9 and Block 27, where it holds a 65-percent working interest in each, Block 53, where it holds a
45-percent working interest and Block 54, where it holds a 70-percent working interest. Occidental is the operator of all four blocks where
production averaged 23,000 BOE per day in 2006, with 19,000 BOE coming from Block 9, 3,000 BOE from Block 53 and the remainder from Block
27. The Block 9 agreement provides for two ten-year extensions and Occidental has agreed with the Government of Oman to the first ten-year
extension through December 7, 2015.
Occidental (and its Block 53 partners) signed a new PSC for the Mukhaizna field with the Government of Oman in 2005. In September 2005,
Occidental assumed operations of the Mukhaizna field, where it holds a 45-percent working interest. The Mukhaizna field, located in Oman’s
south central interior, was discovered in 1975 and was brought into production in 2000. Primary production peaked in the same year at 15,000
barrels of oil per day and by September 2005, had declined to 8,500 barrels of oil per day. By the end of 2006, Occidental had increased gross
production to 11,000 barrels of oil per day. Occidental plans to use horizontal well steamflood technology to steadily increase production.
In October 2005, Occidental received approval for development of the Khamilah field in Block 27. The exploitation term of the agreement is 30
years beginning in September 2005. Occidental began production in June 2006, well ahead of the planned start-up timing of October 2006.
Occidental (and its Block 54 partners) signed a new PSC for Block 54 with the Government of Oman in June 2006. The initial exploration
phase is four years beginning in July 2006.
In March 2004, Occidental began selling gas from Block 9 to the Government of Oman under a gas sales agreement. Under the agreement,
Occidental (and its Block 9 partner) must supply approximately 114 MMcf per day of natural gas until December 31, 2007. Occidental’s minimum
delivery obligation is approximately 89 percent of the expected average gross production. In 2006, Occidental (and its partner) supplied an average
of approximately 116 MMcf per day of natural gas under the agreement. As of December 31, 2006, the gross proved gas reserves from Block 9
comprise approximately 590 percent of the minimum gas still to be delivered under the agreement.
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Occidental suspended all activities in Libya in 1986 as a result of economic sanctions imposed by the United States government. During the
imposition of sanctions, Occidental derived no economic benefit from its Libyan interests. In 2004, the United States government lifted all of the
principal economic sanctions against Libya.
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