30 May Interview with Steve Phimister, Managing Director, Petroleum Development Oman
Image by www.pdo.co.om
What kind of contributions is Oman’s hydrocarbons industry making towards developing the country’s economy?
The oil and gas industry as a revenue and employment generator constitutes an outstanding contribution to the budget deficit. The latest data suggests that the oil and gas industry represents approximately 80% of the country’s revenues and more than 35% of the country’s gross domestic product. However, an economy that is dependent on hydrocarbons also implies a certain level of vulnerability, particularly given changes going on in the world. Economic diversification in terms of revenues and social welfare are currently pegged to whatever is happening in the energy industry, including the current energy crisis. Given that PDO is the principal owner and operator of oil infrastructure in Oman, we must remain committed to sustaining the current energy system, growing our economy and maintaining revenue and cash flow in this rapidly evolving context. The oil and gas industry is an integral part of the late Sultan Qaboos’ Vision 2040 strategy to diversify the economy. Around 80-90% of the revenue stream to finance the entire initiative comes from oil and gas. We are now growing our energy system by increasing sustainability in the oil and gas industry, addressing our existing emissions and investing in new technologies to utilize new forms of energy.
What is PDO doing to meet its goal to have net-zero carbon emissions by 2050?
We developed a new strategy for PDO, which is to build a sustainable and low-carbon future and maximize value for Oman. PDO was at the forefront of the country’s net-zero 2050 strategy as we began the journey a few years ago. While we have the same agenda and objective, we also have new term targets that the country does not yet have, such as halving our emissions by 2030 based on our 2019 baseline. It is important to set medium-term targets so that shareholders will invest in the short term. We are looking at adding about 15-20% to our production base while halving our emissions. This is a challenging target, but it is a means to an end. Ultimately, we still need to remain cost competitive. This strategy has several pillars, which relate to cost competitiveness and carbon competitiveness, which ultimately both come together.
We are also a signatory in a methane emissions reduction partnership and have already achieved our target. We are now improving and reducing it through a leak detection and repair program that utilizes satellites combined with drone technology with ground-level infrared capabilities. If small methane leaks are found, they are fixed immediately by teams roaming our assets. We are currently signing up with a methane group called Aiming for Net Zero along with significant independent oil companies and operators such as Saudi Aramco. Flaring and methane reduction and power generation are at the heart of our emissions reduction program. We have an entire range of emission embankment projects, with around 150 ongoing, primarily related to energy efficiency and reducing power demand. We are also involved in nature-based offsetting, such as reforestation and mangrove plantations. We generate all our power; we have significant power assets that must be run and maintained efficiently. Currently more than 60% of PDO’s emissions come from power generation. Burning natural gas to generate power is a starting point in reducing emissions. We are moving from gas-fired power generation to renewables such as solar and wind. Today, about 10% of PDO’s power generation comes from renewable sources, including the 100-megawatt Amin dedicated solar park.
We have set clear goals to grow our business sustainably while diversifying revenue into new low-carbon streams. Ultimately, this is what is happening globally, in the GCC region and at the national level. We are also moving into the pilot phase of carbon capture and storage and have a memorandum of understanding with Shell to develop blue hydrogen opportunities in Oman. Low carbon fuels, renewable power and new energy investments are important, not only for domestic usage but for international export. The same capacities in the oil and gas sector can be used for new low-carbon fuels bound for Asia and Europe. While the country needs to evolve its revenue streams, one cannot throw the switch on an energy system overnight. We must develop it intelligently and transition, which is playing out rapidly.
How is PDO positioning its water treatment assets to further its environmental and green energy goals?
Water is critical for the region. When you produce oil and gas you often produce water; for every barrel of oil, we have about nine barrels of water. This water needs to be used or treated. The majority is reinjected to help produce more oil and gas. In the past, we did deep water disposal kilometers below the ground, but this is very energy intensive. We are eliminating that by treating water on the surface and using it for other purposes. We now have two water treatment plants in Nimr and Rima, one being a reed treatment system and the other a catalytic process. We process water on the surface and remove any organic material. The reed beds consume the organic material in the oil, and we clean up the water. Not only do we have clean water at the end of the process, but it also sets up a bit of a microclimate. It is an enormous area in the desert where many migrating birds flock. There are a lot of fish, birds and wildlife because it is a wetland in the middle of the desert. It is extraordinary. We are doing more and more of these water treatment projects and are researching saline agriculture because the produced water is a little saltier than ordinary water. We can either treat it and remove salt and minerals or use it for agriculture purposes with specific types of plants. We are currently doing a lot of research and piloting work in this segment. We are also looking at whether we can use the water we produce for generating green hydrogen. While Oman has an enormous green hydrogen objective, we are scarce on water.
How would you assess the current level of digitization in Oman’s oil and gas industry?
Most digital technology is fairly standard bread and butter nowadays, such as workers in the field with safe iPads that interact with the office and cameras on their helmets. We need to ask whether our level of adoption is disruptive enough given the pace at which digital technologies are evolving. Although we have been embracing digital technologies quite significantly, I would say we are not yet disruptive enough. We are currently going through a complete refresh of our digital strategy and modifying large parts of our operating model, systems, processes, people and organization. Presently, we are very active in certain digital technologies. We use robotics in various things such as cleaning challenging parts of hydrocarbons facilities, which is now done more safely and more efficiently. We use fully automated robotics for cleaning our solar panels and several key instruments. We also utilize 3D printing and plastics for components. We have a relationship with a small Omani outfit to do 3D concrete printing, which we use in our operations.
We also have an extensive program using artificial intelligence to monitor our production facilities. For example, gas compressors are notoriously fickle and can stop working and cause all kinds of problems in terms of production. We have programmed these units with a standard operating process, which tells us when it is going to have an issue and urges intervention. We use artificial intelligence and proactive machine learning to prevent production outages and ultimately the loss of revenue caused by repairs. We also have a large data set and a lot of cloud-based computing processes. We use artificial intelligence in sifting through our data. We are now working towards building an integrated operation center, which will give us remote operation of our entire oil and gas production system in Oman. This will allow us to monitor production from each well and each facility in real time to optimize rates. Quite often with digital technologies we create a tool and then look for issues to solve. We are going at it from the other end. We want to know how data and digital tools can be used effectively to tune our existing business processes and challenges. The key is bringing digital tools such as virtual reality and digital twins together into something coherent; we are currently defining how exactly these different parts fit together.
How has PDO’s In-Country Value (ICV) initiative shaped the government’s current focus on local content, entrepreneurship and upskilling, and how is the company continuing to transform its in-house program?
ICV or local content is well developed in Oman at the national level, particularly in our sector. PDO kicked it off ten years ago. The company spends around $6 billion per year, with around 40% devoted to local content. We are looking to increase this rate by 2-3% year-on-year. We have already made significant local contributions. Our ICV program is based around the four following pillars: goods and services, jobs and Omanization, social investment and supply chain development. We try to develop a supply chain of small to medium-sized enterprises through what are called local contractor companies and super local contractor companies. We invest in facilities and manufacturing capabilities. We have set up over 18 new manufacturing facilities across Oman that support the oil and gas industry. We have also created thousands of jobs within the supply chain. Our ICV initiative has been moved up to the national level and is now being driven through all sectors of Oman’s economy. We are working to redefine what the focus on local content will look like within the energy transition. Around 40-50% of our ICV opportunities over the next five years are in new energies and the energy transition, with the other half being in oil and gas. Economic diversification follows our net-zero 2050 agenda. Oman has a large stock of entrepreneurs. We are working with local entrepreneurs trained and educated in Oman who have set up businesses in drones and 3D printing. Several are now diversifying into the GCC and winning tenders in Saudi Arabia and the UAE. There are quite a few new faces helping us with our current digital transformation strategy, particularly in digital technologies and telecommunications.
What areas is PDO concentrating on with its corporate social responsibility (CSR) initiatives?
PDO spends around $10 million to $15 million a year on CSR projects. Last year we spent about $12.5 million. This is spent mainly on capital projects, but also operating costs projects. We work in close collaboration with all communities across Oman. We sit down and listen to what people need and invest in infrastructure to support these needs. We partner at the government level to understand the needs of each ministry’s agendas. We then go to local communities and work out what they require. We invest in health, labor skills, education and social facilities. Communities require support for communal activities such as schools, roads and safety. We also invest heavily in arts and youth activities, including Outward Bound. We invest in socioeconomic issues; in certain parts of Oman we invest in facilities to support struggling communities under a broad program that we will sustain. The oil and gas industry also has a social investment program that is owned and run by the Ministry of Energy and Minerals. We not only spend $10 million to $15 million as PDO but also contribute another $4 million or $5 million a year towards this program as do all operators.
What attractive investment opportunities are we seeing in Oman that US investors might be interested in?
Considering sectoral priorities under the Vision 2040 initiative and our 2050 net-zero target, the majority of sectors have investment opportunities, whether it is in energy, transportation, housing or commercial sectors. Cultural heritage and tourism require a financial boost. Additionally, updating fisheries and the agriculture sector for food security is required. Saudi Arabia and the UAE are ahead of Oman in terms of digital technologies. Data centers are in Bahrain and the UAE, but not here; we have yet to attract investment of that scale within this segment. There are also significant investment opportunities in our core oil and gas operations, which are still growing. PDO is increasing production by 15-20% in the next seven or eight years. There are considerable opportunities in emissions reduction technologies and new energies, such as low-carbon fuels, hydrogen, ammonia, renewables and carbon capture, utilization and storage facilities. There is a 4-5% annual growth rate in decarbonization technologies, which will reach $10 trillion per year before we know it.
What are your current top three priorities as Managing Director of PDO?
My top priority is safety and workers’ welfare. In 2022 I instigated a refresh safety plan within PDO, and we are making giant strides. Operations must be underpinned by safety, health, and environmental mandates and ethical compliance. Zero tolerance for breaches of ethics and compliance is a business value for us. Our operations are becoming safer, but we are still nowhere near where we need to be. We have a large expatriate community; PDO employees are 90% Omanis and 10% expats. The welfare of all employees is a priority for me. Nobody should get hurt while working for PDO. My second priority is the implementation of our new purpose, which includes decarbonization and diversification of our value streams while growing our core gas business. Without our contributions, the probability of the Vision 2040 initiative and us reaching our net-zero target go down significantly; the energy and the oil and gas sectors are crucial.
My third priority is talent. PDO has a tradition of being a development ground for future country leaders, with many of the country’s leaders having past employment and experience with PDO. I expect this will remain to a large extent. We pride ourselves on developing leadership skills and training people. We run a slightly different training model. Our leadership training is 70% on the job, 20% through coaching and mentoring and 10% through formal training. Our programs are designed with a focus on the talent pipeline. There is a training program for graduates who do not have university degrees to develop skills in technical trades. Our frontline supervisors are also trained in leadership. This falls under our ICV initiative and is in continuous improvement. We have just created a broad development program in upskilling information technology capabilities with a focus on the energy transition.