Analytical Hierarchy Process to Determine Minimum Attractive Rate of Return for Exploration and Production Projects in Oman


By Saaed Al-Shehhi

Sultanate of Oman



In Oman, the oil and gas regulator is the Ministry of Oil and Gas (MOG) and all concessions are awarded by this entity. MOG has completed several projects in collaboration with various government sectors and they also oversee all oil and gas Exploration and Production (E&P) activities. E&P is conducted by companies that are either national or overseas corporations.

Economic evaluation of E&P projects is based on single hurdle rate which actually represent project’s Minimum Attractive Rate of Return (MARR) which should include risks related to the opportunities.

The purpose of this paper is to find whether single hurdle rate is appropriate to evaluate investor’s project economic evaluation and to find out appropriate range of MARR.

In this paper, Analytical Hierarchy Process (AHP) is used to find out range of project risks, that cover activity type, location, reservoir type and drilling type, which is then plugged into the MARR equation. The paper concludes that a range of 11 to 15% covers most cases and, therefore, single interest rate is inappropriate.

1.            Introduction

1.1 Oil and Gas Reserves and E&P Companies

Total oil and condensate reserves in the Sultanate of Oman is estimated to be 5151 million barrels by the end of 2013, the year that saw 3.5% augment in reserves, compared with 4197 million barrels in 2012. Production also increased by 2.5%, from 918.5 to 941.9 thousand barrels per day (bpd).

Gas reserves in Oman increased by a whopping 39.8%, from 17.82 trillion cubic feet (tcf) in 2012 to 24.91 tcf in 2013. Main attribution to this increased in new agreement signed, on December 16, 2013, between MOG and BP Oman to develop the Khazzan field in Concession Block No.61. During the next 15 years, BP will drill 300 wells to increase its net production to 1 billion cubic feet of gas per day and 25 thousand barrels of condensate per day, at an estimated cost of 16 billion US Dollars.

Over 2012, the Sultanate’s gas production amounted to 101.8 million cubic meters per day, a growth of 3.6%. Majority of gas produced, more than 77%, is non-associated gas. Figure1 shows estimated gas reserves by companies. 


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About the Author 

pmwj26-sep2014-Al-Shehhi-AUTHORSaaed Ali Mohammed Al-Shehhi flag-muscat-oman

Musandam, Sultanate of Oman

Saaed Al-Shehhi is currently working as a Process Engineer in Oman Oil Company Exploration & Production (OOCEP). He previously worked with Oman Gas Company (OGC) as a Process/Concept Engineer. He has a total of four 4 years experience in oil and gas projects from concept stage and feasibility analysis to commissioning. Main Projects were Muscat Gas Network Concept and Feasibility, Gas Supply Stations Feasibility and Engineering. and Musandam Gas Plant Project. Saaed holds a B.Sc. in Chemical and Process Engineering from Sultan Qaboos University, Muscat. He can be contacted at [email protected].