Mazoon is owned by Mr. Al-Barwani and his family members, who own various companies engaged in trading, oilfield services, exploration and production, and copper and gold mining. These various companies are expected to be consolidated under a single holding company – for the present they are referred to as the MB Group (the group). Mazoon and its sister company, Petrogas LLC (Petrogas), are the only two private local companies operating in Oman’s exploration and production (E&P) sector. Mr. Al-Barwani established MB Trading in 1982, which represented a number of international oilfield product and service companies. Eventually, MB Trading developed its own services capabilities and was renamed MB Petroleum Services LLC (MBPS) in 1986, to reflect the wider scope of services provided by the company. It is the flagship company of the group, and provides oilfield services to E&P companies operating in the Middle East, Eastern Europe and East Asia. The company currently has operations in Saudi Arabia, Qatar, Yemen, Syria, China, Hungary and Germany. Services include: (i) drilling; (ii) workover and well servicing; (iii) well testing and production services; (iv) wireline and completions; (v) cementing and stimulation; (vi) drilling fluids engineering; (vii) mud logging services; and (viii) consultancy services. The group has two E&P companies, Mazoon and Petrogas. Petrogas was established in 1999 to acquire the production rights governing Block-7 in central Oman from Elf and produces roughly 2,200 bopd. The group’s second E&P investment was Mazoon, which they established in 2001 to acquire the production rights governing Block-5 in northwest Oman.

The total project cost is estimated at US$165.5 million. The proposed IFC investment is an A Loan of up to US$40 million.

40.0 million (USD)

Product Line	IFC Investment (million USD)
Risk Management
Guarantee
Loan	40.0
Equity

* These investment figures are indicative

Mazoon conducts its operations 450 kilometers southwest of Muscat in the Upper Shuaiba formation. The project is located in a remote and arid area where it is unlikely to impact communities or other types of livelihood.

In July 2004, IFC presented a Background Note to the Board, outlining IFC’s proposed strategy of selective advisory and investment programs in countries of the Cooperation Council for the Arab States of the Gulf (GCC), which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates. The Note recognized the challenges confronting the GCC countries, including the expected doubling of the native workforce by 2020 and the continued dominance of the public sector over economic activity. To help the GCC countries in confronting these challenges, the Note suggested three areas for assistance: (i) providing employment opportunities to their growing populations; (ii) developing the private sector in sectors which the public sector is dominant; and (iii) working with private sector companies from the GCC region to expand into new markets, in the context of South-to-South investments. The key developmental impacts of the proposed Project are in line with the Note. First, it will support a private company operating in a sector dominated by the Government of the Sultanate of Oman (GOO), which in turn is expected to increase private employment in a country where over 60% of all Omanis work in the public sector. The GOO has recognized that they no longer can act as the employer of first resort, therefore increasing employment opportunities in the private sector will alleviate pressures with regard to unemployment. This Project will increase employment opportunities to Omanis and also lead to the transfer of skills. Second, the Project will help the country maximize the use of its natural resources by increasing the recovery rate of crude oil from 9% to 40% of the original oil in place in Block-5. This will also lead to higher transportation and crude oil revenues accruing to the GOO. IFC estimates that the incremental fiscal benefits to the GOO over the life of the Project could be over $373 million, depending on crude oil prices and ultimate crude oil recovery. In this respect, the majority of incremental Project benefits will accrue to the GOO. Finally, Mazoon produces about 15 to 18 mmcfd of associated gas, which is currently flared. The amount of gas is expected to increase along with the proposed increase in crude oil production. IFC has discussed options with the Company to reduce and ultimately stop all flaring by setting up an LPG plant for processing of the gas. As a result, not only will the gas be captured and reduce GHG emissions, it is also expected to provide additional value to the Company and the GOO. IFC has several important roles to play in this Project. First, IFC participation will support the GOO’s efforts to expand private participation in the oil and gas sector, especially as the GOO tries to encourage the participation of local private players in the exploration and production of oil and gas in unallocated and relinquished production blocks throughout the country. Given that Mazoon and its sister company are the only privately-owned companies operating in Oman’s E&P sector, IFC hopes that the success of these companies will encourage other private companies to enter into this sector. Second, IFC’s participation will support the development of a small locally-owned Omani company, keen to grow and expand outside its home country and promote South-to-South investments. Assistance with E&P acquisition assets in other developing countries is one of the key reasons the MB Group has partnered with IFC. IFC has already put the Project Sponsor in touch with local companies in India and Tunisia. Third, IFC will provide long-term debt of seven years, compared to the current commercially available tenor of four years. The Borrower has stated to IFC that international banks have shied away from extending long-term financing at reasonable rates to small local private players in the region following the events of September 11th. IFC’s participation with a longer maturity will afford the Project with greater flexibility. IFC plans to monitor the developmental impact of employment, the participation of Omani companies as per Mazoon’s Local Community Contractors initiative – whereby local Omani companies are provided the opportunity to bid on service contracts, the Project’s compliance with all applicable environmental and social requirements, the amount of crude oil production shared with the GOO, the Project’s oil/gas production profile and the Operator’s progress towards the reduction/elimination of gas flaring. The GOO’s relationship with the World Bank is based around a Technical Cooperation Program under which the World Bank provides advice on macro-economic and sectoral policies. The GOO has requested that the outcome of its Article IV Consultation with the IMF be made public. In its last Consultation published in October 2003, the Executive Directors of the Fund noted that the country’s strong macro-economic performance over the past few years was due to higher oil prices coupled with sound policies. The Executive Directors commended the authorities for improving data quality, transparency and dissemination, and encouraged the publication of further data on government accounts including the State General Reserve Fund (SGRF), the Oil Fund and in other areas. The SGRF was established by the GOO in 1980 and plays a key role in evening out budget flows and providing income for future generations. According to the Sixth Five Year Plan (2001-2005), crude oil revenues in excess of US$18/bbl are expected to be deposited into the SGRF. Furthermore, revenues from hydrocarbons and the annual budget are disclosed by the Central Bank of Oman and the Ministry of Finance on their respective websites.

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of projects, because a limited number of specific environmental and/or social impacts may result which, can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.
Location of environmental documents in locally affected community
Project Site Address Daleel Petroleum LLC Block-5 Dhayra Region (near Ibri City) Sultanate of Oman  Telephone Number +968 635 320 or +968 635 321   Office of the Wally of Ibri Ibri-Tanam Road Ibri Town Center (near Oman Arab Bank) PO Box 6, PC 511 Sultanate of Oman  Telephone Number +968 492 100