The government of the Sultanate of Oman and British oil and gas major BP have agreed on a deal to develop a pioneering gas project in the country.

The parties signed a gas sales agreement and an amended production sharing agreement for the development of the Khazzan field, which will be operated by BP.

The project involves the development of about 300 wells over 15 years that are expected to produce one billion cubic feet of gas per day and 25,000 barrels per day of gas condensate at peak levels. The volume represents one third of Oman's total daily domestic gas supply.

The development has an expected cost of about $16bn (£9.8bn, €11.6bn).

"Today's signing is an important step in the Sultanate of Oman's plans to meet growing demand for energy over the coming decades and to contribute to economic development in Oman," Dr. Mohammed Al Rumhy, minister of oil and gas of the Sultanate of Oman, said in a statement.

"The Khazzan project is the largest new upstream project in Oman and a pioneering development in the region in unlocking technically challenging tight gas through technology."

Construction work for the project is slated to begin in 2014 with first gas expected in late 2017. The first phase of the project is projected to develop around 7 trillion cubic feet of gas with production expected to peak in 2018.

Unconventional Gas Field

The Khazzan field is one of the Middle East region's largest unconventional tight gas accumulations. Extraction of natural resources from such fields is generally very difficult.

The field has unconventional gas distributed across several reservoirs, with estimates of total gas in place of up to 100 trillion cubic feet.

The project has the potential to be major source of gas supply for Oman over many decades, and will benefit the economy through additional revenues and employment. Over 70% of BP's staff in Oman are Omani nationals.

"As well as providing additional energy supply for Oman, the Khazzan project will generate wider direct benefit with the development of Omani employees and delivering in country value through the development of the local supply chain," Al Rumhy added.

BP Experience

"This enables BP to bring to Oman the experience it has built up in tight gas production over many decades," Bob Dudley, BP Group CEO, said.

The project also provides for the additional appraisal of further gas resources within the block to the oil and gas major.

In the project BP will work with the state-owned Oman Oil Company Exploration & Production that would take up a 40% stake in the gas field.