Oman Gas Company S.A.O.C. · PDF file4 Oman Gas Company S.A.O.C. Dear All, I say all as I...

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Oman Gas Company S.A.O.C.

Annual Report 2006

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Chairman's Message ............................................ 4 CEO's Message ........................................................ 5 Board of Directors .................................................. 6 Oman Gas Company ...............................................7 Vision Mission Abous Us ..................................................................... 9 Company Profile Milestones Performance Highlights ...................................11 Operations Projects Pipeline Integrity Information Technology Human Resources Omanisation Organization Social Responsibility Quality & HSE Financial Performance .................................... 17 Future Outlook ....................................................... 19 The Financial Statements ................................. 20

Contents

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Dear All,

I say all as I believe that the whole country and every citizen is a stakeholder and owner of Oman Gas Company (OGC).

Our watchwords at OGC have always been realism and balance, truth and responsibility to the shareholders and our growth strategy for OGC reflects this practical approach to management and our attitude towards challenges.

The past few years have seen the company achieve considerable success. In 2006, the company has executed many prestigious projects. However, the main highlight is the change from a pipeline company to a fully integrated gas company, a vertical move that represents the threshold of opportunity.

The coming five years are likely to witness a great change in OGC’s business as it focuses on greater vertical integration of its operations. OGC is turning now 90 degrees to the right from a transportation company to a Gas company and shifting into taking the custodianship of gas energy in Oman.

In the next 5 years, the Company intends to do much more subsurface work. Explore-Develop-Market-Transport is the new target. The aim is to manage the gas as a resource on a country wide scale, implementing strategies to meet the demand in terms of volume as well as quality. Exploration would be a prime focus as it is the heart of the whole business. Another focus would be to bring gas from outside particularly through the Dolphin project as we need more gas and the private sector depends on us supplying them with gas - not just mega projects but also small users. We cannot fail to meet their requirements as reliability is the key to sustained investment and development.

Responsible for developing and supplying gas to the country, OGC is going to go through a revolution in the times ahead and we are still learning – primarily because energy in general is a complex equation that changes all the time and utilization and value addition fluctuates as international prices of products change. While, pricing is a little complex but overall I think international gas prices will continue to rise in tandem with oil prices as growing environmental concerns will make gas a more premium source of energy and feedstock.

Hence, the decision to enlarge the scope of OGC responsibility is excellent and the idea of cautious development is not bad as this is a complex business and it is partly privatized in the downstream sector, so there are greater challenges to be overcome. The biggest challenge is of building OGC to that level where it can manage the supply, demand, quality, safety, development and delivery of gas.

In the Oil & Gas sector more than in many other industry, success and failure often depends on people. In the coming years, clear headed management and teamwork are the key success factors in realizing the vision of making OGC into the premier integrated gas company of the Sultanate.

I thank the Board of Directors, the Management of OGC and every employee of OGC for their unflinching dedication towards the OGC Mission and I hope that this same team effort will continue to lead us through the changeful times ahead. I specially thank His Majesty, for the inspiration that makes us all give our best towards building the Oman of our dreams.

Mohammed Bin Hamed Al RumhyMinister of Oil & GasChairman - OGC Board of Directors

Chairman’s Message

Annual Report 2006

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Greetings,

Over the past year, Oman Gas Company (OGC) has moved forward successfully in the operation of gas distribution facilities. With 7 billion cubic meters of gas delivered during 2006 involving no accidents or integrity problems, this is an excellent achievement of which OGC is very proud.

The company continued to focus on growth and has managed to transform the expansion of the gas system from just concepts into successful projects. With the pipelines reaching their full capacity, OGC is moving into the second phase of development which requires compression to deliver high gas volumes to the different sectors across the Sultanate. However, this progress is not without major challenges including a busy and volatile construction market in Oman and abroad resulting in longer tendering periods and higher project costs, leading to tight project execution schedules.

OGC has been very successful in realising savings across the different departments of the organisation by executing things differently. We are confident that by the end of 2007, the actual savings will go over $1 million which includes the savings already achieved during 2006. This is in addition to the $6 million savings which will be made between 2006 and 2012 as a result of the successful re-finance of OGC’s loan. The new organisation structure which will be implemented in early 2007, the new simplified budgeting system, the plan to improve Finance, Contract, Projects and Human Resources and Information Technology management systems, the competency review and resulting training and development plan will all streamline the performance of the company within the next few years.

While the company has met its 2006 Omanisation target of 85%, the challenge facing us is the increased business competition resulting from the boom in the oil and gas and other industrial sectors in Oman, which is presenting a challenge for the company to retain its talented staff.

Finally, the Government has mandated OGC to take more responsibilities in the management of the gas system across the Sultanate. This is an area the OGC management will put more emphasis on in 2007 and will be seeking to come up with the optimum plans and start implementing them. As this requires specialised resources in the areas of strategic and development planning, the Company must strive to attract talented candidates for this important business segment.

My sincere thanks goes to His Majesty’s Government, and others who have been very supportive to us in meeting our mission and striving to reach our vision.

Yousuf Bin Mohammed Al OjailiChief Executive Officer

Greetings,

Over the past year, Oman Gas Company (OGC) has moved forward successfully in the operation of gas distribution facilities. With 7 billion cubic meters of gas delivered during 2006 involving

of which OGC is very proud.

The company continued to focus on growth and has managed to transform the expansion of the gas system from just concepts into successful projects. With the pipelines reaching their full capacity, OGC is moving into the second phase of development which

sectors across the Sultanate. However, this progress is not without

CEO’s Message

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Naser Bin Said Al- BalushiDirector of Facilities Engineering

Ministry of Oil & GasBoard Member

Saleh Bin Ali Al-HarthyActing Director of Gas Revenues

Ministry of FinanceBoard Member

Awattif Bint Mohd. Al HakmaniDirector General of Investigation

& Assessment, Ministry of FinanceBoard Member

Khalifa Bin Mubarak Al-HinaiTechnical Advisor to

H.E. Minister of Oil & GasBoard Member

Board of Directors

H.E. Dr. Mohammed Bin Hamad Al RumhyMinister of Oil and Gas

Chairman

H.E. Nasser Bin Khamis Al JashmiUnder Secretary, Ministry of Oil & Gas

Board Member

H.E. Darwish Bin Ismail Al-BalushiSecretary GeneralMinistry of Finance

Board Member

H.E. Mohammed Bin Nasser Al-KhasibiSecretary General

Ministry of National EconomyVice Chairman

Annual Report 2006

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Management MembersFrom left to right: Ali Nasser Al Rasbi - Projects & Planning Manager; Abdulaziz Al Mujaibi - Operation &

Maintenence Manager; Suleiman Shambe Al Balushi - Deputy CEO; Yousuf Mohammed Al Ojaili - CEO; Said Rashid Al Asmi – Technical Director; Ahmed Mohammed Ali Taqi - Finance & Contracts Manager; Nasser

Mohammed Al Kindi - Human Resource & Training Manager.

Oman Gas Company

Mission

Our Mission is to contribute to the country’s economic progress, by providing reliable and efficient management of the operation

technology.

Vision

Our Vision is to become a World class hydrocarbon infrasructure operator by building a value adding and safe business, manned

by highly motivated and competent Omanis.

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Annual Report 2006

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Starting out as a gas distribution company in 2000, Oman Gas Company has now set its sights on becoming a complete, integrated gas company in the Sultanate. OGC’s mission statement is a reflection of its vision for growth and its commitment to delivering value.

Company Profile

Established as a closed joint stock company in August 2000, the shareholders of Oman Gas Company are the Ministry of Oil & Gas (80%) and Oman Oil Company (20%). Royal Decree no. 78/2000 granted the company concession rights for 27 years to own, construct, maintain and operate gas pipelines in the Sultanate of Oman.

OGC started out as the major gas transportation company in Oman delivering natural gas to power generation plants, water desalination plants, several industrial estates and industries. It is currently exporting gas to UAE’s Dolphin Energy Limited through its 24”, 45 km pipeline but in future this same line would be used to import gas to cater to the gas demand in the country. The company is also engaged in construction of high pressure transmission pipelines.

Currently, OGC gas transportation facilities extend between Fahud, Muscat and Sohar in the north and from Saih-Rawl in the center of Oman to Salalah in the south of the country. OGC facilities comprise of about 2000 Kilometers of transmission pipelines and ancillary facilities. In 2006 OGC delivered nearly 7 Billion cubic metre of natural gas to its customers.

In the short span of seven years since its inception, OGC has undergone a rigorous metamorphosis. It is slowly changing from a gas distribution company into an integrated enterprise at the forefront of harnessing the power of Oman’s natural gas reserves.

The coming five years are likely to witness a great change in OGC’s business as it focuses on greater vertical integration of its operations and strives to become a fully integrated energy company.

Currently, employing about 144 people, the company’s tremendous growth phase in the coming years will ensure that this number increases substantially. The company proudly boasts of an Omanisation rate of 85% and expects to better its own record.

As a young company facing many challenges and opportunities, OGC is guided by its corporate values in charting its roadmap for success. Oman Gas Company’s policies and management are committed to furthering the company’s success.

About Us

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Milestones

OGC has achieved several important milestones in the last seven years of its existence.

August 2006 Refinancing completed successfully.

August 2005 First Gas to customer in Sohar Industrial Port Area (Sohar Refinery)

January 2005 Successful takeover from Canadian Energy Services to perform Operations and Maintenance works inhouse, 2 years ahead of scheduled takeover.

May 2004 Construction commences on the Sohar Pressure Reduction Terminal with 5 streams which will increase OGC’s gas deliveries to almost double of its current deliveries.

January 2004 First Gas Export made by OGC to UAE, the first ever between two GCC countries.

January 2004 OGC moves operations to its Head Office Building and 5 Regional Offices.

September 2003 State of the art SCADA System is operational from Control Center located in OGC Head Office Building. Salalah Pressure Reduction Terminal (PRT) added to the OGC facilities.

December 2002 Barka Pressure Reduction Terminal (PRT) added to the OGC facilities.

August 2002 Completion of laying of 1000 kms of new pipelines augmenting the Gas Transportation Facilities (GTF) pipeline length by almost 100%

January 2002 Successful takeover of Operation & Maintenance of GTF from PDO.

August 2000 Loans were successfully secured to finance the new pipelines projects.

August 2000 OGC was set up through a Royal Decree with the transfer of assets of 1000 kms pipelines and associated terminals from PDO.

Annual Report 2006

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8

7

6

5

4

3

2

1

0

22

18

14

10

6

2

22000 2001 2002 2003 2004 2005 2006

Total for the Year

Daily Average

Avera

ge D

aily E

xport

Milli

on Sm

3 /day

Expo

rts Pe

r Yea

r - B

illion

Cub

ic Me

ter (B

CM)

Operations

The company has successfully continued its operations for the sixth year since taking over this responsibility from Petroleum Development Oman. While operations continued smoothly in most of the company gas supply stations located next to customers, there were three unplanned shutdowns which resulted in total 3.8 hours of gas interruptions to customers across the Sultanate, thus giving gas availability of 99.998%. Although the availability result is considered an excellent achievement, the areas seeing these shutdowns remain a concern for the company and solutions to address these problem areas were put in place. As more large industries will be commissioned in Sohar area, gas availability in Sohar must be at 100%, a challenging target which needs a focused operational and maintenance effort.

In 2006, OGC transported 7 Billion Cubic Meters (BCM) of gas to the different sectors as per the chart below. This represents an increase of 16% compared to 2005. The average quantity of gas transported reached 19.4 million cubic meters per day while a first time maximum of 25.2 million cubic meters of gas was transported on 26/6/2006. Gas supply to Dolphin Energy in the United Arab Emirates continued for the third year. The chart below shows the split of total gas consumed by the different sectors. The industry sector has consumed 80% more gas over 2005 due to the commissioning of Sohar Refinery.

2006 TOTAL DELIVERY PER CATEGORY

The chart below summarises the total gas transported through OGC network since the company was established in 2000. The average growth of gas consumption from 2000-2006 was 12.8% with the power sector showing a significant growth of 12.5% in 2006.

Performance Highlights

Power & Desalination Plants

Export to UAE

Industries

PDO

Ministry of Defense

The chart below summarises the total gas transported through OGC network since the company was established in 2000. The average growth of gas consumption from 2000-2006 was 12.8% with the power sector showing a significant growth of 12.5% in 2006.

7%

1%

9% 19%

64%

resulted in total 3.8 hours of gas interruptions to customers across the Sultanate, thus giving gas availability of 99.998%. Although the availability result is considered an excellent achievement, the areas seeing these shutdowns remain a concern for the company and solutions to address these problem areas were put in place. As more large industries will be commissioned in Sohar area, gas availability in Sohar must be at 100%, a challenging target which

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Projects

With more demand from consumers in Sohar, Mukhaiznah, Salalah, Rusayl and Barka, it is estimated that the capacity of the total transportation system will be fully utilised by summer 2008.

This has resulted in a number of expansion projects to be firmed up in 2006. Compression stations in Fahud on the 32” pipeline to Sohar and the 36” pipeline to Murayrat and in Al-Buraimi to receive the low pressure gas from Dolphin Energy in the United Arab Emirates and export it to Sohar will be installed in 2008. The cost of the two projects is expected to be OMR 70 million. Design work was completed in 2006 and the purchase of the 7 compressor trains was awarded, while the Engineering, Procurement and Construction (EPC) tender for the installation part was issued and is expected to be awarded to one of the Omani construction companies by second quarter of 2007.

As the capacity of the Saih Rawl to Salalah pipeline will be fully utilised by the time PDO and Occidental facilities are in operation by 2008, a project to increase the capacity of the pipeline was initiated in 2006 with orders placed for the 250 kilometer 32” pipeline from Saih Rawl to Mukhaiznah (integrated with and along the same route of the pipeline to Salalah). The EPC for this pipeline expansion project is expected to be awarded by second quarter of 2007.

A project to install additional power and desalination capacity is planned in Barka in 2008 and OGC will be supplying additional gas to this facility. This requires the existing pipeline between Murayrat and Barka to be expanded by the addition of a second 24” 41 km pipeline and the construction of additional gas supply station in Barka. Purchase order was placed for the line pipes while the EPC contract for the installation of the pipeline and gas supply station has been tendered out and is expected to be awarded to one of the local companies by second quarter of 2007.

Work to supply gas to the Sohar Industrial Port continues with gas supply to the first phase (Sohar Refinery and Sohar Power Plant) successfully completed in 2006 while work for the second phase consumers (Methanol, Fertilizer, PVAXX and Aluminum) is in progress and is expected to complete in 2007. The third phase of gas supply to the remaining firm industries will be awarded in the second quarter of 2007 with expected completion between 2008 and 2009.

All the above projects present a key challenge for OGC, in view of the very busy manufacturing and construction resources not only in Oman but across the region, leading to higher costs and longer execution time and sometimes limited interest from local oil and gas contracting companies to participate in tenders. This, together with the very aggressive schedule from downstream gas projects and frequent changes in gas demand figures from some customers has caused some delays in the execution of some gas supply projects and will require more attention during 2007.

Annual Report 2006

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Pipeline Integrity

The objective of Integrity Management is to maximize asset availability at its net present value and extend its service life beyond the designed life. Thus yield savings for OGC by deferring capital investment of millions to replace the asset by an equivalent new one.

Integrity is an important assurance for the company due to its safety and gas availability impact. The company continued to focus on the integrity of its gas supply stations and pipelines with more focus given to the ageing pipelines (the 28 year old 20” gas pipeline between Fahud and Muscat and the 25 year old 16” Murayrat to Sohar pipeline). An intelligent pigging inspection of the 20” pipeline revealed several high wall thickness losses in several portions of the pipeline. This was followed up by repairs of the affected areas focusing first on the high wall thickness losses. However Maximum Allowable Operating Pressures of all the pipelines was restored.

For the first time in OGC, 100 % Cathodic Protection (CP) level of all pipelines was achieved as a result of CP upgrade project. This will further enhance the remaining life of the pipelines.

The company participated in several technical seminars and presented several papers in local and international conferences related to pipeline integrity.

Information Technology

In the Information Technology area, the Storage Area Network project, the new company website and the intranet site (the internal website) were completed. As a trial, the project to install close circuit cameras at two remote locations in Fahud and Al-Buraimi was completed. The cameras are linked to the regional offices and the main control room in Muscat and allow round the clock monitoring of the two gas stations.

One of the challenges facing the company is operating on manual management systems in the areas of contracts, human resources, budget reporting and projects. Furthermore, there is no system based reporting which allows the easy extraction of budget and expenditure performance information and significant effort has to be spent in the manual extraction of information.

The above problems have made it difficult to track the performance of contracts, projects and budgets and to correct it on time and this has contributed to the under spending which is discussed later in this report. The company has taken steps to automate the above systems and this is expected to be completed during 2007.

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Human Resources

OGC is now entering a new phase of unprecedented growth as it changes its form and function to emerge as a full spectrum gas company. Ringing in this new era of growth for Oman Gas Company and determined to overcome its concurrent challenges is a team of dedicated professionals, bound by a single mission and guided by the vision of His Majesty Sultan Qaboos bin Said.

Human Resources are the most vital element of OGC’s growth strategy. OGC’s management supports and guides its employees, making them a team of professionals working towards a unified goal. During 2006, the company implemented for the first time a scorecard system to measure its performance.

In 2006 the company introduced a new Human Resource Policy, a housing loan scheme and a medical insurance coverage scheme for employees and their dependants. A new performance appraisal system was introduced and is focused on a panel judgement rather than individual staff appraisal. Individual financial reward is now linked to the company as well as the individual staff performance. A graduate development scheme was introduced where the company will take fresh Omani graduates in 2007 and develop them in the areas where there is lack of experienced Omani resources. A secondment policy

was also introduced to control the assignment of temporary workforce. An exercise to review the competency of 100 company staff was completed and resulted in a clear identification of technical and managerial gaps and a training plan to overcome such gaps has been produced.

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Omanisation

For the first time since OGC was established, the members of the top management team are now 100% Omanis looking after the areas of the Executive management, Technical, Operations, Finance, Projects and Human Resources.

5 Omanis of Diploma and Secondary school certificates were employed on temporary basis to help in short duration administrative tasks. At the end of 2006, the total permanent employees in OGC stood at 144 with 85% of them being Omanis. 17 new staff were recruited (16 Omanis). The ability for the company to both retain and attract local or international workforce due to the attractive market offers both locally and regionally is a challenge which is being looked at and solutions will be proposed early 2007.

Organization An internal review of the existing company structure identified the need to restructure the company to 5 units from current 2. The Board has approved this proposal for an implementation in January 2007. The restructuring is expected to enhance the performance of the company, widen the decision making process and provide focus to management members each on his area of responsibility. The new structure is shown below.

Recognizing the importance of the Administration services in the company, the profile and resources of the Administration department were strengthened and an alignment was made with the administration activities carried out by other departments. This is expected to further improve the Administration performance and provide a faster response time.

15% Expatriates

85% Omanis

21 Staff

123 Staff

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Social Responsibility

As enshrined in its corporate values, the company continued to support different social and government organizations by means of donations to special needs and disabled organizations, Cancer Awareness Association, schools, areas where OGC operates and sponsorship of several events like sponsoring the Association of Early Intervention and the Al Noor Association for the Blind International Seminar.

Information Technology equipment was also gifted to some schools in different regions.

Quality & HSE

Safety continued to receive special focus across the operation and construction activities. The company and its contractors completed 2006 without any Lost Time Injury (LTI). Cumulative 2 million kilometers were driven safely and over 798,000 manhours were worked without LTI by OGC & its contractors.

The company has commenced an exercise for an integrated certification of its quality, health and environment management systems and certification is expected to complete by the year of 2007.

HSE performance by OGC & its contractors is represented below.

0.00 2.00 0.95

5

4

3

2

1

0

4.00

1.00 0.00

4.00

0.000.00 0.00

LTIF (Lost Timeinjuries Frequency)

TRCF (TotalReportable Case

Injuries Frequency)

RTAF (RoadTraffic Accidents

Frequency

ROAF (RollOver Frequency)

• Target • Achieved

TROIF (TotalReportable

OccupationalIllness Frequency

Annual Report 2006

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The tariff income increased slightly by RO 0.15 million (0.8 %) from RO 18.59 million in 2005 to RO 18.74 million in 2006. Operating costs were reduced by RO 0.41 million (3.94%). As OGC carried out an active training program as well as filled most of the vacant senior positions within the organization during the year, consequently administration cost increased by RO 0.51 million than the level achieved in the year 2005.

Financial position

During the year 2006, OGC acquired new fixed assets worth RO 0.16 million mainly in furniture and fixtures. However, the overall non-current assets decreased by RO 5.7 million on the account of the annual depreciation. This decrease was offset by an increase in the current assets of RO 5.6 million, which in turn resulted in an overall decrease in the total assets by RO 0.10 million as of 31st December 2006.

Financing

In 2006, OGC made a repayment of term loans for RO 10.9 million, and at the end of the year the total term and soft loans balances were at RO 105.4 million. The finance costs significantly increased by RO 0.6 million than the cost incurred in 2005, due to the increase in interest rates.

Refinancing

After reviewing the position of OGC following the successful commissioning and operation of the Sohar and Salalah pipelines, a decision was taken to refinance the outstanding loans for the two pipeline projects. Gulf International Bank (GIB) has successfully arranged a US$ 234.5 million loan for OGC. The loan agreement was signed in the Sultanate of Oman on 1st August 2006 and the local Omani Banks participated with 53% of the total loan. The loan will be used to refinance the outstanding balance of the US$ 410 million credit facility that was granted to OGC in August 2000. Savings in interest cost resulting from the refinance are expected to be over $6 million for the remaining loan period which completes in 2012.

Contracts

An area receiving management focus was contracting. An internal management committee was established with the task to review contracts strategies, contract performance, tender evaluation and award before being taken to the Tender Committee or Government Tender Board. This has streamlined the contracting strategies and contract award and contract performance and provided a good steer to contract owners. Total number of contracts awarded was 49 with a total value of RO. 87 million.

Financial Performance

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Budgets

The Board has approved a new budget system which, starting from 2007, moves from current 24-month system starting in the month of October to annual budget system. This will avoid many confusions arising from the overlap in the budget system and will provide a better estimation of annual budgets. Actions to address the budget expenditure issues are in place and include regular management reviews and challenge of the proposed elements of the budget, an automated budget reporting system, electronic based project and contract management systems linked to the finance system, a proposed internal tender committee structure which will help to speed up the minor contracts and cost database system to ensure accurate budget estimation. The Operating Budget for 2006 was under spent by 35%. This was primarily due to competitive bids received with values less than what was estimated in the budget and intelligent reduction in scope of some ongoing works such as SCADA maintenance work. On the other hand, the budget had provided to cover pipeline repair costs expected as a result of possible washout incidents; however, such incidents did not happen. Also depending on the priorities, some projects were phased forward to following year(s) such as Disaster Recovery Site project.

Cost Saving

The Company has developed in house knowledge in areas of SCADA support and as a result of this; it was decided to reduce the scope of SCADA maintenance contract which resulted in savings of around $200,000 per year. More company focus was placed on cost savings and business improvements. Key contracts were reviewed, contract strategies were changed and more work was reassigned from contractor resources to company resources. Furthermore, the high electricity cost at Salalah gas supply station, required for heating the gas, was subject to a management review and a trial to optimize the operation of the station resulted in 44% reduction in cost. The trial will be reviewed for a possible permanent implementation from 2007 onwards. The total savings achieved across the company from the above changes are expected to amount to $1.1 million over the period of 2006 - 2007 with $412,000 already confirmed as actual savings in 2006.

Audit

Four audits were carried out covering the area of budgets, invoices, procurement and Sohar construction contracts. Additionally, the State Auditors carried out a 3-month audit of the different company activities. Actions arising from the above audits have been taken to implementation stage.

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In line with the Government aspiration to assign OGC the responsibility for strategy planning and overall management of gas development across the Sultanate, OGC is in the process of expanding its resources and business accordingly.

The responsibility includes gas strategic planning, gas supply and demand forecasting, managing gas exploration and gas development concessions, providing focus and steer to on other gas exploration and development prospects.

This is a challenging responsibility which has to be developed and executed with the minimum possible risk and with a smooth transition of the activities being handed over from others. In preparation for this important responsibility, OGC has advertised for the first phase of manpower resources required in the area of field development planning and gas sales. OGC has charted ambitious works targets for itself for 2007. With a sizeable budget portfolio, RO. 190 million, many projects are being planned.

Future Outlook

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Financial Statements

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OMAN GAS COMPANY SAOCSummarized Income statement

for the year ended 31 December 2005 (restated - 2006 refer note 4) RO RO

Revenue 18,743,072 18,591,195Operating expenses (10,134,088) (10,549,829) --------------------------- ------------------------------Gross profit 8,608,984 8,041,366

Other income 105,788 84,606Administrative expenses (1,602,008) (1,225,153) ------------------------- ---------------------------Results from operating activities 7,112,764 6,900,819 ------------------------- ---------------------------Interest income 580,230 199,466Finance expenses (5,685,309) (5,113,632) ------------------------- ---------------------------Net finance cost (5,105,079) (4,914,166) ------------------------- ---------------------------Profit before income tax 2,007,685 1,986,653 Income tax expense - - ------------------------ --------------------------Profit for the year 2,007,685 1,986,653 ========== =========Summarized Financial Information prepared from the audited financial statements for the year ended December 31, 2006

The report of the independent auditor is set forth on page 21.

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OMAN GAS COMPANY SAOCSummarized Balance sheet

as at 31 December 2005 (restated - 2006 refer note 4) RO ROAssetsProperty, plant and equipment 137,648,018 144,397,741Accrued capacity charge tariff 6,321,604 5,323,456 ----------------------------- ------------------------ ------Total non-current assets 143,969,622 149,721,197 ---------------------- ------- ------------------------ ------Inventories 605,182 414,045Trade receivables and prepayments 6,103,313 1,792,114Cash and cash equivalents 11,779,253 10,586,064 -------------------------- -----------------------------Total current assets 18,487,748 12,792,223 ----------------------------- -------------------------------Total assets 162,457,370 162,513,420 =========== ==========EquityShare capital 14,264,250 14,264,250Legal reserve 857,319 656,551Retained earnings 1,074,513 551,373 -------------------------- ----------------------------Total equity 16,196,082 15,472,174 ------------------------- -----------------------------LiabilitiesNon-current portion of term loans 93,544,906 105,580,517Deferred Government grant 11,279,299 11,067,367Deferred capacity charge tariff 16,551,839 10,807,300Employees’ end of service of benefits 248,977 144,839Deferred tax liability 5,478,369 4,280,520 ----------------------------- -----------------------------Total non-current liabilities 127,103,390 131,880,543 ----------------------------- -----------------------------Current portion of term loans 11,889,302 10,912,151Trade and other payables 7,268,596 4,248,552 --------------------------- --------------------------Total current liabilities 19,157,898 15,160,703 --------------------------- --------------------------Total liabilities 146,261,288 147,041,246 ----------------------------- -----------------------------Total equity and liabilities 162,457,370 162,513,420 =========== ===========Net asset per share 1.135 1.085 =========== =========== Summarized Financial Information prepared from the audited financial statements for the year ended December 31, 2006.The Summarized Financial Information was approved and authorised for issue by the Board of Directors on 21 March 2007.


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OMAN GAS COMPANY SAOCSummarized Statement of changes in equity

for the year ended 31 December

Share Legal Retained capital reserve earnings Total RO RO RO RO

1 January 2005 14,264,250 457,886 475,095 15,197,231Net profit for the year - - 1,986,653 1,986,653Transfer to statutory reserve - 198,665 (198,665) -Interim dividends - - (1,711,710) (1,711,710) ----------------------- ----------------------- ----------------------- -------------------------31 December 2005 14,264,250 656,551 551,373 15,472,174Net profit for the year - - 2,007,685 2,007,685Transfer to statutory reserve - 200,768 (200,768) -Dividend paid - - (1,283,777) (1,283,777) --------------------- ----------------- -------------------- ----------------------31 December 2006 14,264,250 857,319 1,074,513 16,196,082 ========== ======== ========== ===========

Summarized Financial Information prepared from the audited financial statements for the year ended December 31, 2006


Annual Report 2006

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OMAN GAS COMPANY SAOCSummarized Cash flow statement

2006 2005 RO ROCash flow from operating activitiesProfit for the year 2,007,685 1,986,653

Adjustments for: Depreciation 7,019,135 6,984,093Accrual for employees’ end of service benefits 119,645 93,162Interest income (580,230) (199,466)Interest expense 5,685,309 5,113,632 -------------------------- ------------------------- 14,251,544 13,978,074Change in inventories (191,137) (49,082)Change in trade receivables (4,311,199) 1,337,931Change in capacity charge tariff receivable (998,148) (998,148)Change in trade and other payables 3,020,044 2,399,759Change in deferred capacity charge tariff 5,744,539 4,929,723Change in deferred tax liability 1,197,849 238,399Employees’ end of service benefits paid (15,507) (10,603)

--------------------------- -----------------------------Net cash from operating activities 18,697,985 21,826,053 --------------------------- -----------------------------Cash flow from investing activities

Acquisition of property, plant and equipment (269,412) (345,107)Interest received 580,230 199,466 --------------------- ------------------------Net cash from (used in) investing activities 310,818 (145,641) --------------------- ------------------------Cash flow from financing activities

Repayment of term loan (100,610,035) (10,064,854)Proceeds from new term loan 90,282,500 -Interest paid (5,621,078) (5,113,632)Refinancing cost paid (583,224) -Dividends paid (1,283,777) (1,711,710) ---------------------------- -------------------------------Net cash used in financing activities (17,815,614) (16,890,196) ---------------------------- -------------------------------Net increase in cash and cash equivalents 1,193,189 4,790,216 Cash and cash equivalents at 1 January 10,586,064 5,795,848 -------------------------- --------------------------Cash and cash equivalents at 31 December 10 11,779,253 10,586,064 ========== ==========Summarized Financial Information prepared from the audited financial statements for the year ended December 31, 2006


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OMAN GAS COMPANY SAOCNotes

Summarized Financial Information Prepared from the Audited Financial Statements for the Year Ended December 31, 2006

1 Legal status and principal activities

Oman Gas Company SAOC (“the Company”) was established by Royal Decree No. 78/2000 and is registered in the Sultanate of Oman as a closely held joint stock Company.

The Company is established to acquire, construct, operate and maintain gas pipelines and perform such other activities relating to the gas industry. The Company’s registered address is PO Box 799, Muscat, Postal Code 133, Sultanate of Oman.

The Government of Sultanate of Oman, acting through the Ministry of Oil and Gas (MOG) and using the device of price control for gas transportation, controls the level of cash generated and the profit of the Company.

2 Significant agreements

Concession agreement

The Company has entered into a concession agreement (“the Concession agreement”) with the Government of the Sultanate of Oman dated 22 August 2000, whereby the Company has been granted a concession for the construction, ownership, operation and maintenance of two gas pipelines from Fahud to Sohar and from Saih Rawl to Salalah (the “New Gas Transportation Facilities”) and the ownership, operation and maintenance of the Government Gas Transportation System (the “Existing Gas Transportation Facilities ”or“ “GTS”) for a period of 27 years.

Asset Transfer Agreement

The Company has entered into an asset transfer agreement (“the Asset transfer agreement”) with the Government of the Sultanate of Oman dated 22 August 2000, whereby the Government has transferred ownership of a major part of its existing gas transportation facility to the Company with effect from 2 September 2000 against a purchase price of US$ 70,000,000 (RO 26,950,000). The purchase price payable has been converted into an unsecured interest-free loan payable in ten equal semi-annual instalments commencing six months after repayment of all other loans of the Company.

Tariff and Transportation Agreement

On 22 August 2000, the Company entered into a tariff and transportation agreement (“the Tariff agreement”) relating to the Existing and New Gas Transportation Facilities with the Government of the Sultanate of Oman represented by the Ministry of Oil and Gas and the Ministry of Finance (“the Shipper”). Under this agreement the Company is required to make transport capacity available and to transport natural gas for the Shipper. In return the Shipper has agreed to pay to the Company a capacity charge tariff and a commodity charge tariff under the terms and conditions of the tariff and transportation agreement for a period of 27 years. On the termination date of this agreement the Company shall transfer all plant and equipment to the Shipper at a price, which will be mutually agreed.

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3 Basis of preparation and significant accounting policies

Basis of preparation

(a) Statement of compliance

The Summarised Financial Information has been prepared from the audited financial statements of the Company which were approved and authorised for issue by the Board of Directors on 21 March 2007. The audited financial statements for the year ended 31 December 2006 have been prepared in accordance with International Financial Reporting Standards, the minimum disclosure requirements of the Capital Market Authority and the requirements of the Commercial Companies Law of 1974, as amended.

(b) Basis of measurements

The financial statements have been prepared on the historical cost basis except for deferred government grant, trade receivables and defined financing cost, which are stated at amortized cost.

(c) Functional and presentation currency

The Summarised Financial Information is presented in Rials Omani (RO), which is the Company’s functional currency.

(d) Use of estimates and judgements

The preparation of financial statements from which the Summarised Financial Information is prepared requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. In particular, estimates that involve uncertainties and judgements which have a significant effect on the financial statements from which the Summarised Financial Information is prepared include: deferred government grant.

Significant accounting policies

The accounting policies set out below have been applied consistently by the Company and are consistent with those used in the previous year.

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3 Basis of preparation and significant accounting policies (continued)

(e) Property, plant and equipment (continued)

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses.

Costs include expenditures that are directly attributable to the acquisition of the asset. The cost includes any other cost that is directly attributable to bringing the asset to a working condition for its intended use, and the costs of dismantling and removing the items and restoring the site on which they are located.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

(ii) Subsequent expenditure

The cost of replacing part of an item of property, plant and equipment is recognized in the carrying amount of an item if it is probable that future economic benefits embodied within the part will flow to the company and its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognized in the income statement as incurred.

(iii) Depreciation

Depreciation is recognised in the income statement on a straight-line basis over the estimated useful lives of each part of the property, plant and equipment. Assets under construction are not depreciated.

The estimated useful lives for the current and comparative periods are as follows: YearsGas transportation facilities 25 to 27Furniture, fixtures and office equipment 5Tools and equipment 5Motor vehicles 5Buildings 20

Depreciation methods, useful lives and residual values are reassessed at each reporting date.

(f) Inventories

Inventories are measured at the cost less provision for obsolescence. The cost of inventories is based on weighted average basis and includes expenditure incurred in acquiring the inventories and bringing them to their existing location and condition.

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(g) Impairment

(i) Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset.

An impairment loss in respect of a financial asset measured at amortized cost is calculated as the difference between its carrying amount, and the present value of estimated future cash flows discounted at the original effective interest rate.

Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics.

All impairment losses are recognized in income statement.

An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognized. For financial assets measured at amortized cost, the reversal is recognized in the income statement.

(ii) Non-financial assets

The carrying amounts of the Company’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indications exist then the asset’s recoverable amount is estimated.

An impairment loss is recognized if the carrying amount of an asset or cash generating unit is the greater of its value in use and its fair value less costs to sell. In assessing the value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specified to the asset.

Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

(h) Provisions

A provision is recognized if, as a result of a past event, the Company has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

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(i) Revenue

Revenue represents capacity and commodity charge tariffs. Capacity charge tariff

Capacity charge represents a tariff receivable from the Shipper equivalent to all principal repayments due and payable under agreements entered into by the Company for credit facilities and other funds in order to finance the gas transportation facilities. Capacity charge tariff revenue is deferred and recognised over the life of the concession agreement, on the straight line basis.

Commodity charge tariff

Commodity charge represents a tariff receivable from the Shipper to reimburse all operating, administration and finance costs incurred by the Company including the costs of complying with environmental requirements and applicable laws in accordance with the agreement. The Company also manages the construction and operation of certain gas transportation pipelines under instruction from the Shipper, the costs of which are reimbursed through the commodity charge tariff. The tariff is determined and established each 24 month period. The tariff also provides for a guaranteed margin to the Company priced at an amount equivalent to a 12 percent return on average share capital for the period. Commodity charge tariff revenue is recognised against the stage of completion of services required and agreed with the Shipper during each 24 month period.

(j) Government grants

Interest subsidy is recognised in the balance sheet initially as a deferred Government grant when there is reasonable assurance that it will be received and that the Company will comply with the conditions attached to it. This deferred Government grant is amortised over the life of the loans to which it relates on a systematic basis in the same periods in which the interest expense is incurred. Amortisation of the deferred Government grant is recognised within net financing costs.

(k) Income tax expense

Income tax on the results for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent it relates to items recognised directly in equity, in which case it is recognised in equity.

Current tax is the expected tax payable on the taxable income for the year, using the tax rates enacted or substantially enacted at the reporting date, and any adjustment to tax payable in respect of previous years.

Deferred tax is recognised using the balance sheet method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date.

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(k) Income tax expense (continued)

A deferred tax asset is recognised to the extent that it is probable that future taxable profits will be available against which temporary difference can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

(l) Trade receivables

Trade receivables are stated at amortised cost less impairment losses.

(m) Cash and cash equivalents

Cash and cash equivalents comprise cash balances and deposits maturing within three months from the date of investment. Bank borrowings, if any that are repayable on demand and form an integral part of the Company’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of cash flows.

(n) Term loans from commercial banks

Bank loans are carried on the balance sheet at their principal amount. Instalments due within one year are shown as a current liability. Interest is charged as an expense as it accrues, with unpaid amounts included in accounts payable and accruals. The cost of obtaining long-term loans is deferred and amortized over the term of the long-term loan using the effective interest rate method. Deferred financing costs less accumulated amortization are offset against the drawn amount of long-term loans.

(o) Loan from Government of the Sultanate of OmanThe loan from the Government of the Sultanate of Oman is carried on the balance sheet at its fair value being the fair value of consideration received. The fair value of the consideration received is the sum of all future cash payments, discounted using market borrowing rates of interest for loans having similar maturity to discount the future contractual cash flows.

The difference between the fair value and the book value is treated as a government grant and is deferred over the period of the loan.

(p) Employees’ end of service benefits

Payment is made to the Public Authority for Social Insurance scheme under Royal Decree 72/91 for Omani employees. The company also contributes an additional amount equivalent to 12% of its Omani employees’ basic salary towards “employees’ end of service benefits” whereby the employee will receive the amounts contributed along with interest accumulated thereon at the time of leaving the company. The company’s obligations are limited to these contributions, which are expensed when due.

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(p) Employees’ end of service benefits (continued)

The Company’s obligation in respect of non-Omani terminal benefits, under a defined contribution retirement plan, is the amount of future benefit that such employees have earned in return for their service in the current and prior periods. The obligation is calculated using the projected unit credit method and is discounted to its present value. The discount rate used reflects current market assessments of the time value of money.

4 Restatement of previous year’s figures

The corresponding figures for the year 2005 presented for comparative purposes have been restated to reflect the change in the accounting for income tax and deferred government grant.

Income tax

Up to 2005, the Company had recognised a deferred tax asset in respect of accumulated tax losses based on the presumption that such tax losses will be available for set off against future taxable profit upon completion of the tax exemption period of 10 years as stipulated in the Royal Decree. The Company has now determined that it will not be allowed to carry forward such losses. The Company has, accordingly, derecognised the deferred tax asset of RO 3,517,705 and prior year’s figures have been restated. As a result of this change, at 31 December 2005 deferred tax liability has been increased by RO 3,517,705; trade receivables have been increased by RO 533,251; and trade and other payables have been reduced by RO 2,984,454.

Furthermore in accordance with the Tariff agreement, the Shipper is required to reimburse all Oman tax liabilities. Accordingly, the Company has determined that tax payable should be recorded as receivable from the Shipper and payable to the tax authority instead of being recorded as revenue and an expense. As a result of this change, the income tax expense and revenue (commodity charge tariff) for the year ended 31 December 2005 have been reduced by RO 238,399, with no net impact on the profit for the year then ended.

Deferred government grant

Up to 2005, the Company had recognised the deferred government grant in connection with the interest-free loan provided by the Government of Sultanate of Oman using the available future interest rates at 22 August 2000. The Company has now determined that the assumptions used originally in calculating the deferred government grant are no more valid. The Company has, accordingly, recognised at 31 December 2005 additional deferred government grant in the amount of RO 4,618,231, with the equivalent amount reduced from the non-current portion of term loans.

As a result of this change, the notional finance expense relating to the government loan and the amortisation of the deferred government grant for the year ended 31 December 2005, have been increased by RO 132,189 with no net impact on the profit for the year then ended.

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