Dec. 5 (Bloomberg) -- Royal Dutch Shell Plc, Europe's second- largest oil company, expects production from its venture in Oman will drop for a fifth year as it cuts costs and drills fewer wells to prolong the life of its fields.

Petroleum Development Oman, which pumps 90 percent of the nation's oil, expects output to fall by 5 percent to about 600,000 barrels a day by next year before recovering after 2008, when projects to revive supplies from existing wells go online, John Malcolm, Petroleum Development's managing director, said in a speech to be given today in Muscat, Oman's capital.

``We do no favors to Oman in going all out in one year to get a feast of oil only to be followed by a year of famine,'' he said, according to a copy of his speech. The company will cut back drilling in preference of injecting water and steam into the ground to flush out hard-to-get oil, he said.

Oman is the largest oil producer in the Persian Gulf that's not a member of the Organization of Petroleum Exporting Countries. The nation wants to offer other international oil companies a bigger share of its reserves, eroding Shell's position, in return for investment to help reverse a nationwide decline in output.

Occidental Petroleum Corp., the fourth-largest U.S. oil company, replaced Shell as the government's main foreign partner to boost production from its sixth-largest deposit to 150,000 barrels a day, from about 10,000 barrels in May. The government wants to introduce more competition among companies to help revive output.

The monarchy, ruled by Sultan Qaboos bin Saeed since he deposed his father in a bloodless coup in 1970, relies on oil revenue for as much as 75 percent of its export earnings and 40 percent of its gross domestic product, according to the U.S. Department of Energy.

Oil production, including crude oil and condensate, fell 5.4 percent to 782,480 barrels a day through August of this year from the same period last year, the Ministry of Economy said. Oman may have less than 20 years left as a major oil exporter if output keeps declining at the same pace and no new reserves are found, the U.S. Department of Energy said.

Shell is the largest foreign shareholder in Petroleum Development Oman, with a 34 percent stake.

To contact the reporter on this story: Andy Critchlow in Dubai on at acritchlow1@bloomberg.net

Last Updated: December 5, 2005 05:05 EST