According to the Middle East Economic Survey (MEES), an agreement in principle has been reached and both sides will sign a new deal to renew the partnership.
Renewing the 75-year concession allows the PDO to conduct operations in the sultanate until 2012 "pending the completion of the current discussions on details," the industry newsletter says, quoting authoritative sources.
The government holds a 60% stake in the firm of which Shell holds 34%, Total four percent and Oman's Partex Corporation two percent.
"The fact that there is an agreement in principle on renewing the concession puts an end to speculation that the Oman government might be seeking another major international oil company as a partner in place of Shell because of the decline in PDOs production in recent years," the Cyprus-based weekly says.
"The two sides are also keen to renew the concession ahead of the 2012 expiry date," it adds.
The concession was signed in 1937.
PDO has allocated two billion dollars for new technology over the next five years in an effort to boost oil production by 50,000 barrels per day (bpd) .
PDO, which produces almost 90% of Oman's total crude output, has reported its output fell to 703,000 bpd last year from 771,000 bpd in 2002 and blamed ageing oilfields. A further five percent drop is expected this year.
Oman, a non-OPEC crude producer with current output of around 710,000 barrels per day (bpd), has been battling to halt a drop in daily output.
The sultanate also has proven gas reserves of around 660 million cubic metres, with potential reserves more than double that figure.