In oil-rim reservoirs, a thin oil layer lies between an aquifer layer and a large gas-cap. Traditionally, oil has been produced at constant rate from the oil layer. However, the constant-rate oil production strategy may lead to suboptimal performance, as it does not take into account the process dynamics near the wellbore. Motivated by this, first, we present a gas/oil flow model to describe the oil flow dynamics near the wellbore. Second, the high-fidelity simulation result is used to construct a reduced-order model for the design of a Luenberger observer for state estimation. Lastly, a model-based feedback control system is designed to compute the optimal oil production profile that maximizes the net present value (NPV) of oil produced from a horizontal well before gas breakthrough. We demonstrate that the proposed control scheme is able to achieve a high NPV compared to other state-of-the-art oil production strategies. Published by Elsevier Ltd.