Fresh offer for gas initiative

04 October 2002

International oil companies (IOCs) are working to respond to the latest offer by the ministerial committee on the gas initiative. The offer, made in early September, is said by IOC executives to represent fresh room for agreement, particularly with regard to the possible opening of new acreage. IOCs have been given until around the end of October to respond to the government's offer, although there is some flexibility in the timing.

Fundamental disagreements over acreage, profit margins and the role of Saudi Aramcohave bedevilled the initiative for months. However, negotiations are now improving, according to Western oil sources. 'Doors are now opening that were once closed,' says one. 'Particularly with regard to the possibility of looking at some new acreage.'

IOCs have claimed that the extent of gas hitherto available to them is no more than 6 trillion cubic feet, around half the amount needed to make the projects viable. The IOCs are now seeking more clarification over the offer of access to more acreage.

The improvement is partly attributed to a better political climate. While the prospect of war in Iraq has added a risk premium to potential investment, the more multilateral position taken by the US and Riyadh's assertion that it will observe UN resolutions over Iraq have reduced fears of a split in relations between the countries. More importantly, Foreign Affairs Minister Prince Saud al-Faisal, seen as the major political force behind the initiative, has been given a greater remit to push negotiations forward after his effective performance in helping persuade Iraq to readmit weapons inspectors.

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