Gas initiative negotiations reach crucial phase

30 November 2001

Negotiations between the government and the three groups of international oil companies (IOCs) involved in the estimated $25,000 million gas initiative are set to resume in January, after the original 16 December schedule for signing final agreements proved impossible to meet (MEED 21:12:01).

IOC executives say the need for extra time to conclude the negotiations is not surprising given the scale and complexity of the project. 'Everything is still on track,' says one. It is understood that the preparatory agreements signed with the three groups in June allowed for a 90-day extension to the signing schedule to ensure that all outstanding issues could be agreed.

The issues to be settled in the final implementation agreements relate to the commercial, financial and fiscal terms of the various contracts that will need to be signed along the stages of the gas chain. These stages will encompass upstream gas exploration and production, the purchase of the gas by downstream elements in the initiative - power stations, desalination plants and petrochemical schemes - and charges for buyers of these products and services. Also at issue is the tax regime and the corporate structure of the various ventures the IOCs will be setting up.

ExxonMobil Corporationof the US is leading core ventures 1 and 2 (CV1 and CV2), and the Royal Dutch/Shell Groupis the largest shareholder in core venture 3 (CV3). The other partners in CV1, which will focus on the South Ghawar area, are BPof the UK and Phillips Petroleum Companyof the US. Marathon Oil Companyand Occidental Petroleum Corporation, both of the US, are ExxonMobil's partners on CV2, covering the Red Sea region, and France's TotalFinaElfand Conocoof the US are working with Shell on CV3, focused on the Empty Quarter.

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