Kuwait approves Kharafi National for northern field gas deal

19 October 2010

Award made to first ranked bidder nearly a year after bids were submitted

Kuwait’s Central Tenders Committee (CTC) has approved a deal with the local Kharafi National to build early production facilities at Kuwait’s northern oil fields as part of the second phase of the state’s plan to increase gas production. 

Kharafi National emerged as the frontrunner to win the contract after submitting the lowest bid of KD439m ($1.55bn) in November 2009. The company was asked to renew its bid bonds three times by state-owned Kuwait Oil Company (KOC) to ensure its price remains valid.

All major public contracts in Kuwait have to be approved by the CTC before they can be awarded. The 11-month delay, according to a source close to the scheme is due to the KOC’s budget, which was increased to KD560m from initial estimates of KD150m following an appraisal of the project with UK-Dutch oil major Shell. Historically, the committee has been reluctant to award deals which come in far above the initial budget.

A quick award had appeared unlikely, as senior sources at second placed bidder, US-headquartered Processes Unlimited said they had also recently started discussions with KOC over the deal. Processes Unlimited’s price came in almost 14 per cent higher than the Kharafi National price at KD499m.

The deal has also been questioned in parliament. On 14 October, Musallam al-Barrak, a member of parliament sent questions to Oil Minister Ahmad al-Abdullah al-Sabah asking why KOC had rushed to award the deal against the recommendation of its foreign adviser, UK-Dutch oil major Shell and the CTC, according to reports in the Kuwait Times (MEED 14:4:10).

The scheme aims to build early production facilities at Kuwait’s northern oil fields, producing up to 510 million cubic feet a day (cf/d) of associated gas and 150,000 barrels a day of wet sour crude. The Jurassic deal was expected to raise gas production to 600 million cf/d by 2013. These temporary facilities are used to test the viability of production, generally over 5 years. If viable, KOC will build permanent facilities.

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