Kuwait’s Oil Minister, Mohammad al-Baseeri has formed a committee to probe an $800m deal between state-upstream operator Kuwait Oil Company (KOC) and UK-Dutch oil major, Shell for the development of the country’s northern gas fields.
The six-member panel will review KOC’s procedures in awarding an Enhanced Technical Services Agreement (ETSA) in February 2010, the first of its kind in Kuwait, according to state-run Kuwait News Agency (KUNA). The committee will hold a meeting with KOC officials on 23 August.
On 29 June, parliamentarians raised a number of questions about the transparency of the deal, and the National Assembly formed a panel to investigate.
A source close to the KOC’s parent company, the Kuwait Petroleum Corporation (KPC) say the minister formed the second committee after disappointment at the lack of response to the original parliamentary committee by KPC and KOC officials on the deal.
Under the five-year deal, Shell will help KOC develop and manage its northern Jurassic gas fields, producing an undisclosed volume of non-associated gas. The project is technically complex with the gas fields deep, tight and sour, sulphur-rich (MEED 14:4:10).
The probe will look at three main issues, in particular why Shell was chosen without a tender process. It will also question whether KOC has the authority to push through the deal without going through the Central Tenders Committee (CTC). The CTC which oversees the tendering and award process for all public contracts in the country.
One of the key issues for the panel will be whether KOC has signed a service contract, or whether Shell has operational control in the scheme. Shell says it only has an advisory role.
“The value of the deal is also very high and part of the payment goes to production bonuses. If Shell hits its target, they will be paid about $1m a head for the employees they have seconded”, says the source who is familiar with the deal.
KPC previously signed technical services agreements with international energy majors, including the UK’s BP, Shell and France’s Total, but these all expired between August 2008 and July 2009.
The deals face considerable political opposition in the country since the Oil Ministry, KOC and KPC hold conflicting views on the role of international firms in the sector.
Kuwait plans to boost non-associated gas production to approximately 1 billion cubic feet a day (cf/d) by 2016 from about 150 million cf/d currently.
KOC has awarded three early production facility (EPF) schemes in the north of the country as part of the second phase of the state’s plans to increase gas production. The final deal, worth $1.56bn was signed by the local Kharafi National in October 2010, almost a year after bids were received. The scheme aims to lift production 600 million cf/d. Italian engineering firm, Saipem will carry out the work for Kharafi National.
Shell’s role in the development has been seen as critical since the local contractor lacks the experience necessary to handle the gas.
“It doesn’t look like the deal was progressing. At the moment, the problems are not below the surface, but on the ground. The building of the facilities has been slow”, says the source.
Given the fallout of previously cancelled international joint ventures in Kuwait, there is little chance the deal will be cancelled, but there could be major delays. This would have a huge impact on Kuwait’s future project plans based on non-associated gas. Local petrochemicals producer, Equate is now considering a mixed-feed for its third olefins cracker, rather than the originally planned ethane feedstock from the fields.