New company for Neutral Zone

26 October 2001

The oil ministries of Kuwait and Saudi Arabia have completed the first round of talks on a proposal to set up a new company by 2008/09 to operate the Neutral Zone (NZ) shared equally by the two states (5:10:01).

'The ball has been set rolling and they [Saudi Arabia] have agreed to the idea,' says a Kuwait Petroleum Corporation (KPC) official. At present, three companies are operating in the NZ: Japan's Arabian Oil Company (AOC), the US' ChevronTexacoand Aramco Gulf Operations Company(AGOC)of Saudi Arabia.

AOC is the operator of the offshore portion of Kuwait's share of the NZ, covering the Hout and Khafji oil fields. Its drilling rights on the two oil concessions will end on 4 January 2003, under the terms of a memorandum of understanding (MoU) signed with Kuwait's Oil Ministry in September (MEED 28:9:01).

ChevronTexaco is the operator of the onshore concession on both sides of the NZ. Its agreement with Kuwait and Saudi Arabia runs until 2009/10.

AGOC is the operator of the onshore portion of the Saudi half of the NZ, following its relinquishment by AOC in February 2000 (MEED 10:3:00).

'We have agreed that operations by separate companies may not be the best way to develop the NZ, since it lacks synergies of scale,' says the KPC official. 'Our motive will be to develop the NZ on a commercial basis.'

Analysts say that Kuwait and Saudi Arabia may also consider the option of signing a concession agreement with an international oil company (IOC).

With the merger of two US oil majors, Chevron Corporation and Texaco, now complete, the way has been paved for the new entity, ChevronTexaco, to press ahead with efforts to become involved in the emerging opportunities covering the NZ.

'We may invite an IOC to sign a concession agreement, which does not go against the constitution,' the KPC official says. Kuwait's constitution does not allow the signing of production-sharing agreements (PSAs) with IOCs. 'It [the issue] has to be addressed by the National Assembly [parliament],' the official adds.

Policy planners at Kuwait's Oil Ministry are expected to take some time to formulate their future plans for operations at the NZ, following cabinet's approval on 28 October of the MoU signed between AOC and the Oil Ministry.

'We are working towards signing a new five-year agreement with AOC, which will be valid until January 2008. The proposed deal will include the offtake of about 100,000 barrels a day (b/d) of crude oil for up to 20 years, and the provision of manpower and training, and soft loans.

'The headlines have been agreed and we will now work out the details for signing a final agreement,' says an AOC official.

Kuwait Oil Company (KOC) plans to invest about $3,000 million over five years in increasing the oil and gas output of the partial neutral zone (PNZ). 'There is a plan to produce an additional 100,000 b/d from the PNZ,' says the KPC official. At present, the Hout and Khafji fields produce about 280,000 b/d.

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