The government has been widely reported to have notified the IOCs that if negotiations about carrying out the three core ventures (CVs) do not reach a conclusion within two months, then the estimated $25,000 million initiative will be opened up to other bidders. The right of the eight IOCs involved to negotiate exclusively on the gas initiative expired in March.

'There has been no official notification made to the IOCs,' says the Saudi source. 'However, we have made it clear that the negotiations cannot go on for ever. We don't want the sites allocated for all the gas initiative projects - particularly water and electricity - to be kept indefinitely with no work going on. We need to know within a reasonable period where we can stop and say 'let's find another way'.'

It is understood that there are five or six major issues of difference between the two sides. The question at the root of the entire negotiation is the internal rate of return assumed for specific elements and for the overall projects. The government is understood to have suggested a ceiling of 10 per cent, while the companies have been looking for at least 15 per cent.

Petroleum & Mineral Resources Minister Ali Naimi is scheduled to hold talks in the next few weeks with top officials of the leading companies involved: ExxonMobil Corporationof the US, which is the leader on CV1 and CV2; and the Royal Dutch/Shell Group, leading CV3.

If these talks fail, the government has two broad options for carrying the programme forward. It could offer the same CVs to other IOCs, or it could break up the initiative into its constituent parts. 'There are investors, including some members of the existing core ventures, who are already knocking on the door, and asking to work on specific projects,' says the Saudi source.