The cabinet authorised the Minister of Petroleum & Mineral Resources to sign a draft agreement for the extension of the deal between the government and SAC and forward the final version for further authentication, according to the official Saudi Press Agency.

The agreement is significant because SAC is the only remaining operating concession in the hands of an international oil company (IOC) in either Saudi Arabia or Kuwait, although IOCs do have gas exploration concessions in the kingdom’s Rab al-Khali area.

SAC started negotiations with Riyadh about the concession extension last year. The concession was originally granted to the US’ Getty Oil in 1949 and was due to expire in February 2009 (MEED 31:10:07).

SAC operates the Saudi onshore part of the Divided Zone. Originally all onshore and offshore Divided Zone concessions were operated by foreign firms, but as the concessions expired during the past 10 years, they were handed back to state control.

Today, the Kuwaiti onshore concession is operated by state-owned Kuwait Gulf Oil Company (KGOC), while the two offshore concessions are jointly operated by Khafji Joint Operations (KJO).

What may have tipped Riyadh to stick with SAC is that a large proportion of the onshore Divided Zone’s output is heavy oil and its enhanced oil recovery expertise may be needed. However, it is unclear for how long its concession has been extended orif the commercial terms have changed.