RIYADH, 6 April — The Saudi team in charge of holding negotiations with international oil giants has intensified contacts with top executives of the companies involved to reach a final agreement by the middle of this month, industry sources said.
Speaking to Asharq Al-Awsat, a sister publication of Arab News, the sources said the negotiations were progressing well, taking into consideration the demands of both sides.
The issue of profitability has been at the core of the delays in the signing of gas deals. “Differences over the rates of return represented one of the major obstacles,” the sources said.
The signing of the final contracts with ExxonMobil, Royal Dutch Shell, BP, Phillips, TotalFinaElf, Conoco, Occidental and Marathon was due on March 2, after failing to strike a deal by the initial target date of Dec. 16. The deadline has since been left open-ended.
Some companies also claimed that they were given regions, which were not rich in gas. But Saudi Aramco said in a single region alone there are gas reserves worth 30 trillion cubic feet. According to surveys made by the oil giants, the figure ranges between three and five trillion.
There are reports that the government wants Saudi Aramco as an effective and leading partner in the gas projects along with international companies.
In a recent report, the Middle East Economic Survey (MEES) said the Saudi side wanted to set project terms guided by benchmarks for each upstream and midstream, petrochemical, power and water project.
The project terms should be based on profit margins similar to those earned on other projects in the region, or about eight to 10 percent. “Some companies are demanding guaranteed or assured internal rates of return for the integrated core ventures as a whole and their component projects of 15-20 percent annually,” the MEES report said.
The Cyprus-based weekly adds: “Each side is insistent that the profitability margins being demanded reflect the return on similar competitive gas exploration, development and infrastructure projects in the Gulf region and the Far East.”
The Saudi side has said that the companies could earn a net profit of not less than $45 billion after deducting taxes. But the companies are demanding a total profit of $80 billion, adding $35 billion to the amount proposed by the Saudi government.
A Saudi lawyer close to the talks has reported that one of the three gas projects could be abandoned due to mounting differences on technical and financial terms.
Lawyer Mohammad Jadaan, according to the Petrole et Gaz Arabes journal, said: “It is possible that one of the three core ventures will be abandoned because the two parties realize it is not feasible.”
Industrial sources cited by the journal said he was referring to the Red Sea project, awarded preliminarily to a consortium headed by ExxonMobil that also includes Occidental and Marathon Oil. It calls for investment of $5 billion over five years.
