JEDDAH, 12 October 2003 — Saudi Aramco has signed a landmark gas exploration and production deal with Royal Dutch Shell and Total, Dr. Ali Al-Naimi, petroleum and mineral resources minister, announced yesterday.
He said the three companies would form a consortium in which Shell has a stake of 40 percent while Aramco and Total hold 30 percent each.
Subject to approval by the government, the project will cover an area of 209,160 sq km in the south of the Rub Al-Khali, he said.
“The necessary organizational procedures are now being completed for Saudi government’s approval,” the Saudi Press Agency quoted the minister as saying.
The project was first presented at a meeting in London last July, which was attended by a large number of oil companies from the United States, Europe, Japan, India, Russia and China.
The minister also said that an international tender will be held early next year for three gas exploration and production projects covering an area of 29,900 sq km, 38,800 sq km and 51,400 sq km.
Shell confirmed the deal in a statement posted on its website, saying it was leader of the consortium with a 40 percent share of the joint venture. “This agreement is an important breakthrough as it heralds the first time after the creation of Saudi Aramco that foreign oil companies have gained access to gas acreage in Saudi Arabia,” said Shell’s President Jeroen van der Veer.
The project, a pared-down version of the $5 billion Shaybah venture that Anglo-Dutch Shell and its French partner Total had negotiated for five years, was the sole survivor of the Kingdom’s gas initiative for foreign investors.
“The program to offer projects in non-associated gas exploration, development and production...is proceeding on schedule,” Al-Naimi said, adding that winners of the projects would be announced early next year.
The Shaybah venture originally included pipelines, power plants and water desalination projects, but these will now be tendered separately.
“The project is an important step and a powerful launch of international investments in gas exploration and production operations in the Kingdom,” Al-Naimi said.
According to industry sources close to the talks, the Saudi deal with Shell and Total is limited only to exploration of natural gas needed as fuel for the Kingdom’s domestic power and petrochemical production.
The sources said that investments required for the project in its present form would be less than $5 billion, but that the ultimate amount will depend on the results of the exploration and size of production.
The Kingdom’s gas initiative was launched in 1999 to boost the production of non-associated natural gas, to be used as fuel for power, water and petrochemical plants. But Saudi Arabia and international oil giants repeatedly missed deadlines to sign final deals because they failed to agree on commercial terms and gas reserves.
The quantity of gas on offer remained the principal unresolved issue as foreign companies demanded larger acreage to ensure more gas in order to offset the risks involved in the investments.
Saudi Arabia, which has the world’s biggest oil reserves, has proven natural gas reserves of 224 trillion cubic feet (6.6 trillion cubic meters). Current gas production in the Kingdom is around six billion cubic feet daily but is due to be around 10 billion cubic feet (283.1 million cubic meters) per day by 2010.
