RIYADH, 5 June 2003 — Foreign oil majors were due to submit yesterday their final response to a Saudi “take it or leave it” offer for mega gas projects that have been stalled for the last two years, Western oil executives said.
The response was being made amid reports the multibillion-dollar Saudi Natural Gas Initiative was heading into a deadlock despite reaching agreements on the power, water and petrochemical components of the deal.
“Gas remains the main (unresolved) issue. Foreign companies simply believe there isn’t enough gas in the areas offered. They want more acreage,” an industry source, familiar with the talks, told AFP.
Foreign Minister Prince Saud Al-Faisal announced on May 6 agreements on power, water and petrochemical plants, all part of the integrated projects. “What remains now is technical issues which have been referred to the petroleum minister to conclude the negotiations,” said the prince, who heads a ministerial committee conducting the negotiations. The technical issues also relate to the quantity of gas on offer, the source said.
The companies still insist they should be given part of the areas reserved for Saudi Aramco to minimise the risks, but the Kingdom has rejected this demand. Petroleum and Minerals Minister Ali Al-Naimi sent the final Saudi offer late May and requested a response from the leading companies, ExxonMobil and Royal Dutch Shell by June 4, the source added. Naimi was expected to make the ministry’s final decision on the companies’ response by mid-June, and based on available indications the decision is not likely to be positive.
“What’s on the table simply does not meet the minimum requirements of the oil companies,” a top Western oil executive told AFP, in reference to the latest Saudi offer. “The differences still exist everywhere,” despite the agreements on the components, the executive said. “I think we will see the final episode in the next few days, maybe weeks,” he added.
Saudi Arabia signed preliminary agreements in June 2001 with eight international oil companies for the development of three gas projects, requiring investments of $25 billion. The projects involve upstream, midstream and downstream facilities.
“No one is terribly optimistic about the possibility of reaching a final agreement,” said the source, and added that the most likely scenario is that the whole initiative will be revised. It will either be restructured to separate the components or reoffered to include new bidders.
In the event of a major restructuring of the projects Saudi Aramco and Saudi Basic Industries Corp. (SABIC) were expected to play a major role in association with the foreign firms. ExxonMobil won the lion’s share in the initial signing, taking the lead of two consortia tasked with developing the South Ghawar field, requiring a $15 billion investment, and the Red Sea field, needing $5billion which has been shelved for reassessment.
Royal Dutch Shell was selected to lead a consortium to develop the Shaybah field in the Empty Quarter expected to require initial investment of $5 billion. BP Amoco and Phillips Petroleum were chosen in the South Ghawar group, and TotalFinaElf and Conoco in the Shaybah group.
