Saudis spice down mega-gas deal offered to Western firms

Published September 12th, 2002 - 02:00 GMT

Seeking to revitalize negotiations with international oil majors over a $25 billion natural gas development project, the Saudi government has recently offered the foreign firms access to vast new fields of uncertain gas resources, while retracting its initial proposal, which put on the table the kingdom’s best fields holding huge proven reserves. 


This latest chapter in the project’s long-drawn-out negotiation process was initiated by a letter sent by Saudi Foreign Minister Prince Saud Al-Faisal to the various companies last week, first reported by The Wall Street Journal. The bidders were given a deadline of early October to present their counteroffers to the scaled down scheme, which carries more risk and less commercial-viability than its predecessor.  


Involved in the complex negotiations are three major oil consortia—the Exxon Mobil Corporation, the Royal Dutch/Shell Group and BP PLC—as well as TotalFina Elf, ConocoPhillips, Occidental Petroleum Corp. and Marathon Oil Corp.  


Saudi Arabia initiated plans to reopen the kingdom's upstream petroleum sector to foreign exploration some two years ago. The sector was nationalized a quarter of a century ago when the government bought out the interests of four US companies in Saudi Aramco, following the 1973 Arab oil embargo on the West. Only restricted Western ownership of Saudi petrochemical plants was so far permitted.  


Under the landmark scheme, foreign oil companies were invited not only to extract natural gas but also to develop related operations, including the construction of power plants, transmission pipelines, petrochemical complexes and water desalinization projects. The projects are to be carried out in partnership with the state-run Saudi Aramco on a long-term basis. 


The Saudis’ latest offer seeks bidders for drilling in three potential gas fields, all distanced from Saudi Arabia’s the enormous proven reservoirs. The first section is located south of the Ghawar oilfield, another by the Red Sea and a third, called Shaybah, in the south of the country, according to the NY Times.  


Another sticking point is the return the Saudis have been willing to offer foreign investors on their multibillion-dollar investment, reported the newspaper. While the Western companies seek 15-19 percent, the Saudis have so far consented to no more than 12 percent.  


Further outstanding issues include local opposition to the signing over of national resources to foreign business interests. Opposition stems from the desire to protect particular and national interests as well as rising anti-Western sentiment. — ( 

© 2002 Mena Report (

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