Japan's Arabian Oil Co. has started finalizing deals for the Kuwaiti side of the Khafji oil field, with separate contracts for drilling and procuring crude oil, reported Kyodo news agency, citing industry sources.
The sources said on Sunday that the major Japanese oil producer was aiming at reaching agreements with the Kuwaiti government over extending its rights in the oil field by Thursday, the deadline for the ongoing negotiations.
Arabian Oil will likely drill in the oil field in Khafji on behalf of the Kuwaiti government, instead of owning concessions for the drilling, and receive commission fees from the Kuwaiti side under a "technical service contract," they said.
The Japanese side wants a stable supply of crude oil as a precondition to signing the contract, the sources added. Arabian Oil is therefore hoping to ink a separate deal for receiving crude oil during drilling.
According to the agency, the current contract between Arabian Oil and Kuwait, which will expire in January 2003, is a comprehensive one, under which the oil company owns nearly all rights from drilling to the disposal of crude oil.
Kuwait wants to change the current contract to a service agreement under which the government would let Arabian Oil handle the drilling.
While Kuwait intends to develop oil fields in cooperation with foreign developers, Parliament wants the country to promote development by itself under the Constitution, which says natural resources belong to the state.
Thus, Arabian Oil has decided to separate the rights to procure crude oil from the contract so the company does not appear to own the oil field, the sources said.
But a wide gap remains between the two parties. Arabian Oil is insisting on a long-term contract, such as 10 years, while Kuwait wants a shorter one, the sources said. They added that Kuwait is believed to be postponing signing the procurement rights deal with the Japanese side.
The Khafji oil field operated by Arabian Oil faces the Arabian Gulf at its northern end, in the eastern sector of the Kingdom of Saudi Arabia.
This area was originally a neutral zone dividing Kuwait and Saudi Arabia, but became part of the territory of Saudi Arabia when the neutral zone was divided between the two nations in the north and south.
The rights to and interest in this oil field was acquired by Petroleum Trading Co., Ltd., which was succeeded by the Arabian Oil, established in 1958. In February 1960, a large oil field was discovered during the excavations for the first oil well. The oil field was named Khafji, and shipments of crude oil using a temporary shipping facility began in March 1961.
In July 1962, the following year, a permanent facility for oil production and shipping was completed – Albawaba.com
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