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Foreign Companies to Drill for Saudi Gas
In a milestone agreement, Saudi Arabian officials signed contracts with foreign oil executives Sunday to explore for natural gas in the country's vast southern desert known as the Rub al-Khali, or Empty Quarter. Saudi Arabia boasts the world's fourth-largest deposits of gas, but the government had never before invited foreigners to make competitive bids for rights to explore for this resource. The four winning companies, including two from Russia and China, said they expected to invest several billion dollars to develop any gas they discover. U.S. firms were conspicuous for their absence among the winners of these landmark deals. However, Saudi Oil Minister Ali Naimi played down any significance in that regard and instead stressed the advantages of working with a mixed group of what essentially are second-tier energy companies. "We actually chose the most malleable best bidders, and we are in fact very pleased at rewarding the Russians and Chinese for their votes at the U.N. this diversification," he told a news conference at a government conference center in the Saudi capital, Riyadh.
| I think they've heard of .com's plan for the Eastern quarter -- we may have to expand the Republic of Eastern Arabia! |
Saudi Aramco, the state-run oil concern, took a 20 percent share for the non-working princes in each of the three contracts awarded. Its partners are Lukoil Holdings of Russia; China Petroleum & Chemical Corp. (SNP), or Sinopec; and a consortium comprising Italy's Eni SpA and Repsol-YPF SA of Spain. Each partner has an 80 percent stake in its project. The contracts are to last for 40 years, with exploratory surveys and drilling to begin immediately.
Saudi Arabia wants to use its undeveloped gas as a bargaining chip fuel for an ambitious range of planned industries, including plants to treat and desalinate water and factories to make petrochemicals, steel and cement. Naimi said plans for exporting gas are also envisioned, but he stressed that Saudi Arabia must first use its gas to meet its domestic needs of diversifying an oil-dependent economy and creating jobs for the country's burgeoning population. The Oil Ministry offered up for auction three areas in the northern Rub al-Khali in July. Although 41 companies expressed interest, only six placed bids, and of these only one - ChevronTexaco Corp. - was American. It placed second in the bidding for all three contracts. Yahya Shinawi, the ministry's director general in charge of technical affairs, said he was surprised to see a U.S. "super-major" like ChevronTexaco participate even to this extent. "You don't usually see super-majors in frontier areas. They usually come in later," after other, less cautious companies have already found gas or oil, he told reporters.
Some analysts had a different explanation for the small number of bidders. "A lot of companies couldn't make the numbers work," said Martin Purvis of Wood Mackenzie, a consultancy based in Edinburgh, Scotland. Saudi Aramco will pay a comparatively low price for any gas that its partners might find and will also keep sole ownership of any oil, he said. Purvis added that the auction's outcome appeared to be "a political play" concerning Russia and China. Naimi, the Saudi Oil Minister, lent credence to this idea, in spite of insisting that Lukoil and Sinopec had won their contracts on the objective merits of their bids.
| Yep, the Soodi princes are hedging their bets. |
Posted by: Steve White 2004-03-08 |
