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Mixed signals for foreign investors from Middle East countries

Foreign petroleum companies are increasingly looking to secure development projects in the Middle East in preference to other theaters, because unit costs for producing oil and gas are comparatively cheap and because reserves are relatively bounteous.

While some Middle Eastern countries are slowly opening their doors to foreign firms, in a bid to secure additional funding and, perhaps more importantly, state of the art production and enhanced recovery technologies, the attitude of governments to foreign involvement is not consistent across the region, or even across any particular sector of the petroleum industry.

The most recent example of this came last week when Prince Saud Al-Faisal, Saudi Arabia's Foreign Minister and Chairman of the Ministerial Oil Committee, told the Riyadh daily newspaper Ukaz that the kingdom "considers exploration and investments in the oil sector not beneficial at present, especially since there are ample world oil supplies and sufficient spare production capacity within the kingdom.

"Hence," added Al-Faisal, "Saudi Arabia encourages investments in the production and industrialization of natural gas. We have a strategy which we are going to finalize by the end of October, according to which future policies and directions will be determined."

Al-Faisal indicated that these ideas would be presented to the foreign companies which earlier had responded to the kingdom's call for investment. These included Exxon Corp., Texaco Inc, and other US majors already involved in Saudi projects.

At the opposite end of the Middle Eastern spectrum is Iraq, which has oil fields in dire need of western investment and technology, but which is prevented from opening its arms to foreign firms by a United Nations trade embargo, put in place after the Gulf war of 1990. Instead, Iraq must rely on the UN to allocate funds for oil field refurbishment work as part of the oil-for-aid agreement, under which Iraq must export crude oil to pay for food, medical supplies, and industrial equipment.

Last week UN Sec. Gen. Kofi Annan recommended that the UN Security Council allocate a further $300 million for the purchase of oil field equipment and spare parts, in addition to the $300 million already approved. However, it was not certain whether any purchase of equipment and spares would actually take place following this initiative, because the move would have to be approved by the council and the idea is opposed by two main council members, the US and the UK.

By the beginning of October the UN Security Council had so far approved the allocation of $900 million worth of spare parts and equipment, and the UN's Office of the Iraq Program had received contracts amounting to $600 million. Of this, about $300 million worth of contracts had been approved, but $130 million worth had been put on hold, and only $130 million worth of equipment had actually reached Iraq.

The Iraqi oil ministry complained about the delays to the program, which it saw as critical to its plan to meet production requirement under the oil-for-aid program and also to raise production capacity to 3 million b/d by the end of 1999 and 3.5 million b/d by the end of 2000. The delays were blamed on the slow pace of the contracting process, the length of time taken by the UN Office of the Iraq Program to review the technical details of the contracts before submitting them to the Sanctions Committee, and the fact that the Sanctions Committee tended to put many deals on hold.

In early October the Kuwait Tenders Committee, acting on behalf of the Kuwait Oil Co., invited tenders for the expansion of a gas gathering center in Sabriya field in northeast Kuwait. Thirty eight international construction and engineering companies reportedly pre-qualified with KOC for the project, for which the closing date for submission of bids was Dec. 19.

The expansion was intended to raise the capacity of the gathering center to 200,000 bo/d from the previous 160,000 bo/d. KOC also reportedly had plans to upgrade the capacity of another gathering center in Raudhatain field to 300,000 bo/d from 250,000 bo/d. These are part of a scheme to raise output from Kuwait's northern oil fields from 400,000 bo/d to 900,000 bo/d.

About a week later Hamad Al-Salih, managing director of the Shuaiba refinery for Kuwait Petroleum Co., disclosed that plans were underway to raise the throughput capacity of the refinery by 15,000 bo/d to 215,000 bo/d, and at the same time to install new plant to improve the quality of its products.

Despite the lack of progress in lifting the UN trade embargo against, Iraq, which prevented the start of work on four major oil field developments awarded to foreign firms, the Baghdad oil ministry allocated new oil projects to Russian firms following a visit to Baghdad in late September by Russia's Fuel & Energy Minister Viktor Kalyuzhny.

Kalyuzhny told reporters that, under existing agreements, Lukoil should have started work on the development of the giant West Qurna oil field, but that since the signing of the agreement in 1997 no field development work has been possible because of the UN sanctions.

However, Kalyuzhny added that the Russian firms Tatneft, Bashneft, Rosneftegaztroy, and Lukoil would implement further upstream and downstream projects. On his return to Moscow the minister told the Vremya MN newspaper that Baghdad had presented his delegation with a long list of potential projects, and that Russia would make public its position on the projects within 2 months.

Yemen too was busy wooing foreign firms, with the detailing in September of plans for its first competitive bidding round, under which seven exploration and production blocks would be offered to international companies.

The blocks on offer were Blocks 25, 26, and 27 along the Red Sea coast; Blocks 6, 7, and 8 in the Central Shabwa onshore area; and Block 38 near Socotra Island off the south coast of Yemen. Bidding was open until Mar. 31, 2000, and Western geophysical Inc. was charged with marketing seismic and well data for the blocks.


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