Middle East feels pull to privatize

Lately, Middle Eastern oil producers have edged towards seeking foreign investment, but recent low oil prices have stepped up the pressure on them to further that effort. Dubai's Gulf News daily reported that the fall in oil prices and consequent loss of export revenues are forcing some Gulf Cooperation Council (GCC) member governments to speed their plans for privatization. Kuwait Petroleum Corp. (KPC) offered five oil field developments to foreign firms, but balked at signing

Nov. 16, 1998

3 min read

David Knott
London
[email protected]

Lately, Middle Eastern oil producers have edged towards seeking foreign investment, but recent low oil prices have stepped up the pressure on them to further that effort.

Dubai's Gulf News daily reported that the fall in oil prices and consequent loss of export revenues are forcing some Gulf Cooperation Council (GCC) member governments to speed their plans for privatization.

Kuwait Petroleum Corp. (KPC) offered five oil field developments to foreign firms, but balked at signing production-sharing agreements with those firms (OGJ, Aug. 10, 1998, Newsletter).

Kuwaiti officials are expected to explain their contract intentions over the next few weeks to western majors that already have service contracts with KPC, notably British Petroleum Co. plc, Chevron Corp., Exxon Corp., Royal Dutch/Shell, and Total.

Earlier, the Kuwaiti government said it will reorganize Kuwait Oil Co. and Kuwait National Petroleum Co. into divisions of KPC, rather than as separate companies, and study plans to privatize its Petrochemical Industries Co. and Kuwait Oil Tankers Co. units.

Abu Dhabi

In early November, the Abu Dhabi National Oil Co. (Adnoc) also announced a major restructuring intended to improve efficiency and effectiveness.

All the operations currently supervised by Adnoc will be grouped into five autonomous business units called directorates.

These will focus on exploration and production, gas processing, chemicals, refining and marketing, and shared services such as project management, supplies, information technology, and ports management.

Meanwhile, Iran has long kept western petroleum companies at arm's length but recently offered 24 development projects and 17 exploration blocks to foreign investors (OGJ, July 13, 1998, p. 32).

Saudi dilemma

Saudi Arabia looks likely to remain largely off limits, despite the May launch of a privatization program at Saudi Telecommunications, according to Gulf News.

Yet London's Centre for Global Energy Studies (CGES) believes that Saudi Arabia will suffer huge revenue shortfalls in fiscal 1998, because of lower oil prices, after enjoying good years in 1996 and 1997, because of higher oil prices.

"The authorities," said CGES, "were suitably cautious in budgeting for 1998 an 8.5% increase in revenues over the 1997 planned amount, representing a 13% cut over 1997 actuals. However, little did they realize at the time that the oil price would collapse in 1998, putting this year's Saudi budget in jeopardy."

CGES reckons the Saudi budget deficit will be 43 billion riyals ($11.5 billion) in 1998, and then only if expenditures are on target. But the analyst notes that Saudi expenditures have exceeded forecasts "by very large margins" in the previous 2 years.

With a need to cut operating costs and new development costs, maybe Saudi Arabia will be forced to court foreign partners before it might prefer. That may have been the impetus for a recent meeting of U.S. majors and Saudi Crown Prince Abdullan bin Abdulaziz in the U.S. in late September (OGJ, Oct. 5, 1998, Newsletter).