Saudi gas partnerships with US companies delayed again

A landmark $30 billion natural gas development program proposed forUS companies in Saudi Arabia is still expected to go forward, perhaps by this summer. But it will not be finalized this month, as predicted earlier by Saudi oil officials, US industry and government sources said Monday.

March 5, 2002

3 min read

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, March 4 -- A landmark $30 billion natural gas development program proposed for US companies in Saudi Arabia is still expected to go forward, perhaps by this summer. But it will not be finalized this month, as predicted earlier by Saudi oil officials, US industry and government sources said Monday.
As early as last January US companies predicted delays in finalizing the contracts covering proposed projects were likely for several reasons, both political and legal. Diplomatic tensions between the two countries were frayed; in addition, the lucrative double-digit return on investment first offered by Saudi royals over a year ago was not consistent with what state-owned oil company Saudi Arabian Oil Co. later offered at the negotiating table (OGJ Online, Jan. 14, 2002).

But Middle East analysts stressed the missed deadline does not mean the gas initiative will fail.
"There is going to be a gas initiative, said Youssef Ibrahim, senior Middle East fellow at the Council on Foreign Relations. "There is no doubt it will succeed, although those who are in a rush may be disappointed."
He predicted it could take as long as a year before the final paperwork is finished.

Contracts awarded
ExxonMobil Corp., the kingdom's largest single foreign investor, won most of the contracts last May. Conoco Inc., Phillips Petroleum Co., Occidental Petroleum Corp., and Marathon Oil Co. also received interests in various ventures the Saudis are planning.
Last spring Saudi officials held a ceremony in the kingdom's port city of Jeddah to celebrate the preliminary agreements on the gas projects; a final deal was supposed to happen by December 2001. After Sept. 11, the Saudis and US officials said they expected the formal paperwork to take another month or so, given travel constraints and other logistical hardships companies faced in the wake of terrorist attacks on the US (OGJ Online, Oct. 25, 2001).
But now the March 2 deadline has also slipped, despite assurances from the country's top oil officials the proposals were moving forward as planned. Disputes over the acreage foreign companies will have access to and the tax rates associated with production are still very much in dispute, industry sources said.

Loose ends
US officials meanwhile say they remain "very optimistic" negotiations will ultimately be fruitful.
An industry-Saudi government conference designed to showcase new and returning foreign investment in the country's eastern province has been rescheduled for May 20-21.
Other than the revised conference date, there has been no official explanation for the delay from the Saudi government.
Nevertheless, Saudi and US government leaders are still hoping industry officials and Aramco can tie up loose ends within a few months, industry sources said.

Cheney role
There is also reason to believe the status of the negotiations will be monitored at the highest levels of the US government.
The Department of State announced Mar. 1 that Elizabeth Cheney, daughter of Vice Pres. Dick Cheney, will join the Bureau of Near Eastern Affairs in coming weeks as thedeputy assistant secretary handling Middle East economic issues.
State department officials said the younger Cheney brings a "very strong legal and economic background to her new position, having previously served with both the private and government sectors, including with US Agency for International Development and the Department of State," according to a State department spokesman last week.