Negotiations between the Saudi government and multinational companies over a natural gas development plan worth over $25 billion are taking a more serious turn this summer.
After a kickstart from Saudi Crown Prince Abdullah last month, renewed talks are expected July 14-17 with top executives from lead operators Royal Dutch/Shell Group and ExxonMobil Corp. Industry sources say the prince won't attend this latest round of discussions, but he has sent a clear signal: He wants the stalemate to end between the companies and the country's state-owned oil company Saudi Arabian Oil Co. (OGJ, Jan. 21, 2002, p 24 ).
Eight foreign companies, most US-based, are involved in the three "core" ventures that will direct new gas exploration and production into downstream Saudi petrochemical, power, and water projects.
ExxonMobil was tapped to oversee Core Venture One (CV1) in South Ghawar field and Core Venture Two (CV2) at the Red Sea. Other partners include Shell, BP PLC, and Phillips Petroleum Co. for CV1 and Occidental Petroleum Corp. and Marathon Oil Co. on CV2.
Shell is slated to run Core Venture Three at Shaybah field in the Empty Quarter, with investment from TotalFinaElf SA and Conoco Inc.
Talks slow going
In May 2001 the Saudis held a high-profile ceremony in Jeddah to celebrate preliminary agreements between Aramco and potential investors; signing a final deal was a formality expected by yearend.
Since then foreign companies have not formalized anything. Deep disagreements remain over rates of return, field size, and other fundamental issues.
Neither side wants to abandon talks, although Aramco has suggested it might reopen bids if the companies don't begin conceding some sticking points. It's a given to most industry analysts that supermajor ChevronTexaco Corp. could be waiting in the wings as well as state-owned oil companies from Europe or Asia that may be more in tune with Aramco's management style.
Yet those familiar with the Saudis' thinking say it is foolish to assume the current talks are doomed to failure. Both sides are keenly aware that the success of the gas initiative has both political and economic implications for the country and the region.
A new United Nations report by the Regional Bureau for Arab States notes that for Saudi Arabia and other Arab countries to realize their economic potential, trade barriers must be eased.
Along those same lines, the crown prince has also made clear that he sees the gas initiative as an insurance policy that ensures his country's vast resources are used in a socially responsible way.
Oil companies, meanwhile, want to nurture and preserve a longstanding relationship in the kingdom. Despite some political tension and periodic doom and gloom over the stability of the royal family, the country has proven to be more stable and more profitable than many other potential investment sources for investors, including Central Asia, Russia, and Africa.