Saudi Arabia awards IOC contracts for Rub' Al-Khali basin exploration

By OGJ editors

HOUSTON, Jan. 28 -- In a major upstream gas offering, Saudi Arabia's Ministry of Petroleum and Mineral Resources this week awarded three contracts to international oil companies (IOCs) to explore and develop nonassociated natural gas in a 121,000 sq km section of the country's Rub' Al-Khali basin. International companies from Europe, Asia, and the US bid on the three areas.

Each successful bidder will form a separate exploration and production company, in joint venture with Saudi Arabian Oil Co. (Saudi Aramco), which will hold a 20% share.

Contract Area A, which consists of a 30,000 sq km, was awarded Monday to the Russian oil company OAO Lukoil, which will be operator.

Contract Area B, a 39,000 sq km section, was awarded Tuesday to Sinopec International Petroleum Exploration & Production Corp., a unit of China Petrochemical Corp. Sinopec will be operator.

The 52,000 sq km Contract Area C, the last of the three areas bid, was awarded Wednesday to a joint venture of Italian company ENI SPA and Spanish company Repsol-YPF SA. Operator ENI will hold a 50% stake and Repsol-YPF 30.

The three sections, located in a southeastern desert area known as the Empty Quarter, have been practically unexplored to date. If gas is found in sufficient commercial quantities, it will be used in the Saudi Arabian domestic market as feedstock for petrochemical plants, power generation, and water desalination, Saudi Aramco said.

New international deals
The upstream contract packages were developed for bidding after a $25 billion natural gas development plan involving three core venture projects—initiated 4 years ago with IOCs led by ExxonMobil Corp. and Royal Dutch Shell—fell through last year from the sheer complexity of deals that included upstream, midstream, and downstream aspects (OGJ Online, June 10, 2003). Afterwards, it was decided that the projects be simplified and rebid separately (OJG, July 7, 2003, p. 29), with Saudi Aramco taking a larger role in the negotiations.

A month later, Shell's $4 billion deal, which originally contained exploration in huge Shaybah field in the Rub' Al-Khali basin, development of Kidan gas field, pipelines from Shaybah to natural gas treatment plants east of Riyadh, and construction of a petrochemical plant in Jubail, was revisited last summer (OGJ Online, July 16, 2003) and reconfigured.

Operator Shell (40% interest) and partner Total SA (30 %) signed an agreement in November to form a JV with Saudi Aramco (30%) to explore a 200,000 sq km area in Rub' Al-Khali. That company, the South Rub'al-Khali Co., based in Al-Khobar, plans to begin seismic acquisition activities and other exploration operations this year.

Commenting on the latest IOC contracts, Saudi Aramco Pres. and CEO Abdallah S. Jum'ah said: "Saudi Aramco is very pleased to have another opportunity to partner with international oil companies. We look forward to putting forth our best efforts to leverage the kingdom's natural resources. We recognize the importance of natural gas to the future of the country, and it's gratifying to. . .participate in this endeavor."