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March 26, 2004 |
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AL-NAIMI: WE DID NOT EXCLUDE THE AMERICAN OR MULTINATIONAL COMPANIES FROM GAS PROJECTS AND PRODUCTION WILL START IN 2010. The Kingdom did not exclude American or multinational companies from bidding for the gas projects that were recently awarded, Minister of Petroleum and Mineral Resources Ali Ibn Ibrahim Al-Naimi, said in an interview. In fact the big American energy companies did make excellent offers for each of the sites tendered, he explained. "Every company has its own strategy," said Al-Naimi, about the outcome of the tenders. "And the cooperation with Russia and China is conclusive evidence that gas projects are tendered purely on commercial and economic bases." The Minister was speaking to Okaz a day after Saudi Arabia, the world's top oil exporter, signed gas contracts with Russia's energy giant Lukoil, Sinopec of China and a consortium of Eni of Italy and Repsol of Spain. Under the terms of the contract, the three parties are set to invest more than $800 million searching for gas in a 120,000 sq. km sector of the northern Rub Al-Khali, or Empty Quarter. In November, Saudi Arabia signed a multi-billion-dollar landmark deal with a consortium led by Royal Dutch/Shell, Europe's second-largest energy group, and French giant Total for gas exploration and production in the southern Rub Al-Khali. But ambitious 20-billion-dollar mega gas projects negotiated with consortia led by US oil giant ExxonMobil Corp were abandoned when talks collapsed last summer. Al-Naimi said the contracts signed include clear-cut conditions such as training and recruitment of Saudi nationals and giving priority to Saudi contractors and importers. Standard agreements stipulate that 65% of the total number of jobs are to be devoted to Saudi nationals, increased to 75 % in three years, he noted. The Minister hoped that production would start by the year 2010. The following are excerpts from the interview: Q: Can you shed light on why some reputable American companies such as Exxon Mobile were not in the bidding for the gas projects? Is this because they found these projects not feasible or are there any political reasons behind it? A: We welcome American companies as they have had a long presence in the Kingdom and have done exceptionally good work. I believe that signing tenders for such large and important projects is tangible evidence of the confidence of international companies in the Kingdom. The tendering and competition formula accommodates all qualified international companies, regardless of their nationalities. The big American companies, like Chevron-Texaco, competed for contracts with all their weight and strength. They finished second in the competition set for the three gas sites, despite making excellent offers for each site. The Kingdom is happy with Chevron-Texaco's performance, and it thanks the oil magnate for these exceptional offers. Needless to say, every company has its own vision, criteria and strategy. If you look into the gas projects in the north and south of the Empty Quarter, you will find that the gigantic oil companies have a remarkable presence in these projects. Q: What is the value and size of the investment that will be made by these companies in each of these areas? Why are they far below the investment ceiling of $25 billion? A: All the projects included in the initiative will be carried out and they will generate more investments than the figure you have mentioned. Q: What benefits will the country and citizens reap from these projects? A: One of the most substantial advantages is that these projects will meet the country's future demand for gas and its byproducts. Besides, these projects will uncover more areas potentially rich in gas reserves. Such projects usually create new job opportunities for the Saudi work force that is growing by the day. They also contribute to nationalizing jobs through technical training programs that will be worked out by the investing companies. Besides, they open up investment opportunities for local investors and service providers. Q: Some people opine that the gas initiative was long overdue. Why did the negotiations take a whole five years? A: Finding a flexible and competitive investment environment was among the most essential principles on which the gas projects were based. To achieve this, working teams at the ministries of Petroleum and Finance and other governmental bodies made huge efforts. More efforts were also exerted to devise a flexible and competitive legal and organizational system that took the desires of investing companies into account. Additionally, we benefited from our previous negotiation experiences in compiling these laws. Moreover, the Kingdom took the initiative to construct gas lines linking exploration areas to the main gas network. So it should come as no surprise that it took about five years for these contracts to materialize. Q. Will the involvement of a foreign producer lead to a hike in gas prices? And in turn, will this affect power prices in the country? A. The price of gas as shown in the agreements is fixed at 75 American cents for every British thermal unit. This price aims at supplying gas at a competitive price and in a manner that does not affect consumers. The trend is also meant to help in developing the national industry. Q. Why did Saudi Aramco participate in these projects and on what basis has it fixed its partnership at a 20 percent? A. The first things a foreign partner looks for are infrastructure, local expertise and low risk, which all serve as incentives. Therefore, the entry of Aramco as a partner, with all its experience and huge potential, was to give investors more confidence in the feasibility of these projects, as well as an insignificant risk factor. That said, I believe that 20 percent is a reasonably good percentage. It enables foreign investors to benefit from the relative advantages of the local expertise, resources and services offered by Aramco. Q. What mechanism ensures that the investors will abide by the deadline for the implementation of these projects, and Saudization? A. The agreements include rules and conditions which the authorities concerned will strictly and constantly monitor. Moreover, these companies enjoy a high sense of responsibility besides having a mechanism that enables them to revise periodically all these aspects through their administrative structures. Additionally, the ministry monitors the implementation of these conditions. The Minister of Petroleum and Mineral Resources Ali Al-Naimi had signed a landmark gas exploration contract, worth SR3 billion in the first phase, with international oil giants for upstream gas exploration and production in the northern Rub Al-Khali or Empty Quarter. The companies are Russian, Chinese, Italian and Spanish, and cooperation in gas will help forge ties with these countries in other areas, according to Al-Naimi. "There is no question cooperation in the economic field has the secondary benefit of increasing total cooperation in many fields. We have strong relations with Russia. We have had excellent cooperation in managing the stability of the oil market," he said. The signing ceremony for the contracts with Lukoil of Russia, China Petrochemical Corporation (Sinopec) and a consortium comprising ENI (Italy) and Repsol YPF of Spain took place at King Faisal Conference Hall. The agreements were signed on behalf of their companies by Vagit Alekperov, president and CEO of Lukoil, Wang Jiming, vice president of Sinopec, Vittorio Mincatto, CEO of ENI, and Alfonso Cortina, chairman of Repsol YPF, and Abdullah S. Al-Jumaah, President of Saudi Aramco. Under the agreement, which is of ten-year duration for the first phase, the companies will carry out exploration of non-associated gas in areas designated A, B and C. Lukoil will take over A with 30,000 sq. km, while Sinopec was awarded B with 40,000 sq. km. The ENI-Repsol consortium won C with nearly 52,000 sq. km. The Minister of Petroleum and Mineral Resources Ali Ibn Ibrahim Al-Naimi expressed hope the projects would be rewarding for all sides, stimulate economic development, and create job opportunities for Saudis. "As many as 35,000 job opportunities will arise once the projects move into the production phase at the end of the exploration phase," he said. Exploration alone would need SR3 billion in investment from the four international partners. The Kingdom currently produces seven billion cubic feet of gas per day through its five gas plants at Hawiyah, Haradh, Shedgum, Berri and Uthmaniyah. By 2025 the expected demand would surge to 14 billion cubic feet. "Our first priority is to satisfy the local demand before looking for export opportunities if additional capacity is available," Al-Naimi said. Saudi Aramco will be a partner in the three ventures holding 20 percent of the stakes in each of the three projects. Russia's Lukoil has committed $215 million for the first phase, while other companies did not disclose how much they would invest. The contracts will run for a maximum of 40 years. Al-Naimi said: "Efforts are under way to provide the Chinese market with petroleum products through investment in joint venture refineries." Sinopec sources said the cost of geophysical exploration would work out to $4,000 per sq. km. Absent from the first upstream opening since oil and gas were nationalized 30 years ago are any Americans. ChevronTexaco unsuccessfully bid for one of the three blocks offered in a bidding process industry sources and analysts said was open and fair. Super major ExxonMobil (XOM), the biggest foreign investor in Saudi Arabia with $5 billion in refineries, walked away from an earlier incarnation of the current deals. Asked about the exclusion of American firms from the contracts, the minister said they were "already present in the Kingdom and are among the biggest investors." He said the contracts were awarded on the basis of competitive bids and the experience and expertise of the winning firms. There were no other criteria, he added. Alekperov said Lukoil during the first five-year exploration period will drill a minimum of nine exploration wells and acquire 8,750 line km of 2D seismic. He said investment in the Kingdom would be a priority within the framework of their international strategy. Vittorio Mincatto, CEO of ENI, said he was impressed by Saudi Aramco's "first-class technical capabilities, their huge resources, their professionalism, and their highly qualified staff." Alfonso of Repsol also paid tribute to Saudi Aramco's professionalism. Saudi Arabia signed the landmark gas exploration contracts with Russian, Chinese, Italian and Spanish oil giants today to produce natural gas from the Rub Al-Khali or Empty Quarter. "The signing signals the beginning of the search for gas reservoirs in the north Rub Al-Khali Basin," said an invitation sent to Lukoil of Russia, Sinopec of China, Italian ENI and Spanish Repsol for the signing ceremony. The international oil companies will be partner with Saudi Aramco in the upstream gas ventures, the Ministry of Petroleum and Minerals said. The projects are expected to fetch total investments worth SR75 billion in five years. The firms will be engaged in gas exploration and production in three regions. The area of 120,000 sq. km has been divided into three sections designated A, B and C. Lukoil will take over A with 30,000 sq. km, while Sinopec was awarded B with 40,000 sq. km. A consortium of ENI and Repsol won the area designated C with nearly 52,000 sq. km. Ameen Muhammad Al-Shibani, adviser for planning at Saudi Aramco, has estimated the total investment in the three projects at about 15 percent of the Kingdom's gross national product. They will create 150,000 indirect jobs and 35,000 direct jobs, he said. Yahya Shinawi, director general of the oil ministry's office in the Eastern Province, said the companies would start gas exploration and production soon after signing the accords. In November, Saudi Arabia signed a multibillion-dollar deal with a consortium led by Royal Dutch Shell and Total for gas exploration and production in the south of the Kingdom. Lukoil subsidiary Lukoil Overseas Ltd. said the two companies signed a shareholders agreement to regulate the Lukoil Saudi Arabia Energy Ltd. joint venture, also known as Luksar. Lukoil owns 80 percent of the joint venture, while Saudi Aramco holds 20 percent. Lukoil is Russia's second-largest crude oil producer and has the largest presence in the Middle East among Russian oil majors. In a press conference after the signing the Minister of Petroleum and Mineral Resources Ali Ibn Ibrahim Al-Naimi said that the three international oil companies signed agreements on gas exploration in Rub' Al-Khali (the Empty Quarter) to dig 20 wells in areas A, B, and C during the exploration period and to conduct a seismic survey across 26.750 kilometres. Minister Al-Naimi said that investment required in the first phase of exploration in the three areas is estimated at over SR3 billion. He noted that investment in these projects is aimed at increasing gas reserves and upstream facilities to meet the requirements of development, diversify income resources by providing gas and its products to various industries, create job opportunities for citizens, and encourage Saudi contractors and exporters. Domestically produced gas will be consumed to enhance the major gas network, which has a current capacity of seven billion cubic feet per day, Minister Al-Naimi said. He predicted that the demand for gas would reach almost 14 billion cubic feet per day in the Kingdom during the year 2025. Al-Naimi said that 17 petrochemical projects, worth SR20 billion, are waiting for natural gas projects. He praised the efforts exerted by various governmental institutions in the Kingdom to restructure the Kingdom's investment climate and promote economic reform. Expecting a significant increase in economic returns, following the discovery of non-associated gas in Rub' Al-Khali, he stressed that these projects will greatly contribute to the creation of jobs for Saudi citizens. He predicted that the projects would provide almost 35,000 jobs and three or four times that number of indirect employment positions through investments open to Saudi businessmen for the provision of support services for the international companies in Rub' Al-Khali. On the other hand the Kingdom of Saudi Arabia will discuss in detail the aims and scope of the new upstream gas agreements, and the Kingdom's plans for gas utilization in its growing economy, during the first Saudi Arabian International Gas Conference that will be held at the Eastern Province Chamber of Commerce and Industry (EPCCI) in Dammam, May 15-17. Jointly organized by EPCCI and international PR company CWC associates Limited, the conference will discuss topics which include: The aims and scope of the new gas development projects. Private sector opportunities emerging from the opening of the gas upstream sector. The impact of the gas projects on downstream industries Emerging private investment opportunities in petrochemicals projects. Turning gas into power generation and desalination prospects. The role of services and new technologies in maximizing the potential of the energy projects. According to an invitation sent to national and international companies, Prince Muhammad Ibn Fahd, Emir of the Eastern Province and Ali Al-Naimi, Minister of Petroleum and Mineral Resources will be the keynote speaker. Saudi Arabia is embarking on a dynamic new era in its energy industry, opening up across the sector to international investment and partnership, it said, noting the signing of a historic contract with Royal Dutch/Shell and Total in November 2003 for gas exploration and production in the South Rub Al-Khali and the recent announcement of the three winning consortia in the Upstream Gas Round, referring to the landmark signing of a contract between the Saudi Aramco and four international oil majors in Riyadh Sunday to explore gas in North Rub Al-Khali. The four international oil companies (IOCs) will form a company in partnership with Saudi Aramco, Saudi Arabia's state-owned petroleum company, which will hold a 20 percent interest in each company. While inviting the potential companies to participate in the forthcoming first ever international conference the invitation letter said this is a crucial time to identify and discuss the impact of these new gas initiatives on business opportunities in Saudi Arabia. Join the drivers of Saudi Arabia's energy policy and senior international energy executives at this important conference to learn how the Kingdom's new strategy could open up opportunities for your business, and for unrivalled networking opportunities with the potential partners, it said. The conference is the first international conference to discuss in detail the aims and scope of the new upstream gas agreements, and the Kingdom's plans for gas utilization in its growing economy. |
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