Oil companies optimistic on new Kuwait deals Published Date: April 04, 2008
DUBAI: Oil companies are optimistic political upheaval in Kuwait will not derail negotiations with the OPEC member for new oil and gas service contracts, industry executives said on Thursday. Talks continued despite the dissolution of parliament last month to end a crippling dispute between deputies and government that has stalled many economic reform projects-including in the oil sector.
Oil majors frustrated for years by politics and bureaucracy in the Gulf Arab state have been heartened by fresh momentum in negotiations since the appointment of Saad al-Shuwaib as chief executive of state oil company Kuwait Petroleum Corp (KPC) last July. "There is much greater alignment now than in the past inside Kuwait to make this happen," said one senior oil major executive. "I'm quite positive we'll get a new contract model we can work with.
Shuwaib has reshuffled top management as part of moves to cut bureaucracy and forced through change despite the political gridlock that has left the country without a full-time oil minister since last June. "I don't think parliament's dissolution will have an impact on the deals," said one executive. "There is a new mood in the Kuwaiti oil industry and the new KPC boss wants to get things done." Kuwait plans to spend around $51 billion on its oil and gas sector from 2008-2012 to overhaul existing infrastru cture and build new capacity. The country pumped around 2.61 million barrels per day of oil in March, according to a Reuters survey.
Service contracts stay within the limits of Kuwait's constitution, which ban foreign firms from oil production in the world's seventh-largest crude exporter. The new deals will replace existing service contracts with Chevron and BP. Both companies are involved in talks for the new deals, along with new entrants Exxon Mobil and Royal Dutch Shell. BP is negotiating for a contract in West Kuwait. Chevron is discussing the south and east, an area that encompasses the giant Burgan field.
Exxon is discussing heavy oil production in the north, and signed a preliminary deal last year for that project. Shell is looking at developing deep non-associated gas reserves. BP and Chevron have had service contracts for around 15 years in Kuwait. France's Total has a smaller service agreement with Kuwait, but is not involved in the latest round of negotiations, executives said. Exxon and Shell have never held this type of contract in Kuwait.
None of the new contracts under discussion include the reservoirs that would form part of the long-delayed Project Kuwait, a plan to boost the country's output. The multibillion-dollar project has been discussed in Kuwait for over a decade but has never made it beyond committee level at parliament due to political opposition to foreign firms taking a role in production.
The new contracts have a performance-related bonus built in that will make them more attractive to majors than a standard flat-fee service agreement, executives said. Majors typically avoid service contracts, preferring deals with a risk-related element or a share in output. This clause will help bridge the gap. We are not body shops for service contracts," said one of the executives. "A bonus element gives majors the incentive we need for long-term involvement.