The kingdom has also unveiled plans to issue tenders for another three projects as part of its plans to boost gas production.

"The agreement is pending the Saudi government's final seal," Saudi Oil Minister Ali Ibrahim Naimi said in a statement.

The Shell consortium also includes the French giant TotalFinaElf and the kingdom's national oil giant Saudi Aramco.

A new company will be set up for the gas exploration and production from an area of 209,000 sq km in the Rube-al-Khali in the south of the kingdom, the minister added.

Shell will control a 40% stake in the new company, with TotalFinaElf and Aramco controlling 30% each.

"The agreement is pending the Saudi government's final seal"

Ali Ibrahim Naimi,
Saudi oil minister


Naimi also said Saudi Arabia would hold an international tender early next year for three new gas exploration and production projects.

"The competition will be held early next year and agreements will be signed with winners," he said.

The deal with Shell came after the collapse of the Saudi Natural Gas Initiative in its integrated form which included power, water and petrochemical projects, in addition to gas exploration and production prompting the kingdom to break up the project and tender it in parts.

Saudi Arabia, which sits atop the world's biggest oil reserves, has proven natural gas reserves of 224 trillion cubic feet.

Current gas production in the kingdom is around six billion cubic feet daily, but there are plans to boost it to about 10 billion cubic feet per day by 2010.