The official news agency SPA says the deal is with a consortium led by majors Royal Dutch/Shell and TotalFinaElf.
The agreement wassigned on Saturday by Saudi Oil and Mineral Resources Minister Ali al-Nuaimi and three of the world's largest companies: Shell, Total and Aramco, said SPA.
The deal, approved on Tuesday by the kingdom's Council of Ministers chaired by King Fahd, involves the creation of a new company which will have a 25-year concession for gas exploration and production from an area of about 210,000 square kilometers (about 80,000 miles) in the southern Rub al-Khali (Empty Quarter) area.
Shell will control a 40% stake, with TotalFinaElf and Saudi Arabia's national oil company Aramco controlling 30% each.
The deal has been estimated by analysts to be worth two billion dollars, a far cry from the ambitious 20-billion dollar mega gas projects that were being negotiated with consortia led by US oil giant ExxonMobil Corp until talks collapsed earlier in the year.
The Shell-Total deal also comes also after the collapse of the Saudi Natural Gas Initiative (NGI) 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.