Oil companies unlikely to agree Saudi deal

Saudi likely to keep gas contracts with state-owned Aramco

Saudi Oil Minister Ali al-Naimi, who has assumed full control of the negotiations since his reappointment to a third term last month, has issued a 4 June deadline on the three integrated projects worth $25 billion.

“We’re finished if we haven’t resolved our differences by 4th June,” said a Western oil executive, referring to a new deadline set by Naimi in a letter.

“The terms offered to us are not acceptable. We have a week left to negotiate, but I don’t see the Saudis making drastic changes.”

Western companies doubtful

Any breakthrough looks remote given the fundamental differences that have existed between the kingdom and seven oil multinationals ever since preliminary deals were signed two years ago.

The companies want access to more gas than the Saudis are offering, and the two sides also disagree on the rate of return for investments in petrochemical, power and desalination plants.  

The projects have been in limbo since potential investors, led by Exxon Mobil and Royal Dutch Shell, were told to submit final offers in December.

Saudi plans

Naimi has said that the developments, designed to kick start the Saudi economy and provide jobs, will go forward with or without the seven potential foreign investors.

But western executives believe that Naimi wants to split up the projects, keeping the gas fields in the hands of state-owned Saudi Aramco, and tendering the contracts for the industrial plants to foreign investors.
 
The companies, bound by strict confidentiality agreements, officially maintain that talks are continuing.

No Prince Saud

But many in the ventures are now resigned to failure, especially since they believe a key ally, foreign minister Prince Saud al-Faisal, has taken a back seat to Naimi in the talks.

Prince Saud al-Faisal’s absence significant, foreign oil executives believe

It was Prince Saud who last September offered some concessions on contract details in a bid to break an impasse over the amount of gas on offer and rates of return. Western executives said then the offer had not gone far enough to guarantee success.

For oil majors seeking access to the kingdom’s gas reserves, off-limits since nationalisation 30 years ago, it has been an uphill battle ever since Crown Prince Abdullah unveiled the outlines of the integrated projects nearly four years ago.

Project details

The Exxon-led consortium including Shell, BP and ConocoPhillips is seeking to invest in the prized $15 billion South Ghawar project, or core venture one.

A Shell-led consortium, which includes ConocoPhillips and Total, is keen on investing in the $5 billion Shaybah development, or core venture three.

Saudi officials have said that talks on the $5 billion core venture two, or Red Sea Development, led by Exxon and involving Marathon and Occidental, have already been abandoned.