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Exxon, Shell Set to Win Saudi Gas Deals
 Jeddah 2ed Jun 2001

  Saudi officials said on Saturday that oil supermajors ExxonMobil and Royal Dutch/Shell were set to win the leading roles in two coveted gas projects in the kingdom's landmark gas opening.

Official word is expected on Sunday, when chief executives from major oil companies are due to sign preparatory agreements for three key gas projects, worth a combined $25 billion in initial investment.

``It is almost unthinkable -- at this point -- that they will not be the winners,'' said a Saudi source, adding that Exxon was set for top billing in the prized, $15 billion South Ghawar package while Shell was poised for the lead slot in the $5 billion Shaybah gas development.

Riyadh last month selected eight international oil firms to participate in its three gas consortia. But at that stage, only one leader was revealed -- Exxon, for the Red Sea development.

Major oil companies have been on tenterhooks ever since, especially over the hotly-contested lead role in South Ghawar.

The kingdom's high-powered Supreme Petroleum Council (SPC) is due to meet on Sunday afternoon and most likely will endorse the recommendations put forward by a ministerial committee, headed by Foreign Minister Prince Saud al-Faisal.

``The leadership selection has been based on many factors such as history of investment and technical issues,'' said a senior Saudi government source. ``It's been a long, elaborate process -- a very systematic exercise.''

There is a slight possibility the SPC may delay the leadership awards in order to iron out any outstanding issues, such as the timing of the investment and the size of the program, industry sources said.

But if -- as expected -- all systems are go, an official declaration of the core venture winners could be made during a press conference led by Prince Saud -- slated for Sunday evening.


The gas deals mark the reopening of Saudi Arabia's upstream petroleum industry 25 years after nationalization. Oil development remains solely in the hands of state-owned Saudi Aramco.

``The real value, besides discovering gas and building infrastructure, is these major oil companies reconnecting with Saudi Arabia -- the world's biggest oil producer,'' a Saudi executive said. ``This is vital.''

But the benefits run both ways.

``The government wants to benefit from the organizational, financial and technical capabilities of the international oil companies -- even though Saudi Aramco can match them,'' said a senior Saudi government official.

``But two heads are better than one -- that's why we want a group of leading edge companies involved to improve the overall efficiency and effectiveness of the projects.''

The next big step in the process is for the three consortia to agree on how to work internally, the Saudi government source said. Their plans must be approved by the kingdom.

Fiscal and regulatory frameworks are due to be worked out during the second half of the year -- the target date for finalization of contracts.


The Saudi gas initiative seeks foreign oil companies' help in developing the kingdom's gas reserves as well as investment in downstream projects fed by gas supplies, such as power, desalination and petrochemicals.

``The initiative was intentionally designed to be a very integrated project,'' the government source said.

If confirmed as leader of South Ghawar, Exxon would get a 35 percent stake, BP and Shell would each get 25 percent and Phillips 15 percent, industry sources said.

Exxon has already won the lead slot in the $5 billion Red Sea gas package with 60 percent, while Occidental and Marathonper day of gas and is aiming to expand gas production capacity to process seven bcf per day by year-end 2003.

The kingdom, which is already one of the world's largest liquefied petroleum gas (LPG) exporters, will expand petrochemical exports under the new program, a Saudi official said.

Source: The New York Times, Copyright 2001 Reuters Ltd

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