KUWAIT - Part 2 - Profiles Of The Oilfields.

Kuwait Oil Co. (KOC), the upstream unit of state-owned Kuwait Petroleum Corp. (KPC), is to raise the emirate's sustainable oil production capacity from 2.7m b/d to 4m b/d by 2020. Parliament is yet to pass a set of laws allowing foreign firms to develop and operate most of the emirate's oilfields.

Dr. Nader al-Awadhi, deputy head of the Kuwait Institution for Scientific Research (KISR), on May 20 warned that more than half of Kuwait's oil reserves will not be produced through cheap traditional methods. He told a KISR workshop on "Managing Carbon Dioxide for Improving Oil Production" that most production, if not all, was done through traditional methods.

Three consortia of international oil companies (IOCs), the biggest in the world, will compete to fund expansion of seven fields under 20/25-year "incentivised buy-back contracts" (IBBCs). The IBBC is the closest alternative to a PSA as Kuwait's constitution does not allow production sharing deals or concessions. Under Project Kuwait, the IBBC gets KPC to retain the risk of crude oil prices and the winning consortium will bear the reservoir and operating risks. The consortium will share the rewards of cost reductions. A model operator service contract (OSA) and the fiscal terms were in 2002 done by KPC and approved by the Supreme Petroleum Council (SPC - see background in Vol. 60, No. 22).

                KUWAIT'S PRODUCTION CAPACITY, 2007-2020

                                  2007              2020
                          deg.API     '000 b/d    '000 b/d
Greater Burgan*           30-38        1,580        2,150
Rawdhatain                34.4           450          550
Sabriya                   36              90          200
Abdali, Bahra & Ratqa     22-30           40          150
Minagish & Umm Gudair     34 & 22-26     200          530
Capacity Within Kuwait    31.5         2,360        3,580
Divided Zone*             26-28          340          425
Total Kuwait                -           2,700       4,005

* Greater Burgan's capacity includes 200,000 b/d of production from a Marrat formation beneath Burgan, Magwa, Minagish and Umm Gudair. By 2020 Greater Burgan could produce 3m b/d.

Conceding a key demand over Project Kuwait, a much-delayed upstream initiative, the government will allow the National Assembly (parliament) to approve each of its related IBBC. However, a number of problems could delay the project even further. Energy Minister Shaikh Ali al-Jarrah al-Sabah was on May 4 quoted as saying: "If parliament wants to approve each contract of the northern oilfields [capacity expansion] projects individually and issue them like a law, it is fine with me. If this is the only way I can defend the rights of the country, I have no problem accepting this demand". Until then, the government had insisted that parliament's role be limited to evaluating the enabling legislation, arguing that it was outside parliament's remit to scrutinise every contract.

This concession does not necessarily improve the chances of Project Kuwait being implemented soon. MPs may find the contractual terms too favourable to IOCs. The length of time it will take to scrutinise each contract could also push the scheme back indefinitely.

A number of nationalist MPs reject the idea of IOCs taking control of a national resource, while others argue that the use of local agents means the project is open to corruption. Several MPs and former oil officials say the peak plateau period of production from the northern fields is not worth the effort the government has invested in Project Kuwait. They argue that the scheme will do little to help KOC gain experience to produce heavy oil as there is no guaranteed technology transfer.

The cost of Kuwait's upstream/downstream expansion programme has risen from $55 bn in early 2005 to more than $75 bn. This is due to a rapid rise in project costs worldwide since 2003. The cost of Kuwait's planned 615,000 b/d al-Zour refinery has risen from $2-2.5 bn budgeted in 2002 to an estimate of $17.2 bn made by a foreign contractor in April 2007 (see down23KuwtRefJun4-07).

In April 2007, Minister Shaikh Ali announced a find south of Raudhatain oilfield in the north, saying the new field contained "a huge amount of light oil and associated gas". But he gave no details. Preliminary tests gave a flow of 3,761 b/d of oil and 10 MCF/d of gas. This is near the 35 TCF Sabriya and Umm Niga fields discovered last year.

KOC in April 2006 made an important oil find in the area of Arifjan and the new well is south-east of Burgan-1. It then said it had completed the drilling of the well to the Jurassic. The Marat layers were successfully tested and the results showed a flow rate of 5,357 b/d. Ali al-Shammari, KOC's deputy CEO for administration and financial affairs, said: "This important discovery...confirms that the Jurassic...reservoirs...will constitute an important addition to the reserves of the State of Kuwait of light oil and free gas. This will boost the capabilities of...[KOC to produce 4m b/d by] 2020".

In March 2006 KOC announced two large oil and gas finds in the north of the country, consisting of 13 bn barrels of light oil and 35 TCF of non-associated gas. It said it would produce 50,000 b/d from the new field by end-2007. Then Energy Minister Shaikh Ahmad al-Fahd al-Sabah was on April 20, 2006, quoted as saying KOC would start gas production by end-2006 or early 2007; but no such targets have been reached as yet.

KOC is in charge of the upstream petroleum sector in Kuwait, which controls nearly a tenth of global oil reserves and can produce at a maximum rate of 2.7m b/d.

AFP on March 8, 2006, quoted former KPC executive and now a private consultant, Kamel al-Harami, as estimating the value of the find at well over $100 bn. The main discovery was made at the fields of Umm Niga-1 and Sabriya in northern Kuwait, with smaller quantities at two other fields in the same region.

Kuwait's new gas discovery is of vital strategic importance to the country and will make it virtually independent from the deals it sought to enter with Iraq, Iran and Qatar for gas supply. Saudi Arabia in 2005 blocked construction of a marine pipeline across its territory, through which Kuwait had wanted to import Qatari gas. Kuwait has also signed provisional agreements with Iraq to import 200 MCF/day (6 MCM/d) and with Iran for 300 MCF/d (9 MCM/d).

KPC's strategy calls for crude oil production of 3m b/d by 2010, 3.5m b/d by 2015 and 4m b/d by 2020 - originally the capacity should have reached 3m b/d by end-2005. The new oil and gas finds have not been included in KPC's strategy.

Kuwait's safety record was again put under the spotlight on May 7 after a fire broke out at the super-giant Burgan oilfield in the south-east. One worker was severely injured. The fire started when his car ignition lit undetected gas fumes from an underground pipeline leak near Gathering Centre (GC) 19. Although the fire was put out relatively quickly and operations were unaffected, the incident served to remind Kuwait of its poor safety record.

An undetected pipeline leak caused a huge explosion at the northern Rawdhatain oilfield in early 2002. The blast reduced Kuwait's oil output by 600,000 barrels and resulted in a major change of attitudes towards safety. In recent years, KOC has spent billions of dollars modernising facilities and putting detection systems in place. However, incidents still occur regularly. In the past six months, explosions have twice shut down the ageing Shuaiba refinery.