Kuwait Aiming For 10M B/D.

Kuwait's Energy Minister Shaikh Ahmad Al Fahad Al Sabah says his government's strategy is to raise the emirate's oil production capacity from 2.7m b/d in January 2005 to 4m b/d by 2010, 5m b/d by 2015 and 10m b/d by 2025. He expects government spending of $40 bn on this programme in the next 20 years.

Kuwait Oil Co. (KOC), the local oil producing unit of Kuwait Petroleum Corp. (KPC) has recently revived a $7 bn project to develop five northern oilfields near the border with Iraq which could double their production to 900,000 b/d. It pre-qualified some 25 operator and non-operator foreign companies for the project, they will be acting as service contractors for a period of up to 20 years. KOC is to establish a separate company to manage the northern development, which it calls "Project Kuwait". The next phase will be development of the western oil fields under a similar contract.

Last August Ahmad Al-Arbeed, chairman of KOC for the past three years, was moved to lead the new company that will be in charge of Project Kuwait, which has been stalled mainly for political reasons. His appointment, part of a major shake-up at KPC, came after Kuwait's Supreme Oil Council, headed by the prime minister, on Aug. 10 approved a draft technical service contract for Project Kuwait. The draft documents included detailed financial, economic and legal aspects of the contract. The draft contract was submitted to the National Assembly in late October, when legislators reconvened after the summer vacation.

To conform with Kuwait's constitution, the proposed service contract will not give an oil concession to the foreign companies like a typical production-sharing agreement (PSA). The constitution bars such agreements. In previous discussions of the contract at the assembly's Economic and Financial Committee, some legislators voiced fear that foreign companies would hold the country's vital strategic resources. This led to speculation that the assembly was rejecting the project outright. But in reality the assembly never rejected the project. It was demanding transparency and full details.

As KOC has proposed a service contract, there is no legal obligation to obtain legislators' endorsement. However, the government wants to reassure the foreign companies by getting the the assembly's approval. One of the legal issues that the assembly may object to is the involvement of local agents for the foreign companies in the project, so that they can get commission on the contract. However, the government will be flexible on eliminating this hurdle, although Kuwaiti commercial law permits foreign companies to have local agents. The government now has enough votes in the assembly to pass this important project.

When the assembly approves the project, the government will again submit the draft contract to the companies qualified as potential operators, including BP, ChevronTexaco, ConocoPhillips, Total, ENI, ExxonMobil, Shell and Occidental Petroleum (OXY). Potential non-operator partners are Marathon Oil, Amerada Hess, Encana Corp., Petro-Canada, Indian Oil Corp., China Petroleum and Chemical Corp., Sibneft and Maersk Oil. The potential operators and their partners have formed three competing consortia.

Project Kuwait was launched in 1998. It envisaged doubling oil production from Rawdatain, Sabrya, Ratga, Abdali and Bahra within five years of development work, from 450,000 b/d.

Last September KOC extended for one year a service contract with Total under which the French major give it technical assistance. The contract was first signed in 1997 and renewed in 2001. The new contract can be further renewed when it expires next year. Under the contract, Total provides KOC with expertise for the development of oilfields in the Divided Zone between Kuwait and Saudi Arabia as well as onshore blocks in Kuwait.

Start-Up of Oil Gathering Centre Delayed: KOC has delayed the reopening of its long-awaited oil gathering centre No. 15, which was expected to add 200,000 b/d to the emirate's production capacity to the country in late October and this was to be ready for sale by December. Now it is expected to be ready for sale in early January.

The GC-15 at the Rawdhatain oilfield was destroyed in January 2002 by an explosion and fire. The reconstruction work is nearly complete but some fine-tuning is still required. The rebuilding work, including an expansion of the facility, has been contracted to Fluor Corp. of the US and SK Engineering and Construction of South Korea for $237m. GC-15's capacity is being raised to 300,000 b/d from 280,000 b/d.

While the start-up of GC-15 will increase the emirate's production capacity to 2.8m b/d, other GCs will have to be closed for maintenance and work will be needed to expand export facilities. So KOC in January will only be able to produce about 2.7m b/d.