SAUDI ARABIA - The Gas Opening.

When he toured the world in 1998, Abdullah invited international oil companies (IOCs) to visit Saudi Arabia and propose integrated mega-projects based on gas E&P. Three core ventures (CVs) were established, with each headed by a super-major and worth several billion US dollars. But only one survived, a $2 bn involving Shell (40%) and Total (30%) and Saudi Aramco (30%).

Subsequently Naimi's ministry offered gas E&P zones in the RaK basin. While the Shell-led group took a 210,000 sq km south RaK area (SRaK) near the Yemeni border with an undertaking to drill seven wells (see Vol. 61, Gas Market Trends 13), LUKoil of Russia (80%) took the A RaK area of 29,900 sq km, with Saudi Aramco holding 20%, undertaking to drill nine wells. The state-owned Sinopec of China (80%) took the B RaK area of 38,800 sq km and undertook to drill seven wells, with Saudi Aramco holding 20%. ENI of Italy (50%), Repsol/YPF of Spain (30%) took the C RaK area of 52,000 sq km, with Saudi Aramco holding 20%, and undertook to drill four wells.

Shell is working on two blocks in SRaK area. It has awarded two seismic contracts worth $110m. One went to BGP Arabia, a unit of China's BGP Int'l. BGP will shoot 2D seismic over a 2,500-km area in SRaK's Block 1. The contract is to come into force in November. In May, BGP won a four-year 3D sparse seismic survey crew contract from Saudi Aramco. SRaK's second award went to the local Arabian Geophysical & Surveying Co. (Argas) for shooting 2D seismic in the 2,500-sq-km Block 2 near the Yemeni border.

In an interview published on Feb. 22, 2005, Floris Ansingh, president of Shell Companies in Saudi Arabia said Shell was to start drilling exploratory wells for within 12 to 18 months. He said the SRaK deal could one day open the door for foreign companies to search for oil as well. He said had already started seismic testing, using sound waves to detect underground gas reserves. He said: "If you consider that area of concession is 210,000 square kilometers, it's very critical that we get it right. It's a real challenge. We call this high-risk exploration, which means usually reduced chance versus high reward".

Searing heat and shifting sand dunes the size of apartment blocks had slowed down some of the work, but Ansingh said it continued apace and that production could begin as early as two years from then. If Shell finds oil, he said, it might be allowed to produce it under a service contract in the future. Ansingh added: "If we are asked to extract the oil, that would be in a service capacity only, but we never get ownership of the oil under the deal as it stands".

Shell is searching for deposits of wet gas, which is mixed with propane, butane and other liquid hydrocarbons that can be liquefied and exported for profit. The viability of the SRak venture depends on finding at least 5 TCF with a ratio of 40 barrels of condensate per 1 MCF of gas, producing 500-1,000 MCF/d of gas and 80,000-100,000 b/d of liquids. If Shell and the other E&P operators in the RaK basin only find dry gas, they would want to negotiate with the ministry over the price which Saudi Aramco will be prepared to pay. A gas find with no condensate, or low liquid content, would need a price more than the $0.75/m BTU which Saudi Aramco is charging for its gas being supplied locally as an industrial feedstock or fuel. It is said Saudi Aramco is to buy the gas from the RaK ventures at $0.60/m BTU, which is too low (see DT of this week).