Middle East: Neutral Zone

MIDDLE EAST

Dr. A. F. Alhajji, Contributing Editor

Neutral Zone

Saudi Arabia shares this 6,200 sq-mi area and its oil revenues equally with Kuwait. The long-running saga of negotiations between Arabian Oil Company (AOC) of Japan and Saudi Arabia came to an end earlier this year, when the kingdom refused to extend AOC’s offshore concession, replacing the firm as operator with Saudi Aramco. The breakdown of negotiations led to expiration of AOC’s concession on February 27, 2000. However, AOC’s concession for Kuwait’s half-interest in the Neutral Zone’s offshore area was not affected. The Saudis had demanded increased access to Japan’s energy markets and an increase in Japanese investment in Saudi Arabia.

The Persian Gulf Click for enlarged view

AOC was replaced by Aramco’s subsidiary, Aramco for Gulf Operations (AGO). AGO was established specifically to take over AOC’s concession. The new company inherited all the offshore fields and installations in the Saudi half of the zone and will employ AOC’s 1,300 Saudi personnel. The takeover by AGO was surprisingly smooth, and crude oil production and exports were not interrupted. Operations are carried out under a temporary 50-50 agreement between AGO (Saudi Arabia) and AOC (Kuwait) until a formal agreement between the two companies is reached.

The Neutral Zone also was the center of attention, when Iran began exploring in the area’s waters that are disputed with Kuwait and Saudi Arabia. Consequently, Saudi Arabia and Kuwait recently demarcated their water boundaries.

Drilling/development. The long-running negotiations between Saudi and AOC are likely to have reduced exploration levels over the last year. While the number of wells drilled (see master table in "World Trends") fell 12% in 1999, the amount to be drilled in 2000 is expected to rebound 46%, to 51.

Texaco plans to increase onshore production to 300,000 bopd from 250,000 bopd this year. Texaco plans to further repair war-damaged Wafra field and increase its output by 40,000 bopd.

TotalFinaElf is providing three-and-a-half years of technical services in exploration, production, and transportation, to Kuwait Oil Co. in the Kuwaiti half of the Neutral Zone. TotalFinaElf proposed last year, that it participate in production of oil and gas in the Neutral Zone, in an effort to take advantage of the failure of negotiations between AOC and Saudi Arabia.

Production. Oil production has been increasing for the last three years. Output gained 4% in 1999, averaging 550,000 bopd. In April 2000, production reached 600,000 bopd.