Middle East: Neutral Zone

MIDDLE EAST

Dr. A. F. Alhajji, Contributing Editor, Boulder, Colorado

Neutral Zone

Kuwait shares this 6,200 sq-mi area and its oil revenues with Saudi Arabia. A subsidiary of Saudi Aramco, Aramco Gulf Operations Co. (AGOC), took over the concession of Japan’s Arabian Oil Co. (AOC) after it expired and negotiations broke down in February 2000 between the Kingdom and the Japanese firm. Since that time, observers have watched closely the fate of AOC in the Kuwaiti half of the Neutral Zone.

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AOC held its first formal meeting with Kuwait last June, to negotiate a renewal of the contract that was set to expire at the beginning of 2003. This followed two informal meetings with a special negotiating committee headed by Kuwait’s oil minister, Adel al-Subeih. However, the government hinted during these negotiations that it was looking for other alternatives and had asked national oil company, KPC, to prepare to take over operations if negotiations break down. Observers predicted more flexibility by AOC after its loss of the Saudi concession.

Early in July, Kuwait agreed to renew AOC’s contract under new terms. It will extend drilling rights on the Kuwaiti side of Khafji oil field. Officials from both countries will sign the contract in September. Kuwaiti sources indicated that the agreement includes provisions to increase Japanese investment in Kuwait. In addition, AOC will develop the untapped Dorra gas field. The latter was made possible by last year’s border demarcation between Saudi Arabia and Kuwait.

Drilling / development. Drilling increased to 40 wells after a decline in 1999 that was due to lower oil prices and tedious negotiations over AOC’s concession renewal. The number of wells drilled in 2001 is expected to increase 13%. However, drilling activity is expected to boom in 2002.

A producing well blew out in January, in the Kuwaiti portion of the Neutral Zone. The S-127 well in Wafra field (operated by Texaco) blew out during a workover and has been suspended until insurance assessments of the damage are made. Experts believe that extensive overproduction from the field led to the gas blowout.

Production. Oil output has been increasing for the last four years. Production gained 7%, averaging 630,000 bopd.