Shell, Total Sign Landmark Saudi Gas Deal

RIYADH November 15, 2003; Dominic Evans writing for Reuters reported that oil majors Royal Dutch/Shell and Total signed a landmark deal on Saturday to find and pump gas in Saudi Arabia, becoming the first Western oil companies in decades to win rights to the Gulf state's huge energy reserves. The deal could see up to $2 billion invested to develop a 80,000 square mile block in the southern part Saudi Arabia's vast Empty Quarter desert.

"I am confident that the Rub al-Khali (Empty Quarter) will prove to be far from empty," Total chairman Thierry Desmaret said after a late night signing ceremony in Riyadh.

The scheme is a pared down version of the $5 billion Shaybah venture that Anglo-Dutch Shell and its French partner Total had negotiated for five years. Shell has 40 percent of the project, with Total and state-owned Saudi Aramco holding 30 percent each.

The deal may not be huge for Shell and Total, two of the world's largest oil companies which make capital spending commitments of more than $10 billion each year.

But it offers an upstream foothold in the world's biggest hydrocarbon reserves -- the first since Saudi Arabia nationalized its oil industry in the 1970s.

Shell chairman Philip Watts hailed the deal as a "major milestone" but added the hunt for oil in a desert area as large as Britain was a gamble.

"This will be exploration. Sometimes that's successful, sometimes it's not. We like taking risks in the exploration business. We hope for success," Watts told a news conference after the signing.

Talks on two other giant foreign investment projects worth $20 billion fell apart after a prolonged contractual dispute. Analysts said Saudi Arabia was offering lower returns than major oil companies expect on their investments. It will now auction three further gas exploration areas in late January.

"The project being signed today is only the beginning of a series of investment projects all of which are designed to further develop the nation's precious natural gas resources," Saudi Oil Minister Ali al-Naimi said.

Naimi said the agreement, which was signed one week after a suspected suicide bombing killed at least 18 people in a Riyadh expatriate compound, showed "confidence in the strength and solidity of the Saudi economy."

That attack followed triple suicide bombings in the capital six months ago which killed 35 people, including nine Americans. Saudi Arabia has blamed both attacks on Osama bin Laden's al Qaeda militant network.

"We have to be careful about the safety of people working in our venture, but we're in the business for the long term," Watts said. "What's important is our long-term relationship."