KUWAIT (Reuters) - The world’s fourth-largest oil exporter Kuwait is looking to entice big oil firms back with new deals.
A change in the political mood has given optimism to both Kuwait oil officials and foreign oil firms, which failed for years to make progress on new deals as a power struggle between government and parliament paralysed the state.
France’s Total made a high-level pitch this week when Chief Executive Christophe de Margerie led a delegation to discuss potential ventures with top Kuwait oil officials.
That came after Kuwait signed a technical service contract with Royal Dutch Shell for gas field development in February, signalling Kuwait was open for business.
“The Shell deal has whetted the appetite of the other big oil companies,” Kuwait’s Oil Minister Sheikh Ahmad al-Abdullah al-Sabah told Reuters. “We’ve been approached. If they accept our terms and conditions, they are most welcome.”
Tensions between the legislature and the cabinet eased after the prime minister, Sheikh Nasser al-Mohammad al-Sabah, survived a non-cooperation motion in parliament in December, but disagreement remains over reforming the economy and weaning Kuwaitis from a decades-old welfare state.
“Stakeholders in the Kuwait system seem to be saying enough is enough, we’d like to see something done, we’ve wasted too much time,” said David Kirsch of Washington-based PFC Energy.
“There are still some real challenges. But there is a strong notion that the rest of the region is passing Kuwait by.”
Last year, oil majors BP and Chevron scaled back their presence in Kuwait after making little headway in negotiating new deals after 15-year technical service contracts lapsed. Energy sector pessimism was cemented when parliamentary criticism led Kuwait to cancel billion-dollar petrochemical and refining deals.
In contrast, the world’s biggest oil firms competed in two of the largest oil auctions ever held in neighbouring Iraq, winning deals to develop its giant oilfields. Kuwait officials at the time voiced concern they had missed their opportunity to attract the world’s top oil firms.
The gas deal with Shell has escaped parliament’s public scrutiny. That may be because Kuwait needs the gas for power stations and has struggled to produce it from challenging fields in the north.
But getting oil deals past parliament would be tougher for the oil minister. Oilfields have long been off limits to foreign investment, and the involvement of international firms even as service providers is an emotive issue for parliament.
“Gas is always the least controversial element in the energy mix in the region,” said Samuel Ciszuk, Middle East energy analyst at IHS Global Insight. “But the jury is still out on whether they will make progress elsewhere. What about heavy oil?”
The oil minister will have to convince parliamentarians that oil service deals would not lead to the OPEC-member allowing foreign firms access to its reserves, officials said.
Sheikh Ahmad may be the right man for the PR job. His other portfolio is the information ministry, and this week he hosted the largest energy industry conference in Kuwait for years.
“It is difficult because opposition to previous deals was not always based on scientific fact,” said one Kuwaiti oil official. “The projects need to be better understood and perceived by MPs and the public.”
Any progress could quickly be torpedoed if relationships again become strained between parliament and the executive, another official said.
“They are good plans, but it is the same faces in parliament,” the official said. “They could still cause problems.”
Kuwait has raised its oil capacity to 3.1 million barrels per day (bpd) without foreign help, but needed the project management and technology of foreign oil firms to move toward its 4 million bpd capacity target in 2020, analysts said.
“They are important,” said former oil minister Ali al-Baghli. “Because these foreign companies have new technologies that Kuwait Oil Company and its contractors don’t have.”
Kuwait needed to boost output of heavy oil, and improve the percentage of oil it recovers from oilfields, analysts said.
“They don’t have the capacity for it,” said Fereidun Fesharaki, head of FACTS Global Energy. “These things are megaprojects, they are difficult. Raising capacity to 4 million bpd would be very hard to achieve.”
Exxon Mobil, Chevron and BP have all previously discussed technical service agreements with Kuwait.
France’s Total is looking at working with Kuwait on enhanced oil recovery. Exxon signed a preliminary deal in 2007 to work on heavy oil in the country’s north. BP has looked a working in the country’s west, while Chevron has looked at the south and east.
Editing by William Hardy