Saudi Arabia cancels ng deal

[Ian Murray <seamus2001@xxxxxxxxx>]

[wonder what brought this about...]


June 5, 2003
Saudi Arabia Cancels $15 Billion Gas Project
By REUTERS


Filed at 1:06 p.m. ET

DUBAI - Saudi Arabia told Exxon Mobil today that it had closed talks on a $15-billion gas project, the biggest
Saudi energy opening in nearly 30 years, oil company and Saudi sources said.

Saudi Oil Minister Ali al-Naimi sent notice in a letter to Exxon and fellow consortium members ending negotiations
to develop gas in the South Ghawar field, the best Saudi upstream opportunity since oil nationalization in the
1970s.

The failure of the opening deals a heavy blow to Saudi economic reforms, launched in 1998 by Crown Prince Abdullah,
the kingdom's de facto ruler.

Western executives believe Naimi wants to split up the projects, keeping gas field development in the hands of
state-owned Saudi Aramco and tendering out contracts for gas-powered electricity, petrochemical and desalination
plants.

In the United States, a person familiar with the negotiations said that all the members of the Exxon consortium had
received a cancellation notice from Riyadh. A Saudi industry source cancellation was effective June 15.

Exxon declined to confirm the deal was dead but company spokesman Tom Cirigliano said: ``We can confirm that we
have received correspondence from the oil minister and we are currently evaluating it.''

Other potential investors in what was known as core venture one were Royal Dutch/Shell, BP and ConocoPhillips. All
declined comment.

The companies had wanted access to more gas than the Saudis were offering, and the two sides also disagreed over
the rate of return for the downstream industrial projects.

For some, this unprecedented deal was doomed virtually since the ink dried on preparatory agreements sealed two
years ago between Riyadh and the world's leading oil majors.

``This is not terribly surprising. Saudi Arabia's mistake was not to design its initiative in a logical way from
the beginning,'' said Robert Mabro, President of the Oxford Institute for Energy Studies.

``And the companies appeared to be willing to do things, such as water desalination, which were not in their core
business. It was surprising they did not display sufficient political sense and finesse.''

The Saudi industry source could not comment on whether Riyadh was prepared to re-open the contest for its gas
reserves -- the world's fourth biggest.

Western executives also expect core venture three, the $5 billion Shaybah development led by Shell, now also will
be scrapped.

It has been an uphill battle for majors seeking access to Saudi gas reserves ever since Prince Abdullah unveiled
the outlines of the industrial mega-projects four years ago.

But some Western oil executives began to fear the worst after a key ally, foreign minister Prince Saud al-Faisal,
took a back seat to Naimi, who assumed full control of the talks when he was reappointed to a third term as oil
minister last month.

Core venture two, the $5 billion Red Sea development, led by Exxon and including Marathon and Occidental has been
off the table for some time.