Foreigners May Soon Play a Part in Kuwait Oil

Foreigners May Soon Play a Part in Kuwait Oil - New York Times

By JAD MOUAWAD: "Thirty years after foreign oil companies were expelled from Kuwait, the state is close to opening its lucrative oil production business again to outsiders. The decision is also eagerly anticipated in oil circles because of hopes that the proposal, which would limit foreign operation to selected fields for a 20-year period, could eventually be extended to other fields in the country and possibly elsewhere in the region.

Recent high oil prices have encouraged governments to further tighten the rules governing foreign participation and prompted a new wave of "resource nationalism." Venezuela, Russia and Bolivia each have pushed for greater control, while Britain plans to increase taxes on its production from the North Sea.

Oil was first discovered in Kuwait in 1938 by the British-Iranian Oil Company, which later became British Petroleum, and by Gulf Oil, now part of Chevron. Most of the country's production has since come from a single field, Burgan, which has accounted for 80 percent of Kuwait's total output.

That oil field, the world's second-largest after Ghawar in Saudi Arabia, is now showing signs of fatigue. Last year, Kuwait pumped about 3 percent of the oil produced worldwide, or about 2.5 million barrels a day. The country hopes to raise daily production to four million barrels by 2020. By then, Project Kuwait is expected to account for a third of the country's production.

But at these volumes, Kuwait will also be pumping out 10 million barrels a day of water associated with the oil production process. With oil selling around $60 a barrel, any delay in increasing production means Kuwait will be missing out on the greatest oil boom in three decades and millions of dollars in profits every week. Some also believe that welcoming international oil companies, including some from the United States, would provide additional security for Kuwait, which was invaded by Iraq in 1990 and served as a major staging ground to the American invasion of Iraq in 2003.

To break the long-standing deadlock, the government has agreed to Parliament's main demands. For example, the oil produced will remain the property of Kuwait; ownership will not be transferred. Also, the contracts will be considered service agreements, not foreign concessions. All of this means that the oil companies will not be allowed to book the reserves from the fields they operate.

After all, this is the ultimate prize in the Persian Gulf for the oil companies. Five countries - Saudi Arabia, Iran, Iraq, Kuwait and the United Arab Emirates - hold 60 percent of the world's oil reserves, more than 700 billion barrels. But either because of government policies or because of economic sanctions and war, access by foreign companies to these vast reserves has been limited since the 1970's.

Algeria, for example, nationalized its oil sector in 1971, a decade after gaining its independence from France. In 1991, it allowed foreign oil companies back."