TMCNet:  KOC inks heavy oil deal with Exxon

[October 23, 2007]

KOC inks heavy oil deal with Exxon

(Kuwait Times (KRT) Via Thomson Dialog NewsEdge) Oct. 23--KUWAIT -- Kuwait signed an agreement with ExxonMobil Corp to develop its heavy oil assets, aiming for 900,000 barrel per day (bpd) by 2020. Currently Kuwait does not produce any heavy oil for export. Khaled Al-Sumaiti, deputy managing director for Kuwait Oil Company's (KOC), northern oil field operations said that KOC has reached a preliminary deal with ExxonMobil to assist in the exploration of heavy oil in the Lower Fars at the Ratqa field in northern Kuwait.

Negotiations between the two companies are ongoing with the final agreement expected to be signed by July of next year.

Our target is to achieve 50,000 bpd by 2011, 250,000 bpd by 2015 and 900,000 bpd by 2020. The majority of 900,000 (about 700,000 bpd) will be from the northern fields," Al-Sumaiti announced, speaking yesterday at a four-day international energy conference held in Kuwait. "This is a tight schedule but we will work hard to reach this target," he added.

Kuwait has started drilling 60 heavy oil fields and will begin producing 5,000 bpd to 6,000 bpd of heavy crude by the end of next year, says Hisham El-Rifaai, CEO of Kuwait's northern oil field exploration, or Project Kuwait.

Since the 1950s, Kuwait mainly exports medium to light crude oil. KOC's exploring operations have historically focused on producing light crude, which is preferred to heavy crude because it's cheaper process though higher in price than heavy oil. Light crude is also easier to refine because of its low viscosity, meaning that it needs less energy to extract sulfur and other impurities from it.

Heavy oil is found in different areas around Kuwait, in the South East and the West of Kuwait, though the majority could be found in northern Kuwait in Ratqa field, said Al-Sumaiti. Sixty percent of Kuwait heavy oil range between 13-17 API gravity, while the remaining 40 percent are in between 11-13 API.

Heavy oil for Kuwait is something that is a new business for us," said Al-Sumaiti. "Our strategy by 2020, everyone knows that we are targeting 4 million bpd, and 25 percent of those 4 million barrels will be from heavy oil. That's why the heavy oil becomes very important in the next phase," he added.

According to industry reports, estimates of heavy oil reserves worldwide are up to six times greater than those of light oils, and, as increased consumption depletes light crude reserves, heavy and sour crude are becoming increasingly sought-after.

Demand for oil will continue to grow. The question is do we have enough resources? Yes, we have. We have plenty of heavy oil," said Al-Sumaiti. "The conventional oil will decline even with the new technology, I don't think there is an escape from using heavy oil, which will be the main contributor," he added.

Kuwait aims to increase its oil production to reach to 4 million bpd by 2020, which is also a key component of the controversial "Project Kuwait", a $8.5 billion upstream project (exploration and production of crude oil and natural gas) to develop the northern oilfields; mainly Raudhatain, Sabriya, Ratqa and Abdali. The project will allow more involvement of international oil companies (IOCs), an issue that has faced repeated opposition by the parliament fearing foreign control over natural resources.

This deal is not part of the plans for Project Kuwait. Even though both projects are taking place in the northern fields, "Project Kuwait has nothing to do with heavy oil," explained Al-Sumaiti.

However, several international companies operating in the same area can cause Kuwait to shelve Project Kuwait. "Three operators in the same geographical area has put Project Kuwait under thinking. Three operators in one area is not reasonable; heavy oil, gas and conventional oil. Who has the right? So now we need to go back and see, do we need north Project Kuwait or not," he told Kuwait Times on the sidelines of the conference.

We initiated the north Project Kuwait 15 years ago and it's still not approved by the parliament. We have to evaluate our priorities according to the changes. Heavy oil is becoming very important now for our strategy," he added. "We need IOCs in north Kuwait. KOC can't handle all those projects, but where's the priority?" asked Al-Sumaiti. Al-Sumaiti said KOC has already signed a memorandum of understanding (MOU) and feasible study with ExxonMobil targeting to end negotiations by December and to sign the final agreement by July.

We are introducing something that is not violating the constitution and also we meet the target. It's not production sharing, it's not operate and service agreement; it's something that we are agreed with the IOCs making sure that we are not violating the constitution," he said. KOC's new introduced agreements will be technical agreements in the upstream and joint-venture agreements in the downstream.

No parliamentary approval is needed for the agreement between KOC and ExxonMobil because there are no capital investment or reserve booking for the project, explained said Al-Sumaiti on the sideline on the conference. El-Rifaai said the deal with Exxon Mobil deal doesn't need a parliamentary approval. "No, we don't need approval. This is an enhanced technical service agreement," he told reporters.

However, the heavy oil production project in the north still faces challenges and technical difficulties according to Al-Sumait, such as difficulties to develop and market heavy oil, shortage of skilled manpower and lack of the know-how to clear mines in the area.

Meanwhile, Richard Vierbuchen, Exxon Mobil's vice president for the Caspian Sea and the Middle East, said the talks were about producing 700,000 bpd from northern Kuwait but declined to provide more details. "Kuwait has very ambitious heavy oil plans ... We're working very closely together," he told Reuters.

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