Re: From Dubai
DUBAI, April 23 (Reuters) - After initial high hopes faded into frustration and confusion, the
world's biggest oil firms are now learning the rules of the game of investing billions of dollars in
Saudi Arabia's energy sector.
Over the last week, prudent Saudi officials who manage the world's biggest oil reserves have
been holding face-to-face talks with keen senior executives from Western oil companies
seeking feedback on their investment proposals.
Royal Dutch/Shell (quote from Yahoo! UK & Ireland: SHEL.L), Phillips Petroleum (NYSE:P -
news), Chevron (NYSE:CHV - news), ExxonMobil (Montreal:XON.M - news), Texaco (NYSE:TX - news), Enron Corp
(NYSE:ENE - news) and Occidental Petroleum (NYSE:OXY - news) met with the newly formed Supreme Council for Petroleum
and Mineral Affairs.
But this time, executives came away with more than just unanswered questions, sources familiar with the talks said.
``Everybody walked out of those meetings with an understanding of the investment process, with clarification. Now the running
rules are known. It is a very defined process that will be followed,'' said one.
SCRAMBLING FOR INVESTMENT CLUES
It may not seem like much. But information is a rare commodity in Saudi Arabia, especially in the oil industry that has made the
kingdom the United States' most important Arab ally and OPEC's most influential member.
Since Crown Prince Abdullah in 1998 invited firms to present ideas for investment in the kingdom -- by far the world's biggest oil
producer -- companies have been scrambling for clues on how and when to invest.
These clues are hard to get because oil policy is made behind closed doors after being closely scrutinised by senior members of
the royal family, by the oil minister and by Saudi Aramco, the state oil firm seen as opposing opening the door too wide to
foreigners.
Saudi Arabia's policy makers are so concerned with keeping a tight lid on information, it seemed as if visiting executives were
given a script to read to the press.
Each executive made the same comment after talks with Foreign Minister Saud al-Faisal, Oil Minister Ali al-Naimi and other
officials -- ``the meeting was useful and the committee provided useful information''.
Saudi Arabia is expecting about $100 billion in oil and gas investments to ease unemployment in a country where hundreds of
thousands of youths seek jobs every year in a tight market.
Signs that Saudi officials are now shedding light on future projects is encouraging, some experts say.
``There's a lot to be said because the Saudis now appear to be defining the investment process. Companies went into these talks
flaky not knowing what to expect,'' said one expert.
``No shovel is expected to hit the ground within the first year or so. But this is pretty significant.''
READY FOR BUSINESS
There have been other signs that the Saudis are ready for
business.
Although the government is keeping oil production and
exporation off-limits to foreign companies, it recently did an about face and said projects in less profitable but still lucrative gas
exploration and production would be on the table.
The companies seem to be enjoying their first breakthrough at a time when Crown Prince Abdullah has made strides in
implementing bold economic reforms.
Saudi Arabia recently passed a foreign investment law removing some previous barriers to cash from abroad. Oil firms are
expected to benefit from the new economic landscape.
The kingdom may be facing some competition for foreign cash from other oil-producing neighbours such as Iran, Kuwait and
eventually Iraq when U.N. sanctions are lifted.
But it is banking on its 261.5 billion barrels of proven oil reserves -- more than one-fourth of the world's total -- and low recovery
costs of about $1.50 a barrel -- to lure investors.
Now that the talks, although preliminary, seemed to have gained some momentum, one key question is which companies will have
the edge in negotiations with Saudi Arabia's shrewd oil decision-makers.
Companies with a long history in Saudi Arabia -- Exxon (NYSE:XOM - news), Texaco (NYSE:TX - news), Chevron
(NYSE:CHV - news) and Mobil -- are expected to be the front-runners for projects.
``The others will still have to feel their way around,'' said a Western analyst.
A FEW COMMENTS ON THE ABOVE:
ARAMCO is the Major of the upstream sector. However, unless the Saudis can prevent the Majors of the downstream sector from aggressively looking for, and finding, oil in all the wrong places, their excess capacity can only provide them with the threat of lower prices. That may be a tool for organization, but over a protracted period of several decades, it would cause an economic collapse of the Saudi social network. Such a collapse would undoubtedly precipitate a change in government, and that is a totally unacceptable consequence to those making the decisions.
Additionally, history teaches us that if third world nations are provided with mortgageable assets, like mineral reserves, the rulers of those countries will hock them to the first international bank that offers an attractive bribe to that nation's rulers. Once the loan is made, that bank wants its payments on time. If that means selling oil, iron, copper, etc., for incredibly low prices, so be it.
Therefore, IMHO (and it is truly humble) unless the Saudi can somehow deter, or limit the rate of exploration, which the Major downstream companies engage in, in third world countries, the Kingdom is doomed. To get that stability for the Saudi's rulers, they will be forced to give up something. I think that something is a piece of the upstream profits.
The importation of refining facilities won't get it. If you put a refinery in SA, you then have to import workers to run it, and I'm not sure that is a deal the downstream companies would salivate over. It is certainly not one that would cause them to forgo all or part of their world exploration profits for.
I just feel they will need much more manpower and streamlining to do what is planned.
Chevron`s Partner or any foreign company has a Saudi counterpart. Complete with idle people wondering what to do with all the money they have.
ARAMCO is a bookeepers` Dream. A bureaucrat`s Fantasy. And access to the most advanced oil extraction methods. But I hesitate to put them in league with folks that drill in 13,000` of water and deliver oil from diverse situations. These people; Chevron, for example, are ready to set up much faster and more efficiently than ARAMCO can.
Saudi negotiators know this.
ARAMCO is the Saudi equivalent of the former Panama Canal Zone. Third-generation Americans working in a foreign country that becomes home to them. ARAMCO folks are a fascinating wealth of information about the Kingdom. One certain consensus among them is Understatement of Reserves. Especially cost-adjusted reserves. The EQ is awash with oil but this is no news.
But the actual large-scale development is now beginning. It will take more than ARAMCO to gear this up. They know this but don`t care. The money flows they will receive will assure that. Chevron employees will soon be faced with the task of training ARAMCO people to work efficiently.Hope they have fun.
Meanwhile, the deal is done anyway. The US didn`t save the House of Saud for gratis. Time to do some accommodating perhaps? Put thousands of efficient and professional people to work in the EQ. All with US passports, of course.
The ARAMCO dude is indispensible, however. He knows the language and the sense of the owners, besides being a master of oil extraction technology. The best of German, British, Norse and American technology washes through and much of it sticks. Do you want to be a millionaire? Here`s one way to do it.
ARAMCO folks are the Mentors of the expatriate community in Saudi Arabia. But as real producers of aggressive development, they are entering a new `learning curve` now. Even though Chevron will have one hand tied behind it`s financial back, they will whip ARAMCO handily. So it should be fun to watch.
Chevron has always had close ties with ARAMCO; these talks simply makes it public. The fact that it was on Saudi TV is most interesting. Saudi TV is heavily censored. To even announce such talks is risky. First, massive US military presence; now US oil companies? What will John Q. Saudi think now?
ARAMCO need not worry. The main ARAMCO compound (foreign neighborhood) is like entering gated Dallas without the Southfork. Saudi counterparts are among the best-paid in the Kingdom (that`s nice work, if you can get it). People come and go with every imaginable skill. A fascinating life; But one about to change. Its still my opinion XOM
will still be the big winner out of this.
FWIW JMHO
jo |
