KuwaitSays Agreed with Japan on New Base for AOC
Kuwait's Oil Minister Adel Subaih also stressed a desire to see increased Japanese investment in the OPEC member state but said it was not a prerequisite for Japan's Arabian Oil Co LTD (AOC) to maintain a role in the zone.
"We are in full agreement on how to proceed from here. The old (AOC) contract is concession based...and (it) is ruled out clearly from this negotiation," Subaih told a joint news conference with Japanese Minister of Economy, Trade and Industry (METI) Takeo Hiranuma.
Hiranuma, who is on a Persian Gulf tour, said Japan understood constitutional limitations to renew the contract under its current terms and agreed with Subaih's remarks.
AOC has been operating in the zone divided between Saudi Arabia and Kuwait since 1957. Its current concession-based deal with Kuwait runs out in January 2003 and is its last remaining commercial crude interest.
A new deal with Kuwait is crucial for AOC which currently produces some 135,000 barrels per day (bpd) for the Kuwaiti portion of the zone. Its sales to Japan are around 78,000 bpd or 1.8 percent of Japan's total crude imports.
Kuwait's constitution bans production sharing.
"For that reason, we are considering alternatives," Subaih said of the now month-old talks with AOC. The first stage of the talks is due to be completed by early September following another five meetings in Japan and Kuwait.
Fresh talks are due in Kuwait on Sunday and Monday.
Kuwait and AOC signed an MoU on Saturday on the framework for the talks. Full fledged contract talks would be held in the second stage if Kuwait's Supreme Petroleum Council (SPC) approves general principles currently being negotiated.
In February 2000, AOC gave up its rights to produce oil in Saudi Arabia, losing a drilling concession representing Japan's premier upstream overseas oil interest, due to differences on terms and Riyadh's insistence on a boost in Japanese investments in the kingdom.
Subaih said Kuwait was after "significant presence" in AOC's offshore operations in the zone, maintaining a level of profitability which he did not specify and forging long term crude oil contracts to Japan -- the world's second largest oil consumer which depends heavily on Persian Gulf crudes.
He said Kuwait was in general trying to encourage a boost in Japan's investments in Kuwait in government-to-government talks.
"In our negotiations with AOC we are not attaching any other investment...so we are talking about direct (Japanese) investment and we are talking about U.S. dollar per barrel (with AOC). We are not looking at any other side issues as basis for acceptance or not ... it is based on direct cost per barrel."
Subaih said that Kuwait, which launched a long process to eventually allow foreign oil majors to operate domestic fields after two decades of nationalising the sector, was at the time being only negotiating with AOC for the neutral zone.
If a deal is not reached "we will have to decide on how to handle the region and this does not rule out the participation of other company. But we are giving the first choice of refusal to the AOC to conclude the negotition with first."
The visiting minister reopened the issue of AOC playing a role again in the Saudi portion of zone when he stopped in the kingdom before coming to Kuwait.
Kazuo Matsunaga of Japan's agency of natural resources said the minister made a request "to start some kind of talks about AOC's future involvement" on the Saudi side.
Riyadh did not give a definitive answer but said the request would be conveyed to the appropriate authorities in the
In Kuwait, the Japanese minister signed with Subaih an MoU for cooperation in the energy sector of six points.
It expresses "the common understanding that energy is the key element in their endeavour to maintain the recovery of the world economy...and acknowledge the importance of further cooperation which would lead to the establishment of a strategic relationship in the energy sector between the two countries."