Belated progress on Kuwait’s upstream ambitions

      Published on Thursday, 1 August , 2019      198 Views     
Belated progress on Kuwait’s upstream ambitions

  • Kuwait News

Government-owned Kuwait Oil Company (KOC) signed a contract in early July with a US oilfield services titan to carry out the country’s first offshore drilling programme since the 1980s, after more than three years of repeatedly declaring the relaunch of maritime exploration to be imminent.



Successive delays have similarly beset long-held plans to develop Jurassic gas reserves in the north of the country⁠—a derogation made especially egregious by the country’s chronic shortage of the resource.

However, with a shortlist of contractors for the next phase now finalised, tenders are anticipated by the end of the quarter.

KOC, the domestic upstream operating subsidiary of state oil conglomerate Kuwait Petroleum Corporation, inked a $597mn, three-year “Integrated Offshore Drilling Services” contract on 1 July with the US’ Halliburton, covering the drilling of six high-pressure high-temperature exploration wells.

The first of two jack-up rigs is due in place in July next year and the second in January 2021.

The proposed locations were undisclosed but reports circulating last year when bids were invited for the contract from BakerHughes and Schlumberger as well as their successful compatriot, indicated that one site inside Kuwait Bay and one outside had been selected. KOC has been actively planning to restart offshore exploration since the early years of the decade, with Canada’s Sander Geophysics and China’s BGP completing separate surveys.

While such investment dried-up worldwide in the wake of the 2014 oil price crash, the execution process for public sector projects in Kuwait is notoriously tortuous as it is often delayed at multiple stages by a combination of political frictions and bureaucratic sclerosis.

KOC CEO Emad Sultan declared on signing the drilling contract that offshore production would reach 100,000 bl/d over an unspecified timeframe—an improbably precise forecast before the first well has been spudded. Kuwait’s reputation for execution delays sits unhappily alongside a tendency to repeatedly proclaim grandiose targets—up to and beyond the point at which they become incredible.

A nominal target remains in place of raising oil production capacity to 4mn bl/d by next year, from about 3.2mn bl/d at present, despite only 60,000 bl/d due onstream by year-end, from the long-awaited Lower Fars Heavy Oil project.

Reports emerged in mid-July of a breakthrough in intergovernmental talks ongoing for some five years over resuming production from fields in the Partitioned Neutral Zone shared with Saudi Arabia⁠, where Kuwait’s net output stands at around 250,000 bl/d⁠, which have been shut-in since 2014/15 over a sovereignty dispute. However, a deal has been deemed close before, without consummation, and Opec cuts in force until March make short-term output increases a low priority for Riyadh.

Development of the country’s Jurassic gas reserves, by contrast, has been urgent since their discovery in 2006—an acute shortage has forced the state to import costly LNG since 2009. However, a long delay ensued from an effort by KOC to enlist first ExxonMobil then Shell in the reserves’ exploitation⁠, which failed on the back of political opposition in Kuwait’s fractious parliament to any involvement by international oil companies in the upstream sector.

Having reverted to proceeding alone using a build-operate-transfer (BOT) model, Schlumberger and the local Spetco were contracted for three early production facilities at the northern West Raudhatain, East Raudhatain, Sabriya and Umm Niqa fields which were commissioned last year, each producing around 100mn ft³/d of gas and 40,000 bl/d off light oil. However, inter-agency wrangling again obstructed progress in late 2017, as KOC was forced to cancel the tender for a 590mn-ft³/d Jurassic facility on the back of differences between KOC and the Ministry of Oil and Gas over the contracting model, and concerns about the estimated cost of some $3.5bn.

When the state corporate reverted to a plan to procure two smaller so-called Jurassic Production Facilities, each with capacity of around 150mn cu ft³/d and 50,000 bl/d, on a BOT basis, a dispute then developed with the Central Agency for Public Tenders (CAPT), which demanded a rerun of the prequalification process. KOC has now conceded the order⁠, and CAPT announced in early July that tenders would be floated within a month to an 11-strong shortlist, for contracts envisaging a 22-month construction period followed by five years of operation.

However, aspects of the process remain uncertain. “Prequalification has been left open for others to come in, possibly because they are still looking for more local companies to join the list,” says Lynn Morris-Akinyemi, analyst at consultancy Wood Mackenzie.

“But, as KOC discovered when tendering the first phase, not many Kuwaiti firms have the technical and financial capacity required.”

Spetco is thus far the only local prequalifier.



In the course of the prolonged wrangling KOC quietly pushed back the date for achieving total non-associated gas production of 1bn ft³/d from 2020 to 2023. A permanent LNG import terminal is scheduled for completion next year.

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Category Kuwait News | 2019/08/01 latest update at 12:04 PM
Source : Internet | Photocredit : Google
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