Kuwaiti shake-up

Oil-rich Kuwait, which has enforced strict controls on foreign investment in the past, is beginning to open its doors to energy players from outside the country.

According to the Energy Information Administration (EIA), Kuwait currently pumps around 2.4 million barrels per day (bpd) and controls nearly 10% of global reserves.

With the country's oil minister Sheikh Ali Jarrah Al Sabah placing proven reserves at 48 billion barrels, and operating around 1 600 oil wells, Kuwait has bold plans to shake-up the oil sector and boost capacity in the long term.

In May the country's oil minister Sheikh Ali Jarrah Al Sabah said this will be brought about by promoting young staff to top posts. "What I have noticed is that the oil sector [management] has become flabby," he said. "Now I plan to promote people from the second and third lines to the top...We have to tell certain officials thank you."

Despite the official figure, the minister is convinced Kuwait has additional probable reserves of around 150 billion barrels, especially after recent discoveries. Last month, Kuwait announced a significant oil and gas discovery in the northern Dhabi area. This was in addition to the huge free gas discovery in 2006.

The country is home to Greater Burgan, widely considered the world's second largest oil field, surpassed only by Saudi Arabia's Ghawar field. The EIA claims Kuwait's Raudhatain, Sabriya and Minagish fields also hold large proven reserves, with 5.1 billion, 4.3 billion and 3.3 billion barrels of oil respectively.

Kuwait continues to plan significant expansion of its production capacity, aiming to hit four million barrels per day (bpd) by 2012 and five million bpd by 2020. As part of the plan, energy ministers have outlined ‘Project Kuwait', under which foreign oil companies will be allowed to invest in the country's upstream production. This is aimed at encouraging buy-back contract arrangements, which do not involve production sharing, concessions or the ‘booking' of reserves by foreign companies.

Kuwait's constitution bars foreign investment in its natural resources, except as provided for by law. Unlike PSAs, the structure of the buy-back agreements will allow the Kuwaiti government to retain full ownership of oil reserves, control of oil production levels, and management of the ventures.
Sheikh Ali recently said the country is close to completing its revised plans for Project Kuwait, which would see the development of four northern oilfields. The project, which has met opposition from many parlimentarians, is expected to cost US $8.5 billion.

"We are in the finishing stages," said Sheikh Ali, adding that Kuwait would need the help of international companies because drilling in the northern fields would be difficult. "If it was not difficult, we would not bring them in...They are not only keen, but devoted to Project Kuwait."

Under the project, foreign firms will be paid a ‘per barrel' fee, along with allowances for capital recovery and incentive fees for increasing reserves in their role as a service provider/contractor. The project was formulated in 1997 by the Supreme Petroleum Council to increase the country's oil production by 500 000, and to help compensate for declining output at the mature Burgan field. In particular, Kuwait aims to increase output at four northern oil fields - Abdali, Ratqa, Raudhatain and Sabriya - from their current rate of around 650 000 bpd to 900 000 bpd within three years.

Project delays

Project Kuwait has been repeatedly delayed however, due to to political opposition and resistance in parliament to the idea of allowing foreign companies access to the country's oil. In addition, the controversy over Kuwait's reserve figure could significantly impact on the country's capacity expansion plans. Its current estimated US $8.5 billion cost is up from an earlier US $7 billion. Legislation facilitating the project was introduced again in parliament in early 2005 and approved by the Finance and Economic Committee in June of that year, but with heavy limitations on what fields could be developed. Following a report made by Petroleum Intelligence Weekly, Kuwait was forced to admit reserves had fallen to 48 billion barrels, down from the official figure of 100 billion barrels.

Kuwait also plans to invest US $6 billion in three areas near the Iraqi border - Abdali, Ratqa and Raudhatain - while using enhanced oil recovery (EOR) techniques to increase production capacity at Minagish from 150 000 bpd to 250 000 bpd. Agreements to assist in developing EOR techniques have already been reached with Chevron, ExxonMobil and the Japan National Oil Corporation (JNOC).

To meet its expanded production goals, the Kuwait Petroleum Corporation (KPC) unveiled an aggressive drilling programme at the end of 2006, which would involve both deep and shallow exploration, but mainly focused on developing heavy oil from the northern fields. The KOC estimates it will need to spend around US $27.6 billion on domestic upstream oil development to meet its 2020 goal. The company has disclosed the main development area will be in the Rutga field at the Lower Fars formation at 500 to 1 000 feet. Pilot testing of the heavy oil should begin in early 2008.

The KOC also plans to start drilling in south-east and west Kuwait. In the south-east, which holds the vast Burgan field, production is set to increase by 200 000 to 1.7 million bpd, while in the west, the KOC will aim to maintain capacity at 500 000. Kuwait is anticipating the largest increases from the north, where the KOC expects to produce 700 000 bpd of heavy oil from the shallow wells. Along with production from newer, deeper wells, Kuwait is hoping for a total production in the north of 1.5 million bpd by 2020.

In late 2006, KOC officials detailed plans for three new projects to boost crude oil output. These include a gas booster station, a gathering centre and a water injection plant. Gathering Centre 24, which will be built at Sabriya in the north, will have an estimated capacity of 465 000 bpd and 240 Mmcf per day of natural gas. It is expected to cost US $550 million. Booster Station 160, to be built in the south-east, will complement two other stations in the area that are already operating at full capacity.

As part of its current budget, the KOC has also implemented a two phase project to make all its oil production facilities in south-east Kuwait able to handlle sour crude laden with hydrogen sulphide. This process, known as going from ‘non NACE' to ‘NACE', involves meeting international standards for corrosion prevention set by the National Association of Corrosion Engineers. To make this transition, Kuwait may be required to replace up to 80% of all south-eastern facilities, including several new gathering centres, new pipelines and condensate recovery units.

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