BP Takes Major Share in Massive Saudi Project
BP chief executive Sir John Browne signed an agreement for the company to take a major interest in Saudi Arabia's largest gas development and the first significant hydrocarbons project for 25 years in which the Kingdom has invited foreign companies to participate.
BP will share stakes with Shell, ExxonMobil and Phillips in the integrated Core Venture 1 project to find and develop gas reserves in an area of more than 100,000 square kilometres in the east of the Kingdom. The exploration acreage, lies south of Ghawar, the largest oil field in the world and covers an area substantially larger than Ireland and slightly larger than the United Arab Emirates.
Speaking after a signing in Jeddah, Browne said: "For BP, this is a new, exciting venture. We have never had a significant presence in the Kingdom before. So we consider we have secured a tremendous prize and look forward to working with all concerned to make this a very successful project."
Gas, when found, will be transported and processed into feedstock for two giant petrochemical projects, one in Jubail on the Gulf in the east of the country and the other in Yanbu on the Red Sea coast. The dry gas will be used for two giant 2000-megawatt power stations and associated desalination complexes. In total the capital expenditure could reach $15 billion.
The four companies will share interests in the entire chain of development, from the well-head to the end-user. Although the structure of the project and the respective interests of the participants remain to be negotiated over the coming months, BP expects to invest up to a quarter of the $15 billion cost of the project. ExxonMobil will lead the consortium.
Browne said: "We are delighted to be involved in one of the largest integrated gas development projects in the world. Assuming a 25% interest, BP's expenditure alone on these projects could amount to over 14 billion Saudi Riyals or approaching $4 billion. And this may only be a start if we are successful in finding gas in substantial quantities.
"For Saudi Arabia, the project will also give a substantial stimulus to jobs and economic growth, both vital to the Kingdom. Plentiful energy and water are a driving force of economic development," he said.
Core Venture 1 is the largest of three projects in the Saudi natural gas initiative. BP expects to confirm over the coming weeks a 25% interest in the venture. In total the three projects will attract investment of about $25 billion.
The Saudi natural gas initiative was launched in late 1998 by HE Crown Prince Abdullah on a visit to Washington DC when he asked international oil companies to submit investment proposals to the government. It is the first time international firms have been allowed in the country's upstream since the 1970s.
BP's operations to date in Saudi Arabia include lubes distribution, a solar panel assembly plant near Riyadh, and Air BP is involved in a jet refuelling venture in the west of the country. BP is a significant buyer of Saudi crude and has a representative office in Riyadh.
The Ghawar field is the largest in the world, producing more than 4 million b/d. Saudi Arabia with 264 billion barrels has 25 per cent of the world's oil reserves and at 205 trillion cubic feet has 4 percent of the world's proven gas reserves.