AOC and Kuwait Finalize Deal in March

Kuwait will finalize a deal in March with Japan's Arabian Oil Co Ltd (AOC) on its role in Neutral Zone oil production after a 40-year concession expires in January 2003. "We are done, 80-90 percent of the deal is agreed upon... one item is still pending and we hope to finalize this in March after the holidays," according to a Kuwait Oil Ministry Official. Kuwait will close later this week for the nine-day holiday.

Kuwait equally shares the Neutral Zone with fellow OPEC-member and southern neighbor Saudi Arabia which ended in 2000 AOC's rights to produce oil in the kingdom, losing Japan's premier upstream overseas oil interest. Riyadh and Kuwait each have a 10.94 percent stake in AOC.

Officials put zone production at around 340,000-360,000 barrels per day with work underway to reach 430,000 bpd by 2005.

The talks now center on a long-term supply deal with Kuwait to sell Japan no less than 100,000 barrels per day from the zone's production at prevailing market prices. AOC will extend soft loans to finance some zone operations at lending rates below international market levels. The deal also calls for AOC's transfer of technology and expertise under a five-year technical services agreement.

The state's Kuwait Oil Co (KOC) has set up a new firm - Kuwait Gulf Oil Company - to take over operations in the zone from AOC with a capital of around $350 million. The new Kuwaiti operator will take over from AOC a joint operating agreement with the Saudi side while AOC will serve as a technical consultant.