AOC and Kuwait Reach Agreement Over Neutral Zone

Japan's Arabian Oil Co. said Wednesday it has reached agreement with the Kuwaiti oil ministry on five deals for operations in the Neutral Zone in the Middle East. The Tokyo-based oil producer had been negotiating with Kuwait for a new role in the offshore area when its 40-year concession rights on the area - which is equally shared by Saudi Arabia and Kuwait - expire Jan. 4, 2003. The Kuwaiti constitution bars foreign ownership of natural resources. "We reached an agreement last weekend, and subsequently both sides have confirmed the content," said AOC president Keiichi Konaga.

Under the proposed five contracts, which will be signed separately, AOC will provide technical support for Kuwait Gulf Oil Co. for five years from Jan. 5, 2003. The technical support contract can be renewed every five years, subject to agreement between the two sides. Kuwait's state-owned Kuwait Petroleum Corp. (C.KPT) set up Kuwait Gulf Oil, or KGOC, in February to take over AOC's operations in the area. AOC will sign a 20-year crude oil purchasing contract with KPC, under which the Japanese company will buy 100,000 to 170,000 barrels a day of Khafji and Hout crude oil from the Neutral Zone or other Kuwaiti crude oil. Currently, AOC takes 130,000 to 150,000 b/d of crude oil from the Kuwaiti part of the Neutral Zone and exports it to Japan and other Asian countries. With fees from technical support and proceeds from crude oil sales, AOC will be able to retain sufficient profit levels, Konaga said.

AOC and KGOC also agreed that AOC will arrange financing for Kuwait's investment in the Neutral Zone. Konaga said AOC is discussing the financing with a Japanese financial institution, but he declined to elaborate further. The contracts also include deals on the termination of AOC's concession rights and the transfer of AOC's oil drilling operations to KGOC. Konaga said that AOC will sign the deals by June "at the latest" following approval from the Kuwaiti government.