Saudi Arabia and Kuwait signed agreements yesterday to resume pumping at two major oilfields in a shared neutral zone shut for five years due to a bilateral disagreement. Kuwaiti Foreign Minister Sheikh Ahmad Nasser Al-Mohammad Al-Sabah and Saudi Minister of Energy Prince Abdulaziz bin Salman Al-Saud inked the deals. Kuwaiti Minister of Oil and Minister of Electricity and Water Khaled Al-Fadhel and the Saudi minister of energy signed a memo of understanding.
Kuwait and Saudi Arabia’s collective histories are dotted with instances of “exemplary cooperation”, Fadhel said during a lavish ceremony held at Wafra Joint Operations later yesterday. Production from the Khafji and Wafra fields will not affect the two countries’ OPEC commitments to reduce oil output, added the minister, expressing hope that resumed production would pay dividends for the Kuwaiti and Saudi economies.
Prince Abdulaziz said talks between his country and Kuwait on the neutral zone in the past few years focused more on “harmony” rather than striking a deal. On the sidelines of the deal’s signing ceremony, the Saudi minister commended the brotherly relationship between HH the Amir of Kuwait Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah and Saudi King Salman bin Abdulaziz, describing it as a basis of the Kuwaiti-Saudi partnership.
After a meeting with HH the Amir, the Saudi minister affirmed that what links the two countries is greater than borders – history and brotherly ties. He also pointed out that Saudi Crown Prince Mohammad bin Salman played a prominent role in reaching this agreement and the memorandum of understanding. KUNA news agency reported that the two countries also signed an agreement on the demarcation of land and maritime borders in the neutral zone.
The two fields were pumping some 500,000 barrels per day before production was halted, first at Khafji in October 2014 and then at Wafra seven months later, over a dispute between the neighbors. Riyadh said at the time that the decision was due to environmental issues. The oil produced in the neutral zone in the border area is shared equally between the two nations.
Khafji, an offshore field, was jointly operated by Kuwait Gulf Oil Co and Saudi Aramco Gulf Operations, while the onshore Wafra field was operated by KGOC and Saudi Arabian Chevron. Kuwait had blamed Saudi Arabia for unilaterally halting output at Khafji, noting it was entitled to five years’ notice under a joint agreement signed in 1965. The two countries have been negotiating to resolve the row and resume production since June 2015.
Yesterday’s agreement comes as oil prices are under pressure due to abundant reserves and weak global economic growth. Continued soft pricing has prompted OPEC and its allies to make deeper production cuts starting next month. OPEC kingpin Saudi Arabia pumps just under 10 million barrels per day (bpd), while Kuwait produces around 2.7 million bpd.
“The most important point is the final demarcation of the entire border …. in addition to defining sovereignty on both sides of the divided zone which translates into a real achievement,” Saudi economist Fadl Alboainain said. A source familiar with the negotiations told Reuters that the talks had turned serious in October and the breakthrough came at a meeting of Gulf Cooperation Council countries in Riyadh this month.
“During the latest GCC meeting in Riyadh there were very clear signs that Kuwait and Saudi Arabia had reached a solution…and the Amir of Kuwait himself was pushing to resolve this issue bluntly and firmly,” the source said. The agreement was reached after a lengthy process in which a large team of political, technical and legal representatives from both sides were involved. “The two countries are not in a rush to resume production from the neutral zone oilfields due to the production cuts agreement so it will take easily up to six months to resume production,” Kuwaiti oil market analyst Kamel Al-Harami said.
President of Saudi Arabian Chevron Mohammed Al-Marri said that the agreement reached between the governments of Saudi Arabia and Kuwait embodies the strong ties that bind the two countries, considering this event as historic. He affirmed that Chevron Arabia has worked in Saudi Arabia and Kuwait for more than 30 years and although production operations were interrupted, Chevron maintained strong ties with KGOC. CEO of KGOC Abdullah Al-Sumaiti said the Kuwaiti and Saudi partners have maintained the facility during the past five years, and many plans have been made to resume production and preserve assets and profits.
US oil major Chevron said it expects the Wafra field to return to full production within 12 months. A former senior official in KCOC said he expects production to resume in Khafji first. “The Khafji oilfield will most likely be the first to resume production as its equipment is far better maintained than Wafra,” he said.