HOUSTON (Reuters) – U.S.-based major oil company Chevron Corp said on Wednesday it extended by 30 years an agreement that allows it to drill for oil and natural gas in the Neutral Zone area shared jointly by Saudi Arabia and Kuwait.
The agreement extends the existing arrangement for 30 years, through February 19, 2039. Under the agreement, Saudi Arabian Chevron, a subsidiary of Chevron, will continue to explore for and produce crude oil and natural gas in the Neutral Zone on behalf of Saudi Arabia, the world’s largest crude oil exporter and de-facto leader of the OPEC producers group.
The concession, approved by Saudi Arabia’s cabinet in July, is the only oil production agreement that survived the Saudi nationalization of the oil industry in the 1970s.
The 60-year deal was first granted in 1949 to a company founded by U.S. industrialist Jean Paul Getty, helping make him the richest man in the United States.
Saudi Arabia and Kuwait share the estimated 270,000 barrels per day (bpd) of onshore production from the Neutral Zone.
Chevron’s net production after royalties is 110,000 barrels per day, mostly heavier grades that trade at a discount to benchmark West Texas Intermediate oil. Chevron could book some of those reserves at the end of 2008.
The zone is a region between Saudi Arabia and Kuwait that dates back to 1920s treaties to establish regional borders.
Chevron acquired the concession when it bought Texaco in 2001. Texaco had acquired it from Getty Oil in 1984.
“There’s a large prize there,” said John Watson, executive vice president of Chevron, who oversaw discussions with Saudi Arabia on the concession extension.
Though Saudi Aramco – the kingdom’s state-owned oil company – has mastered many high-tech drilling techniques, it chose Chevron because of its expertise in using super-heated steam to drive petroleum deposits out of the rock, Watson told Reuters in an interview.
“They are very astute,” Watson said of Aramco. “If they could do it themselves more readily, they would.”
It’s too early to tell how steam-injection techniques will work in the Neutral Zone’s carbonate reservoirs, Watson said.
But in its San Joaquin Valley fields, which have a different geology, Chevron was able to boost oil recovery rates to about 50 percent using steam injection, Watson said.