By Peg Mackey
DUBAI, Sept 3 (Reuters) - A long silence from top Saudi policy makers has left the world's leading oil companies guessing their fate in the kingdom's landmark gas investment opening, Western industry sources said on Tuesday. ADVERTISEMENT
Some of the eight multinationals hand-picked for the investment believe Riyadh might reopen the race for its gas prize, while others see scope for an 11th-hour compromise.
As patience wears thin, oil executives are hoping their future will become clearer in the coming weeks.
"Something is cooking, but we have to see how the Saudis package it," said a Western oil executive. "The ball is in their court. We are still awaiting their response."
Riyadh issued a thinly veiled ultimatum to the companies in May, pressing them to compromise swiftly on commercial terms on three projects worth an initial $25 billion or risk facing a fresh contest thrown open to all.
The majors, led by ExxonMobil (NYSE:XOM - News) and Royal Dutch/Shell (Amsterdam:RD.AS - News; London:SHEL.L - News), have been on tenterhooks since the end of July when they turned in final bids for the industrial mega-projects.
What some describe as Saudi pressure tactics were intended to break the deadlock in negotiations, bogged down for more than a year over the scale of reserves on offer and rates of return.
While the ultimate shape of the Saudi gas initiative remains a mystery to potential investors, industry sources say key officials are striving to craft a new design.
"It's clear the Saudis have been working hard over the summer months to further the negotiations," said Brad Bourland, chief economist for Saudi American Bank.
But it has been an agonising wait for those who have battled for nearly four years to gain entry into the kingdom's upstream gas sector -- off-limits since nationalisation in the 1970s.
"We've already spent an enormous amount of money on a project that seems to be going nowhere," said a Western industry source. "We understand that the kingdom is dealing with bigger political issues, but our people on the ground are fed up."
Frustration on both sides led to the eventual breakdown in talks for the unprecedented deals. Gulf sources say the firms want far bigger returns than Riyadh will accept.
SAUDI OPTIONS
The companies say their biggest gripe is that the kingdom, which straddles the world's fourth biggest gas reserves, is short-changing them on hydrocarbons.
In answer to their argument, Saudi negotiators might offer to shave off some of the downstream petrochemical elements rather than offer the companies more gas, industry sources said.
"But some of the companies don't want to see the projects get smaller," said an analyst. "They definitely want more gas."
Another option Saudi decision makers are considering is to split the original, integrated gas model -- three plans to develop gas and build petrochemical, power and desalination plants -- into its component parts, industry sources said.
"If they relaunch the gas initiative by breaking it into stand-alone projects, some big companies may lose interest but smaller firms may see a good opportunity," said a Western oil executive.
Analysts say a new competition for Saudi gas would delay efforts to liberalise the kingdom's economy and create jobs for the huge number of unemployed Saudis. Top oil firms would find themselves locked in yet another lengthy negotiation process.
In any case, Western companies are staying open minded.
"We will always look at what they offer," said a Western company source. "But if the conditions are not good, who will invest?"
Along with Exxon and Shell, BP (London:BP.L - News), TotalFinaElf (Paris:TOTF.PA - News), Conoco (NYSE:COC - News), Phillips (NYSE:P - News), Occidental (NYSE:OXY - News) and Marathon (NYSE:MRO - News) were chosen last year to invest in the Saudi gas sector.