|24 December, 2019

Kuwait and Saudi sign agreements on dividing Neutral Zone containing joint oilfields

There were no additional details on the agreement and leads to the resumption of oil output from the jointly-operated fields.

Image used for illustrative purpose. A derek pumps in a oil field January 15, 2003 near the Saudi Arabian border, Kuwait.

Image used for illustrative purpose. A derek pumps in a oil field January 15, 2003 near the Saudi Arabian border, Kuwait.

Getty Images/Joe Raedle

DUBAI- Kuwait and Saudi Arabia on Tuesday agreed to divide their shared Neutral Zone and resume up to 500,000 barrels per day (bpd) of oil production from two joint oilfields there.

Kuwaiti foreign minister Sheikh Ahmad Nasser al-Mohammad al-Sabah and Saudi Minister of Energy Prince Abdulaziz bin Salman signed agreements in Kuwait, state news agency KUNA said.

The two countries halted production from the Khafji and Wafra fields, which produce some 500,000 bpd, in 2014 and 2015, respectively.

U.S. oil major Chevron, which on behalf of Saudi Arabia jointly operates the Wafra field with the Kuwait Gulf Oil Company (KGOC), said it expects the field to return to full production within 12 months.

"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.

Prince Abdulaziz said in an interview with Reuters in December that resuming production from the joint oilfields would not affect their OPEC+ commitments to reduce oil output.

Saudi Arabia and Kuwait have been reducing oil supply as part of a broader pact between OPEC and non-OPEC members aimed at supporting oil prices. The current deal expires in March.

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 Emir 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-Haramy said.

OPEC+ countries committed in their latest meeting in December to some of the sector's deepest output cuts in a decade aiming to avert oversupply and support prices. 

A former senior official in Kuwait's Gulf Oil Company, which operates the Khafji oil field alongside AGOC, a subsidiary of Saudi state oil firm Saudi Aramco, said he expects production to resume there first.

"The Khafji oilfield will most likely be the first to resume production as its equipment is far better maintained than Wafra," he said.

Oil output in the Neutral Zone, which dates back to 1920s treaties establishing regional borders, is divided equally between Saudi Arabia and Kuwait.

(Reporting by Dahlia Nehme, Ahmed Hagagy; editing by Maha el Dahan, Louise Heavens and Jason Neely) ((dahlia.nehme@thomsonreuters.com;))

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