Saudi Arabia, Kuwait agree to resume oil production at shared fields

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Saudi Arabia and Kuwait on Tuesday agreed to resume oil production from the Neutral Zone fields along their border.

The agreement will lead to the resumption of “oil production on both sides,” Saudi Arabia’s Ministry of Energy said in a tweet.

“His Highness Prince Abdulaziz bin Salman, and His Excellency the Kuwaiti Minister of Oil, Dr Khaled Ali Al-Fadil, signed today on a memorandum of understanding related to the procedures for resuming petroleum production on both sides,” the full tweet said.

The two countries stopped producing from jointly-run oilfields in the so-called Neutral Zone more than four years ago, cutting some 500,000 barrels per day.

The agreement was signed by Prince Abdulaziz bin Salman bin Abdulaziz, Saudi Arabia’s Minister of Energy, and Sheikh Dr. Ahmed Nasser al-Mohammed al-Sabah, Kuwaiti Foreign Minister, at a ceremony at Wafra on Tuesday. according to Saudi Press Agency (SPA) and Kuwaiti official news agency Kuna.

The Memorandum of Understanding (MoU) was signed by Saudi Energy Minister Prince Abdulaziz bin Salman and Dr. Khaled Ali al-Fadhil, Kuwait’s Minister of Oil and Minister of Electricity and Water.

Prince Abdulaziz bin Salman said that the co-signing of the agreement and the MoU is a reflection of the distinguished brotherly relations between the two countries under the leadership of Saudi Arabia’s King Salman bin Abdulaziz al-Saud, and Sheikh Sabah al-Ahmad al-Sabah, Emir of Kuwait.

The Saudi Energy Minister expressed appreciation of the great efforts by Saudi Crown Prince Mohammed bin Salman bin Abdulaziz in reaching this historic agreement in a manner that realizes the mutual interests of the two parties.

Prince Abdulaziz bin Salman stressed that the Kingdom’s share in resumption of oil production from the joint fields, will not affect the level of the Kingdom’s supplies to global markets, as the Saudi Arabia’s production will be fixed at 9,744 million barrels per day of crude oil, in compliance with its goal specified in the recent “OPEC +” agreement.

Kuwaiti Oil Minister Khaled al-Fadhel echoed that view.

“The resumption of production at the Khafji and Wafra oilfields is not linked to the international commitments of Saudi Arabia and Kuwait,” he said.

Saudi Arabia and Kuwait have been reducing oil supply as part of the broader OPEC+ pact, which expires in March.

The Gulf neighbors halted production at the Khafji and Wafra fields, which together produce some 500,000 barrels of oil a day (bpd), in 2014 and 2015, respectively.

The latest move by the Gulf countries comes after the International Energy Agency (IEA) forecast a rise in global crude oil inventories, despite a deal between OPEC and its crude exporting allies to deepen output cuts.

Full output in 12 months

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

“We welcome signing of a Memorandum of Understanding between the governments of Kingdom of Saudi Arabia and the State of Kuwait which will lead to a restart of production and operations in the Wafra Joint Operations,” Chevron said.

A source familiar with discussions between Kuwait and Saudi Arabia told Reuters the talks 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 …,” the source said.

The agreement was reached after a lengthy process involving large teams of political, technical and legal representatives.

“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,” 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 - by 500,000 bpd, bringing the total cut to 1.7 million bpd - aiming to avert oversupply and support prices.

A former senior official in Kuwait’s Gulf Oil Company, which operates the Khafji field alongside AGOC, a subsidiary of Saudi state oil firm Saudi Aramco, said he expected 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.

- With Reuters