Shell in the Middle East | Profiles

Shell and Saudi Aramco join total in the South rub Al Khaki Company

"Saudi Aramco is truly proud of its relationship with shell, and that cuts across the whole business," says Khalid Al-Falih, Vice President of New Business Development at Saudi Aramco Chairman of the new South Rub Al Khali Company Limited (SRAK).

He notes that SRAK is only the latest chapter in an ongoing story of co-operation between the two companies. "The relationship between Shell and Saudi Aramco is one of the strongest partnership that Saudi Aramco has with an international oil compant [IOC]," he says. "This relationship has its foundations in two joint ventures: the Saudi Aramco Shell Refinery Company [Sasref] in Jubail on the east coast of Saudi Arabia, and in Motiva, the retail fuels joint venture in the United States.

"The Kingdom's Natural Gas Initiative and the South Rub Al Khali Company, which brings together Saudi Aramco, Shell and Total, will build on that strength," he adds.

Central to the genesis of SRAK was Saudi Arabia's desire to attract more foreign direct investment and increase the reserves of natural gas available to the nation's burgeoning industrial and utilities sectors. "The kingdom of Saudi Arabia indicated its desire to increase investment opportunities in the country with the announcement of the three Core Ventures," says Khalid Al-Falih. "This initiative was an attempt to find areas of overlap between the IOC's expressed areas of interest and the development needs of the Kingdom, and was to span both upstream and downstream operations.

"Shell was in the vanguard of the Natural Gas Initiative, and following the signing of the preparatory agreements in 2001, we began working with the signatories to tailor development programmes that would prove mutually beneficial to both the Kingdom and the IOCs. Unfortunately, it became clear that these Core Ventures as originally conceived were too commercially and technically complex, and that it would not be feasible to implement their downstream elements," he says.

"The result was that, in consultation with the IOC consortium led by Shell, the Saudi Government restructured Core Venture 3 to focus on the upstream," he continues. "This resulted in the signing last year of a contracted for the exploration and development of 210,000 square kilometers of the Rub Al Khali desert and the formation of the South Rub Al-Khali joint venture."

As a result of his close involvement in the gas development programme, Khalid Al-Falih has a thorough understanding of the joint venture and its operating mandate. "I was seconded from Saudi Aramco to the Government's negotiating team for the Natural Gas Initiative for two years, and was very proud when we concluded the agreement with Shell, Total Saudi Aramco," he says.

The Saudi Aramco executive is also well acquainted with larger context in which SRAK will operate, having helped to formulate the Kingdom's gas strategy during his stint with Saudi Aramco's Corporate Planning organisation. "The ultimate objective of the joint venture is to find gas and produce it at the lowest cost for the Kingdom," he explains. "Ours is a growing economy, and maintaining a reliable, affordable supply of natural gas to industries and utilities is vital for continued growth. SRAK, along with Saudi Aramco's own gas development projects and the creation of other joint venture companies in the gas sector, will provide the energy needed for sustained expansion."

The new company itself has been designed to maximise the value that each partner provides to the joint venture, he emphasizes. "Shell has undertaken the leadership role in SRAK, which will be able to capitalize on the experience and knowledge of two of the world's leading IOCs as well as the world's leading national oil company, Saudi Aramco. All three companies bring to the joint venture their business competencies and considerable expertise," he says.

It's a formula in which the total is greater than the sum of its parts, according to Khalid Al-Falih. "Saudi Aramco has a great deal of experience with the Kingdom's geology and reservoirs, as well as its own proprietary technologies. It also understands local business and logistical considerations. At the same time, we are looking forward to having Shell and Total bring their technology to bear on the project. In addition, rather than having a single operator, we have chosen a model which will allow all the three companies to share in the operations of SRAK by having staff from each firm seconded to the joint venture."

He notes that Shell will assume point position in the joint venture. "Shell procedures will be used in the exploration phase, and we are looking forward to the success of this venture under Shell's leadership. To date, Saudi Aramco has been happy to have Shell apply it operating systems in both Sasref and Motiva, and I am sure that we will work well with Shell in the joint venture," he says.

Integrating SRAK's operations into the Kingdom's existing gas infrastructure provides both a challenge and an opportunity, he remarks. "We will be working hard to ensure that there is a real synergy between the joint venture and Saudi Aramco's existing operations to ensure the safe and successful delivery into Saudi Aramco's Master Gas System of the gas which will be found in the Rub Al Khali.

"The challenges ahead will not be easy," he concludes. "We are a newly born company, but we must run from the start and cannot afford to crawl. However, this joint venture brings together three companies known for their ability to meet challenges head-on and to master difficult operating environments, like the Rub Al Khali. As a result, I believe that the joint venture will be bringing in results and producing gas very soon and that these results will please everyone concerned."