NICOSIA, March 30: The issue of profitability is at the core of the delays in the signing of gas deals worth 20 billion dollars in Saudi Arabia, the Middle East Economic Survey (MEES) says in its Monday edition.

Differences over the rates of return, and the approach to calculating the profitability of the projects in the Saudi Gas Initiative, represent one of the major obstacles in talks beteen the kingdom and the international oil companies (IOCs) in the three consortia, MEES soundings indicate, the industry newsletter says.

Saudi Oil Minister Ali al-Nuaimi has admitted stumbling blocks still exist with the eight IOCs companies selected in June 2001 to develop three gas fields in the oil-rich kingdom.

The signing of the final contracts with Exxon Mobil, Royal Dutch/Shell, BP, Phillips, TotalFinaElf, Conoco, Occidental and Marathon was due on March 2, after failing to strike a deal by the initial target date of December 16. The deadline has since been left open-ended.

MEES explains, The Saudi side wants to set project terms guided by benchmarks for each upstream and midstream, petrochemical, power and water project based on profit margins similar to those earned on other projects in the region, or about eight to 10 percent.

Some IOC’s are demanding guaranteed or assured internal rates of return for the integrated core ventures as a whole and their component projects of 15-20 per cent annually.

The Cyprus-based weekly adds: Each side is insistent that the profitability margins being demanded reflect the return on similar competitive gas exploration, development and infastructure projects in the guf region and the Far East.

The negotiations are now at a critical stage ... if the talks become bogged down or even collapse, it is expected that the Saudi authorities will go ahead and implement the scheme on a project-by-project basis with other international firms.

A Saudi lawyer close to the talks has reported that one of three gas projects could be abandoned due to mounting differences on technical and financial terms.

Lawyer Mohammad Jadaan, according to the Petrole et Gaz Arabes journal, said: It is possible that one of the three core ventures will be abandoned because the two parties realize it is not feasible.

Industrial sources cited by the journal said he was referring to the the Red Sea project, awarded preliminarily to a consortium directed by ExxonMobil that also includes Occidental Petroleum and Marathon Oil, was .

It calls for investment of five billion dollars (5.7 billion euros) over five years.

A second project headed by ExxonMobil includes Royal Dutch Shell, British Petroleum and Philips of the United States, requires 15 billion dollars.

A third project groups Shell with TotalFinalElf of France and Conoco of the United States, with projected investment of five billion dollars.

If agreements are reached, it will mark the first opening in the kingdom’s energy sector since it was nationalised in 1981. Oilfield development remains a monopoly of the state-owned Saudi Aramco company.—AFP