This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 KUWAIT 000111 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
LONDON FOR TSOU 
DEPARTMENT OF ENERGY FOR IE 
EB/ESC/IEC FOR GALLOGLY, DOWDY 
 
E.O. 12958: N/A 
TAGS: ENRG EPET ECON BEXP KU OIL SECTOR
SUBJECT: KUWAIT GULF OIL COMPANY GETS NEW RESPONSIBILITIES 
 
This cable is sensitive but unclassified; please protect 
accordingly.  Not for Internet distribution. 
 
¶1.  (SBU) Summary: Kuwait Gulf Oil Company (KGOC) Manager for 
Fields Development and Planning Qasim Al-Mejadi told Econ 
Officer January 8 that KGOC has completely taken over KOC's 
management of the onshore oil fields in the divided zone 
between Kuwait and Saudi Arabia, as of January 1.  He said 
that Saudi Arabian Texaco, the joint partner in the divided 
zone operations, would "not feel any difference" in the 
transfer of the operations from KOC to KGOC.  He referred to 
the onshore part of the divided zone as "maxed out" in terms 
of production, and said that any further production increase 
would have to come from technical expertise provided by IOCs. 
 Al-Mejadi was evasive on KGOC's role in any drilling and 
exploration in the offshore Durra gas field, but did say that 
it would be a "good thing" if the offshore boundary with Iran 
were to be delineated clearly.  End Summary. 
 
KGOC: A Brief History 
--------------------- 
 
¶2.  (U) Econ Officer met January 8 with Kuwait Gulf Oil 
Company (KGOC) Manager for Fields Development and Planning 
Qasim Al-Mejadi.  KGOC is a new company, established in 2002, 
and is one of the subsidiaries of the state-owned Kuwait 
Petroleum Corporation (KPC).  KGOC is primarily responsible 
for representing Kuwait in the exploration and production 
within the offshore divided zone between Kuwait and Saudi 
Arabia.  (For a map of the offshore divided zone showing the 
oilfields, see the Embassy Kuwait SIPRNet site - 
http://www.state.sgov.gov/p/nea/kuwait/ - and click on the 
"Oilfield Maps" link in the "Picture Galleries" portlet.) 
 
Background Of The Offshore Concession 
------------------------------------- 
 
¶3.  (U) In 1957, the Kingdom of Saudi Arabia (KSA) and the 
Japan Petroleum Trading Company Ltd signed a concession 
agreement for the Japanese company to operate KSA's portion 
of the offshore divided zone.  The Arabian Oil Company (AOC) 
was formed out of this agreement in 1958.  That same year, 
AOC received the concession to operate Kuwait's portion of 
the offshore divided zone and commenced a seismic survey of 
the entire offshore concession area.  Production from the 
large Khafji offshore oilfield began in 1960.  AOC's 
concession for the KSA portion of the offshore zone expired 
in 2000 and was not renewed.  The Aramco Gulf Operations 
Company (AGOC) was formed to take over AOC's operations.  In 
anticipation of the 2003 expiration of the AOC concession for 
the Kuwaiti portion of the offshore divided zone, Kuwait 
formed KGOC in 2002.  The Kuwaiti AOC concession expired in 
2003 and was not renewed, and KGOC stepped in to take over 
AOC's operations.  The offshore divided zone is now jointly 
operated by KGOC and AGOC.  The offshore zone averages about 
270,000 bpd in crude production and about 87 million square 
cubic feet of gas production per day. 
 
KGOC Expands Into Onshore Operations 
------------------------------------ 
 
¶4.  (U) On March 1, 2005, the Ministry of Energy and KPC 
decided that KGOC should take over the onshore divided zone 
operations from Kuwait Oil Company (KOC), another KPC 
subsidiary.  KOC had been operating the Kuwaiti portion of 
the onshore zone; the Saudi portion of the onshore zone is 
operated by Saudi Arabian Texaco, a Chevron subsidiary.  The 
onshore operations, referred to as the Wafra Joint Operations 
after the largest field in the zone, produces about 280,000 
bpd.  The assets and responsibilities of KOC for the onshore 
divided zone were transferred to KGOC over the past ten 
months. 
 
¶5.  (SBU) Al-Mejadi said that KGOC has completely taken over 
the onshore divided zone operations from KOC as of January 1, 
and that all of the necessary employees had been transferred 
from KOC to KGOC.  He added that KOC would continue to handle 
the crude, since KGOC did not have any crude-handling 
facilities, but KGOC would be responsible for all production 
and development.  He said that most KGOC employees, including 
himself, were previously with KOC, and that KGOC now has 
about 900 employees. 
 
¶6.  (SBU) Asked about the impact of the transfer on Saudi 
Arabian Texaco (SAT), the partner in the joint onshore 
operations, Al-Mejadi said that he did not think that SAT 
would "feel any difference" and that operations would 
continue as normal.  He said that KGOC had to keep all the 
onshore and offshore operations separate, since the partners 
were different in each one, but that KGOC could transfer 
technology and people between the two operations. 
 
Onshore "Maxed Out" 
------------------- 
 
¶7.  (SBU) Al-Mejadi said that there are "more opportunities 
in the offshore zone" for increasing production capacity, but 
that the onshore zone is "maxed out."  He said that any 
future production increase in the onshore divided zone would 
"require the expertise of IOCs, especially for the heavy 
oil."  He said that getting the heavy oil from the Wafra 
field would continue to be "a big challenge" that required 
"bringing in new technology."  He did not have any thoughts 
on whether SAT's concession with the KSA, due to expire in 
2009, would be renewed. 
 
Durra and Iran 
-------------- 
 
¶8.  (SBU) Asked about KGOC's role in drilling and exploration 
in the offshore Durra gas field, Al-Mejadi was evasive.  He 
said that, if the matter was settled between Kuwait, Saudi 
Arabia and Iran, then KGOC would be the one to operate the 
Durra field.  For now, he said, KGOC was only conducting 
seismic studies.  Later in the conversation, Al-Mejadi said 
that it would be a "good thing" if the offshore boundary with 
Iran were to be delineated clearly, that this would allow 
KGOC to get on with exploration and drilling in the Durra 
field. 
 
Kuwait Project, Privatization, New Oil Service Companies 
--------------------------------------------- ----------- 
 
¶9.  (SBU) Al-Mejadi offered his opinion on other issues 
facing the Kuwaiti oil sector.  On the development of the 
northern oilfields (Kuwait Project), he said that the 
enabling legislation "should pass" through Parliament.  He 
said it was important to develop the northern oilfields 
because the oil in this area was "known oil" and was part of 
what Kuwait was counting on to reach 4 million bpd of 
production by 2020.  On privatization, Al-Mejadi said that he 
expected further privatization efforts within a few of the 
KPC subsidiaries, including KNPC (gas stations and 
refineries), KOTC (oil tankers and gas cylinders), PIC 
(petrochemicals), and KUFPEC (Kuwait's foreign exploration 
arm.)  He did not expect any privatization in KGOC or KOC, 
Kuwait's internal upstream development and production 
companies. 
 
¶10.  (SBU) Asked about a seeming increase in the number of 
new start-up oilfield service companies that have sprouted 
lately in the local economy, Al-Mejadi suggested a number of 
reasons for the new companies.  He said that Kuwaitis like to 
"follow the leader" and as soon as one company was started, a 
number of similar companies would follow.  He did not think 
that many of them would make any money but were started for 
the purpose of being able to list on the Kuwait Stock 
Exchange and make money from speculation in their share 
prices.  He said that the Kuwait Project and other 
privatization efforts may have provided some motivation for 
the establishment of these new companies, but that it was 
mostly a "reaction to high price of oil." 
 
******************************************** 
Visit Embassy Kuwait's Classified Website: 
http://www.state.sgov.gov/p/nea/kuwait/ 
******************************************** 
LeBaron