Rumour of well discovery in Empty Quarter lingers

Royal Dutch Shell has not ruled out the possibility of an oil or gas discovery with Saudi Aramco in Saudia Arabia's Empty Quarter following conflicting news reports. "We are continuing to evaluate the basin," a Shell spokesman said. "A petroleum system has been proven, but reports of a commercial discovery are premature." Rumours have circulated for months that South Rub Al Khali (Srak), a Shell/Aramco gas exploration joint venture, may have found commercial quantities of gas in the vast undeveloped desert region while drilling its fourth exploratory well, named Kidan 6. Shell said yesterday that the well was still being drilled and that the company hoped to learn more when it was completed later this year.

But earlier yesterday, a Reuters report citing industry sources said Srak had not discovered a new hydrocarbon system, but had merely reconfirmed a discovery Aramco made 30 years ago. The Kidan 6 well, however, is drilling into rock strata significantly deeper than the previous Saudi wells - reportedly to a depth of about 6,000 metres. Any deep oil or gas discovery would be new, although likely to contain significant quantities of toxic hydrogen sulphide, which would raise the bar for commerciality by making production more expensive and technically challenging.

Srak began exploration in 2004, seeking gas, condensate and natural gas liquids on nine blocks of land. The venture suffered a setback in February when Total, the French energy company, relinquished its 30 per cent stake, citing a lack of sizeable discoveries. The company exercised an option to sell its holding to the remaining two Srak partners after the consortium drilled three successive dry holes.

An industry source said Shell had contracted to participate in nine exploration wells in the kingdom's Empty Quarter, with the option to end its involvement with Srak after completing the initial four. But even if gas were discovered, the terms for producing it would be unfavourable to the foreign partner, which would stand to receive as little as US$0.75 (Dh2.75) per thousand cubic feet under terms of its contract with Aramco, the source said.

Recently, Saudi Arabia has been desperately seeking ways to increase its gas output to provide fuel for power stations and industrial developments. The kingdom, like the rest of the Gulf region, has been undergoing rapid economic expansion and population growth. It burns significant volumes of crude and heavy fuel oil to generate electricity, reducing the amount of oil available for export. It also suffers from frequent power cuts, particularly during the peak summer demand season.