Nearly two decades after driving U.S. oil companies out, Saudi Arabia, the world’s largest petroleum producer, has opened discussions about inviting them back to help develop the kingdom’s energy resources, according to industry and government sources.
The unexpected overture came from Crown Prince Abdullah ibn Abdulaziz during an hourlong private meeting Saturday in McLean, Va., with senior executives from seven American oil companies, sources said.
The crown prince asked the executives to submit directly to him “recommendations and suggestions” about the role their companies could play in the exploration and development of existing and new oil and gas fields, said one participant in the meeting, held at the home of Saudi Ambassador Prince Bandar ibn Sultan.
The source said the executives appeared “shocked” by what would amount to a major policy reversal for Saudi Arabia, which began nationalizing its oil industry in 1973 and has been adamant about excluding foreign oil companies from production operations ever since.
U.S. analysts cited economic and political reasons for the Saudi shift. Persistently low oil prices worldwide also have meant that the Saudis are strapped for cash needed to invest in their energy sector. Saudi Arabia faces increasing competition in the U.S. oil market from Mexico, Canada and Venezuela, and it hopes that a renewed alliance with producers here will give the kingdom a larger market share, the analysts said.
The Saudis also have expressed anxiety about shoring up their strategic links to the U.S., which seven years ago fought a major war against Iraq in part to safeguard Persian Gulf oil supplies.
“Once Saudi Arabia is in a position that it is no more important [to the U.S.] than Mexico, Venezuela or Canada, then you don’t need to make the case you have to be especially attentive to the kingdom,” said Hamid Mazher, a Saudi American consultant to U.S. firms on Saudi energy and political affairs.
Those at the meeting with Abdullah included senior executives from the four American oil giants--Mobil Corp., Exxon Corp., Texaco Inc. and Chevron Corp.--that established Arabian American Oil Co., now known as Saudi Aramco, in the 1930s. Senior executives from Atlantic Richfield Co., Conoco Inc. and Phillips Petroleum Co. also attended. Company spokesmen said the executives who attended the meeting had no comment.
Oil industry consultant Daniel Yergin predicted that any return of U.S. firms to Saudi Arabia would be likely to be gradual. “It’s part of a process of discussion that will go on for a while,” Yergin said in a telephone interview. But, he added, “this is a recognition that competition for investment in the oil sector worldwide is increasing.”
Besides being the world’s foremost oil producer and exporter, Saudi Arabia has the largest reserves--more than 260 billion barrels--and the cost of extracting oil there is among the lowest anywhere. Saudi Aramco now produces all 8 million barrels a day in the kingdom, making it the world’s largest oil company.
Asia had been expected to provide a growing demand for Middle Eastern oil, but the Asian financial crisis has forced Saudi Arabia and other producers to cut production and work harder to find markets for their oil.