THE WALL STREET JOURNAL: INTERVIEW: Shell Sees Progress In Landmark Saudi Gas Deal: “Royal Dutch/Shell (RD SC) will start drilling exploratory wells for natural gas in Saudi Arabia's Empty Quarter within 12 to 18 months, part of a deal that could one day open the door for foreign companies to search for oil as well, a Shell executive said Tuesday” (ShellNews.net) Posted 23 Feb 05

By SHAI OSTER

Of DOW JONES NEWSWIRES

LONDON -- Royal Dutch/Shell (RD SC) will start drilling exploratory wells for natural gas in Saudi Arabia's Empty Quarter within 12 to 18 months, part of a deal that could one day open the door for foreign companies to search for oil as well, a Shell executive said Tuesday.

In an interview, Floris Ansingh, president of Shell Companies in Saudi Arabia, said the company had started seismic testing, using sound waves to detect underground gas reserves, on a concession it won in a landmark gas deal two years ago that cracked the kingdom's petroleum monopoly for the first time since nationalization.

"If you consider that area of concession is 210,000 square kilometers, it's very critical that we get it right. It's a real challenge," Ansingh said. "We call this high-risk exploration, which means usually reduced chance versus high reward."

Searing heat and shifting sand dunes the size of apartment blocks have slowed down some of the work, but Ansingh said it continued apace and that production could begin as early as two years from now.

If Shell finds oil, it might be allowed to produce it under a service contract agreement in the future, Ansingh said.

"If we are asked to extract the oil, that would be in a service capacity only, but we never get ownership of the oil under the deal as it stands," he said.

Shell is searching for deposits of wet gas, which is mixed with propane, butane and other liquid hydrocarbons that can be liquefied and exported for profit.

Those reservoirs are difficult to distinguish from gas mixed with oil, which is currently off limits for foreign companies.

With state-oil giant Saudi Arabian Oil Co. (SOI.YY), or Aramco, reaping windfall profits from record-high prices, there's no need to rely on international companies to develop reserves. A drop in oil prices and domestic issues could press Saudi Arabia to open that sector just like it led to the gas opening after prices crashed in 1998.

"You can see a combination of factors where they would like to invite foreign investors in oil, but at the moment none of those conditions exist," Ansingh said.

Shell 's secured the rights to the southern deserts of the empty quarter in partnership with Total SA (TOT) and Aramco.

Lukoil Holdings (LKOH.RS); China Petroleum & Chemical Corp. (SNP), or Sinopec; ENI (E); and Repsol (REP) have also formed joint ventures with Saudi Aramco to explore and produce natural gas in eastern and southern Saudi Arabia.

The gas is meant to power the kingdom's growing power and petrochemicals industry needs. The companies plan to make profits exporting associated liquids.

Ansingh declined to comment on any prospects in the concession but said planes equipped with special sensors to sniff out traces of gas from the air had been successfully used.

Separately, he also said Shell had declined to partner with Aramco to build a new refinery for export because of concern over long-term profitability.

-By Shai Oster, Dow Jones Newswires; +44-20-7842-9357; shai.oster@dowjones.com