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Japan's AOC says to continue talks with Saudi

TOKYO: Japan's Arabian Oil Co (AOC) said on Monday it would "patiently continue" talks with the Saudi Arabian government on the renewal of key drilling rights, despite the failure of government-level talks over the weekend.

The failure of talks between a delegation led by Japan's trade minister and senior Saudi Arabian officials sent AOC's share price into a slide on Monday on worries that the gap between Tokyo and Riyadh on the AOC renewal remains wide.

AOC shares were offer-only at 1,504 yen, down by their daily limit of 300 yen or 16.6 percent.

Japan's trade minister, Takashi Fukaya, ended two days of talks with Saudi Oil Minister Ali al-Naimi, as well as Crown Prince Abdullah and other ministers, aimed at winning the renewal of AOC's concession in the Saudi portion of the Neutral Zone in the Gulf. The concession is due to expire on February 27.

A MITI official said on Monday that Fukaya had asked the Saudi Arabian government to continue negotiations despite the failure.

The main sticking point is Saudi Arabia's demand that Japan invest more than $2 billion in a railway project to improve access to remote mining areas.

The Saudi government insists that the project be totally funded by Japan, while Japan has offered a loan for the project to avoid using tax payers' money for a private company's benefit.

AOC's own negotiations, being conduct separately from the government-to-government talks, are slated to begin soon, although a company spokesman declined to give details.

But AOC's ability to break the deadlock may be limited as it can do little to resolve the railway project issue without Tokyo's backing.

AOC's oil from the Neutral Zone, shared by Saudi and Kuwait, is Japan's premier upstream oil interest with 270,000-280,000 barrels per day of production, of which about 60 percent is imported into Japan.

Imports of Khafji and Hout crudes from the Neutral Zone account for about 3.5 to 4.0 percent of Japan's total crude imports, according to AOC and MITI data.

AOC's accord with Kuwait on the Neutral Zone expires on January 4, 2003. -Reuters